A. The case according to a judgment of the Higher Regional Court of Celle dated February 6, 2020 – 14 U 160/19:
On February 10, 2018, the client (building owner) – represented by a third party – commissions the contractor (architect) to provide the following services, among others, as part of a contract for work and services:
Project: conversion, renovation and extension of the clubhouse; obtaining a building permit, obtaining neighbor approval, planning the necessary fire protection measures and soundproofing components. The contractor's remuneration is to be based on the HOAI 2013.
The contractor procures the official and other necessary permits. On May 2, 2019, the requested building permit is granted. The contractor obtains the necessary neighborly consent for a border development. Work on the property itself has not yet begun.
On May 6, 2019, the contractor sent an invoice to the builder for €62,929 for his services. The builder refused to pay, arguing that no order had been placed for the contractor's services.
In order to secure his fee claim, he applies to the Regional Court of Hanover for a temporary injunction to register a priority notice to secure the claim for the granting of a construction worker's security mortgage in accordance with Section 650e BGB.
The Regional Court of Hanover dismisses the action. The contractor appeals to the Higher Regional Court of Celle.
B. The decision:
The Higher Regional Court of Celle confirms the judgment of the Regional Court of Hannover dismissing the action. The contractor has no right to register a priority notice to secure a claim for the granting of a building contractor's security mortgage in accordance with Section 650e BGB.
The OLG confirms that architects and engineers can, in principle, demand the granting of a security mortgage on the client's building property for their claims arising from a planning contract. According to Section 650e, sentence 2 BGB, 2 BGB, he can demand the granting of a security mortgage for a portion of the remuneration corresponding to the work performed and for the expenses not included in the remuneration if the work has not yet been completed (BGH NJW 1969, 419).
However, the Higher Regional Court believes that an unwritten requirement is added that an architect/engineer can only claim a building tradesman's security mortgage if he has increased the value of the property through his work embodied in the building.
Such an increase in value is deemed to have occurred when construction begins, i.e. at least when excavation work has started. It is only in this situation that the relationship between the planning services to be provided and the property becomes so close that the unconditional granting of a claim to security over the property is justified.
The OLG does recognize that the planner has to perform a significant portion of his work before the construction project can begin. However, this does not justify placing the planner in a better position than another entrepreneur, who can also only demand a protective mortgage when he has carried out work on the property (OLG Dresden NJW-RR 1996, 920 mwN).
The value of the property does not change as a result of the creation of plans. The same applies to a building permit based on the plans. The building permit does not create a building right as a new, independent asset. It merely lifts the ban on building without a building permit. Furthermore, the validity of a building permit is limited.
The approvals obtained from neighbors for the existing construction on the property line also do not constitute a work performance in the opinion of the OLG.
C. Assessment of the judgment
The OLG Celle is of the opinion that, even under the new law, a planner has no right to a building tradesman's security mortgage before construction of his plans has begun. The OLG is thus following the legal opinion of the vast majority of higher regional courts, according to which the claim to the security only arises when construction begins (see, for example, OLG Hamburg NJW-RR 2010, 376). The Federal Court of Justice has not yet ruled on the question of when a claim under Section 650e of the German Civil Code arises.
It is questionable whether the Federal Court of Justice would follow the legal opinion of the Celle Higher Regional Court in view of the new building contract law that has been in force since January 1, 2018. It is not clear what the unwritten requirement is that a planner can only demand a building tradesman's security mortgage if he has increased the value of the property through his work embodied in the building. This restriction is not apparent from the wording of § 650e BGB, nor from the grounds for § 650e BGB.
On the contrary, it should be noted that, due to the revision of § 632a BGB (maturity of progress payments), the legislator no longer focuses on whether the customer has received an increase in value. According to § 632a, para. 1 BGB, the planner can demand an installment payment from the client in the amount of the value of the services provided by him and owed under the contract.
It is also inappropriate to make the planner's security claim dependent on the construction work being carried out. After all, the planner never provides any construction services, only intellectual services. At no time is it within the planner's power to ensure that execution services are commenced. This is exclusively a matter for the principal and the activities of an executing company.
Finally, the Federal Court of Justice (BGH) ruled as early as 2000 in a decision on § 648a BGB (old version) that a contractor can demand a collective mortgage on several properties of the building owner without taking into account the value accruing to the individual properties (BGH NJW 2000, 1861).
D. Practical Advice
Even if the author considers the decision of the Higher Regional Court of Celle discussed here to be legally incorrect, it must be taken seriously in practice. Engineers who want to secure their claims under Section 650e BGB should therefore check before asserting the claim whether their planning is already being implemented. If this is not the case, there is currently a high risk that the court seised will dismiss the action with reference to the case law of the Higher Regional Court of Celle regarding § 650e BGB, and the engineer will have to bear the legal costs in full.
In order to avoid exposing themselves to high economic risks, as has happened here, engineers should ensure that written engineering contracts are concluded and that verifiable progress invoices are issued at close intervals. If these progress payments are not paid on time, reminders for the invoices should be sent consistently. If in doubt, the engineer should have a Lawyer check the possibility of discontinuing his services. Furthermore, it should be noted that, as an alternative to the means of security under § 650e BGB (building contractor's security mortgage), the engineer also regularly has the means of securing his fee claim under § 650f BGB.
E. Explanation: The securities according to §§ 650e and 650f BGB
In the following, the two means of security that are available to the engineer to secure his claim to an engineering fee will be briefly presented, namely, on the one hand, the contractor's security mortgage pursuant to § 650e BGB and, on the other hand, the building tradesman's security pursuant to § 650f BGB. Even though both forms of security are named after the building contractor or the building tradesman, Section 650q, paragraph 1 of the German Civil Code clarifies that both regulations also apply to engineering contracts.
