Insolvent property developers: consequences for builders & subcontractors

Construction with a property developer differs from construction with a general contractor (GC) or general contractor (GC) . Bankruptcies of the property developer can have serious consequences for builders and subcontractors , ranging from delays to the total loss of financial investments. A property developer offers a turnkey handover of the property and takes over the entire construction process, which increases the risk of bankruptcy.

First steps if the developer is suspected of being insolvent

• Check current entries in the insolvency register at www.insolvenzbekanntmachungen.de .
• Do not hesitate to seek legal advice early on.
• Be careful with hasty actions such as termination as this can have serious consequences for the developer.

consequences for building owners

1. Advance payments are often lost : If the developer goes bankrupt during construction, advance payments are often no longer recoverable. This leads to construction being stopped and additional costs.
2. Ownership : Developers retain ownership of the land and property until it is fully paid for and completed. In the event of insolvency, the financing bank has priority over the land, which places additional burdens on developers.
3. No extraordinary right of termination : Since 2018, there is no longer any extraordinary right of termination for developers under property development contracts.

protective measures for building owners

• Payments only according to construction progress : Make sure that payments are only made according to the actual construction progress in order to minimize your risk.
• Bank guarantees : A completion or warranty guarantee from the developer can help to secure the construction project even in the event of insolvency.
• Construction Completion Insurance : This insurance ensures that the property will be completed at the agreed price, even if the developer becomes insolvent.

consequences for subcontractors

1. Insolvency claims : Subcontractors can file their outstanding invoices as insolvency claims, but often only receive a small fraction of their claims back.
2. Warranty claims : The insolvency administrator can also assert warranty or damages claims against subcontractors after insolvency. In such cases, subcontractors can demand fulfillment of their payment claims under certain conditions.

Get legal advice

• It is advisable to consult a construction lawyer and involve professionals in the design and construction industry to minimize risks and avoid legal errors.
• A construction lawyer can help secure payment phases and have construction progress checked regularly.