Millions of Germans dream of owning their own home, and many of them turn to project developers for this. They take care of all the details from planning to construction. Actually a good deal. But in the current real estate crisis, even the giants of the industry are faltering, and for many buyers, the dream property threatens to become a nightmare. Thousands of contractors fear for billions of euros that they have transferred to their property developers as an advance.
Most recently, Project Immobilien filed for bankruptcy, and the website has said since last week: “Due to (impending) insolvency, it was our entrepreneurial duty in this situation.” According to the company, an amount in the low double-digit millions is currently missing as an acute liquidity requirement. A total of 118 projects and 1850 apartments are affected.
Nuremberg construction law attorney Werner Beyer points out that the industry is “very opaque”. As a contractual partner, you usually only notice too late that something is wrong. “One sign, for example, is when the shell builder comes to us and says the developer isn’t paying him,” says Beyer. “But the buyer doesn’t notice anything.” The expert therefore advises caution when concluding contracts at the moment: “I would rather wait and see at the moment. The companies simply do not inform their contractual partners about any liquidity problems.”
In addition to Project Immobilien, Development Partner and Euroboden also recently had to file for bankruptcy. Their customers were just as surprised. And another large project developer has been vacillating for a long time: the Adler Group, which is mainly active in Berlin. Adler started construction projects, sold the apartments – and then a long period of inactivity often followed. This pattern is now characteristic of the company’s approach, be it in Berlin, Hamburg or at the Kaiserlei-Kreisel in Offenbach. Adler is now in the sights of public prosecutors, the Federal Criminal Police Office and the financial regulator Bafin.
When the Nuremberg company Project Immobilien filed for bankruptcy on August 10, its contractual partners were still clueless. Only days later did they receive a message from the insolvency administrator: “The status of the building, the accounting status, open liabilities and the financial requirements must now be determined for each individual project.” But some builders don’t want to wait for that. Some of them have now apparently joined forces to complete the projects on their own – with their own money and sometimes their own manpower. Because: terminating your contracts seems more difficult. “You can cancel anything in life, just not apparently a property developer contract,” comments a builder to Hessischer Rundfunk.
Lawyer Beyer speaks of a real legal loophole. “Construction contract law does not offer buyers an option to withdraw from stalled construction projects.” However, this could also create a considerable incentive for companies to use funds from buyers that may have been misappropriated or to not complete apartments on schedule.
Politicians and experts also warn: The current legal situation does not protect home buyers and house builders if their developers do not deliver. A reform has therefore been discussed for years, but a draft for a change in the law from the days of the grand coalition is still in the Federal Ministry of Justice.
So anyone who is currently counting on a project developer should be suspicious – and pull the ripcord at the slightest sign. Beyer warns: “If I, as a contract partner of a project developer, notice such rumours, I actually no longer have any options for action. I am bound by the contract.”
As a buyer, you pay for the property in installments that depend on a certain level of construction: “First it’s just a shell, then the roof comes on, then the windows, then the pipes.” Whenever a phase is completed and the next installment is due, the building lawyer advises that you should make sure that the respective building status has actually been reached. “There were and are always property developers who make installments due that are not yet due.” Beyer therefore recommends calling in an external specialist. This could be an architect, civil engineer or building surveyor. If he then finds serious defects in the object, you can assert your right of retention, i.e. refuse the requested rate.
The project developer can then lack this money elsewhere, which could lead to further shortcomings and refused installments. If such cases multiply, it could trigger an avalanche. “The wheel has to be turned all the time, a new project has to be launched all the time, which then has to be realized in one to three years,” says Beyer.
However, the legal position could well be in favor of the builders: theoretically, they would be entitled to demand either the cancellation of the contract and the reimbursement of their money, or to demand flawless completion. However, this can be difficult. In practice, it is often the case that the amounts already paid, which depend on the progress of construction, cannot be refunded. This is because the bankruptcy estate is often exhausted and all funds have been used up. In addition, due to the significant price increases, it is unlikely that an insolvency administrator would simply continue with construction.
Especially with larger projects, developers often work with little equity and a lot of borrowed capital in the form of bank loans, which are now much more expensive than when planning. The same applies to the construction and material costs, which have risen sharply since Corona and especially since the war in Ukraine. “These risks and the general completion risk cannot be adequately secured in Germany,” says Beyer. “One possibility would be a completion guarantee from a bank. But nobody will take part.”
This article was first published by our colleagues at CAPITAL