1. The contractor's security mortgage according to § 650e BGB
According to § 650e BGB, the engineer can demand the granting of a security mortgage on his client's building property for his fee claim from an engineering contract. Even if the engineer has not yet fully provided the services owed under the contract, he may in any case demand the granting of the security mortgage for a portion of the remuneration corresponding to the work performed and for the expenses not included in the remuneration.
The security mortgage can only be demanded if the client of the engineer and the owner of the property for which the engineer provides his services are one and the same person.
The engineer can assert a claim to the equitable mortgage if he objectively has a claim to the agreed remuneration. To successfully enforce the claim, it is not absolutely necessary to present an auditable progress or final invoice, but it is recommended in any case.
Furthermore, with regard to the above-mentioned judgment, it should be noted that the engineer can assert the claim in a legally secure manner in accordance with Section 650e BGB if construction has commenced and the intellectual service has thus been incorporated into the building (BeckOGK/Molt, 1.7.2020, BGB Section 650e). Otherwise, the claim may be dismissed on the basis of the argument of the Higher Regional Court of Celle, as described above.
The client who is confronted with a security demand according to § 650e BGB can defend himself against the engineer with rights arising from defects, provided that the engineer no longer has the right or the possibility to rectify the defect, i.e. usually when a faulty design has already been executed, i.e. the defect has manifested itself in the structure. In this case, the client can deduct the amount of the costs for the expected defect rectification from the engineer's claim.
A special feature of the security in accordance with § 650e BGB is that the registration of a priority notice for the registration of a security mortgage can be asserted by way of interim legal protection (i.e. regularly without oral proceedings). The court must first only hear the client in writing. Through this summary proceeding, the priority notice can be secured in the land registry, so that the question of the justification of the security interest can be pursued without time pressure in a court of law.
2. The building contractor's security according to § 650f BGB
Pursuant to Section 650f BGB, the engineer can demand that his client provide security for the remuneration agreed in the addenda and not yet paid, including associated ancillary claims, which are to be set at 10 percent of the remuneration claim to be secured. This security is usually to be provided by the client in the form of a bank guarantee from a credit institution or a credit insurer.
However, the claim under § 650f BGB does not exist against the public sector as the client or against consumers if the parties have concluded a consumer construction contract under § 650i BGB. In both cases, the legislator assumes that the engineer does not have to expect a loss of receivables, since, for example, the consumer usually finances the construction of a house with a bank loan. This means that the claim under § 650f BGB can only be enforced against "professional" private clients.
As with § 650e BGB, the claim under § 650f BGB exists for both advance payment claims and final invoice claims. The security demand does not depend on a verifiable advance payment or final invoice. However, since a claim must be substantiated, such a verifiable invoice is useful in any case. Insofar as remuneration is claimed for services not yet provided, this must ideally be substantiated by means of a written remuneration agreement.
The client can only assert rights arising from defects or counterclaims in the case of § 650f BGB if these counterclaims are undisputed or have been legally established.
If the engineer successfully enforces his demand in accordance with § 650f BGB, he must reimburse his client for the usual costs of providing security up to a maximum rate of 2 percent for the year, but not if the security was asserted due to unjustified withholdings by the client.
A special feature of the security request according to § 650f BGB is that this security can be demanded from the engineer immediately after the conclusion of the engineering contract in the full amount of the contract. He does not have to have provided any services himself yet. If the client does not provide the required security after setting a reasonable deadline, the contractor can terminate the contract extraordinarily without notice for good cause, § 650f para. 5 BGB.
According to § 650f, para. 7 BGB, the engineer cannot be deprived of the security provided by § 650f BGB by means of a contractual agreement. Any agreement that provides for the exclusion of such security is invalid.
3. tactical application of the securities in accordance with §§ 650e and 650f BGB
Since the engineer can only demand the two forms of security from his client as alternatives, he must consider in advance which security means is the best solution for him.
If, in the course of fulfilling the contract, the engineer has concerns as to whether the client will be financially able to pay the fee for outstanding services, the right security measure would be to secure the building tradesman's fee in accordance with Section 650f of the German Civil Code (BGB). Only with this means can fees for services not yet provided be secured. In addition, only § 650f BGB offers the possibility of terminating the engineering contract at relatively short notice, namely if the required security is not provided within a reasonable period.
If, on the other hand, the engineer's primary concern is to secure unpaid fees for services rendered, the contractor's protective mortgage pursuant to Section 650e of the German Civil Code (BGB) is likely to be preferable. In particular, the possibility of registering a priority notice by means of summary proceedings means that the claim can be secured relatively quickly. However, the respective land register must be inspected beforehand. If it is evident from this that other collateral in a substantial amount or a prior notice of a transfer of ownership already exists, then the efforts to secure a claim in accordance with § 650e BGB are likely to be in vain. The only remaining option is that under § 650f BGB.
4. Conclusion
As previously shown, the engineer is not without protection when faced with a client who does not pay progress claims or a final invoice claim, or only pays them slowly. In any case, the engineer has a way to secure his claim to a fee faster than would be the case with a "normal" fee lawsuit. In view of the complexity of the security instruments and the considerable legal consequences associated with the demand for a security, it is recommended in any case to consult a specialist lawyer for construction and architectural law beforehand in order to clarify the possibilities in the respective specific individual case.
The statements represent initial information that was current for the law applicable in Germany at the time of initial publication. The legal situation may have changed since then. Furthermore, the information provided cannot replace individual advice on a specific matter. Please contact us for this purpose.