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Unreasonable disadvantage to contractor: Securing warranty claims by standard terms and condi-tions restricted by German Federal Supreme Court

Unreasonable disadvantage to contractor: Securing warranty claims by standard terms and condi-tions restricted by German Federal Supreme Court

By Christoph Mank, K&L Gates, Berlin

Background
Standard terms and conditions in German construction contracts often contain requirements to provide a warranty bond to secure performance by the contractor of its warranty obligations under the contract. These requirements often stipulate the contractor to provide both a performance guarantee and a warranty bond.

The warranty bond secures the contractor’s warranty obligations during the warranty period (typically arising after the acceptance and take-over of the construction works) and is often in an amount of not more than 5% of the contract sum. This practice has been established due to prior case law by the German Federal Supreme Court. According to the Federal Supreme Court, the client´s security interest after acceptance of the construction is significantly lower than its security interest during performance.

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