Termination provisions in the VOB/B invalid – consequences for construction practice

The Federal Court of Justice (BGH) ruled in its judgment of 19 January 2023 – VII ZR 34/20 that the termination provision in § 4 para. 7 sentence 3 VOB/B in conjunction with § 8 para. 3 no. 1 sentence 1 var. 1 VOB/B does not withstand a content review pursuant to § 307 BGB.
KFR – Kanzlei für Real Estate explains the background and consequences for construction practice.

KFR – Kanzlei für Real Estate explains the background and consequences for construction practice.

Background: Termination in the event of defects during execution

Under the previous provision, the client could withdraw the contract from the contractor if the latter failed to remedy identified defects despite the setting of a deadline.

§ 4 para. 7 VOB/B reads as follows:

“Services that are identified as defective or non-contractual during execution must be replaced by the contractor at their own expense with defect-free services. If the contractor is responsible for the defect or non-conformity, they must also compensate for the resulting damage. If the contractor fails to comply with the obligation to remedy the defect, the client may set the contractor a reasonable deadline for remedying the defect and declare that they will terminate the contract after the deadline expires without result (§ 8 paragraph 3).“

BGH: Termination possible even for minor defects – violation of § 307 BGB

Specifically, the BGH bases its decision on the fact that the termination provision in § 4 para. 7 sentence 3 VOB/B in conjunction with § 8 para. 3 no. 1 sentence 1 var. 1 VOB/B contradicts the fundamental principle of termination for good cause.

Pursuant to § 4 para. 7 sentence 1 VOB/B, the contractor must replace services that are identified as defective or non-contractual during execution with defect-free services. If the contractor fails to comply with the obligation to remedy the defect, the client may set the contractor a reasonable deadline for remedying the defect and declare that they will terminate the contract after the deadline expires without result, § 4 para. 7 sentence 3 VOB/B.

In particular – according to the BGH – the client can thereby terminate the contract independently of the criteria linked to termination for good cause – such as the type, scope and severity or the consequences – even in the case of minor non-conformities or defects during the execution phase. This means that termination is possible even for minor defects that would not, for example, entitle the client to refuse acceptance pursuant to § 640 para. 1 sentence 2 BGB.

Against this background, the question arises in particular as to what consequences the BGH decision has for construction law practice.

When does the decision apply?

It should first be pointed out that the above only applies if the VOB/B has not been agreed as a whole. If the VOB/B is incorporated as a whole into a contract, the provisions pursuant to which an assessment is made as to whether a provision is invalid or not do not apply.

The BGH justifies this on the grounds that the VOB/B, which is neither a statute nor a regulation in the legal sense but merely standard terms and conditions, unlike other standard terms and conditions, does not only pursue the interests of one party but rather seeks a balance of the interests of both parties and is therefore considered balanced (BGHZ 86, 135 = 1983, 816).

However, the BGH further argues that even minor deviations in content from the VOB/B open up a content review pursuant to § 307 BGB, according to which the validity of a provision is assessed (BGHZ 157, 346 = NJW 2004, 1597), with the consequence that § 4 para. 7 sentence 3 VOB/B in conjunction with § 8 para. 3 no. 1 sentence 1 var. 1 VOB/B is invalid.

More on legal questions in construction law – click here.

Further points of criticism: Defect rights prior to acceptance

The decision thereby confirms the invalidity of a further provision of the VOB/B. In the past, provisions of the VOB/B had already been declared invalid on the grounds that they do not withstand a content review. In any case, the termination rights of the VOB/B will need to continue to be critically assessed in the future.

Consequences for construction practice

The BGH did not address in its decision on the validity of § 4 para. 7 VOB/B the issue that § 4 para. 7 VOB/B, according to its wording, already grants the client defect remedy rights even though acceptance has not yet taken place. However, statutory contract law for work and services does not actually recognize any defect rights prior to acceptance. This already follows from § 635 para. 1 BGB, according to which the client only has claims for subsequent performance.

In a judgment from 2017, the BGH already commented on this: “Whether a work is defective is assessed in principle at the time of acceptance. Until acceptance, the contractor can in principle freely choose how to fulfill the client’s claim for defect-free production pursuant to § 631 para. 1 BGB. If the client were already able to assert defect rights pursuant to § 634 BGB during the production phase, this could be associated with an interference with this right of the contractor.” (BGH, judgment of 19.1.2017 – VII ZR 301/13 para. 32). Even though the BGH remains silent on this in its judgment of 19.01.2023, this is likely to constitute a further reason for the invalidity of this provision.

Practical tip from KFR – Kanzlei für Real Estate

In summary, taking into account that the provision in § 4 para. 7 sentence 3 VOB/B or similar contractual provisions have, in our experience, considerable importance in construction practice and that there is a need for regulation regarding any defect rights prior to acceptance, other contractual design options should be explored.

Our KFR team specializing in private construction law is happy to assist you with this.