Developer contract and the BTVG: recognising risks and securing advance payments

The BTVG is not a general law of sale for real property. It applies specifically where buyers make advance payments to the developer before the property is completed. The central threshold: where more than EUR 150 per square metre of usable floor area is paid in advance before completion, the Act applies and unfolds its protection.

A simple idea lies behind this threshold. Anyone who pays in advance for a performance that is yet to arise needs protection against the risk that the performance will not be rendered, or not in full. The BTVG therefore obliges the developer to provide information, form and security so that the buyers’ advance-payment risk does not remain unprotected.

Whether the threshold is exceeded follows from the payment plan together with the agreed usable floor area. This calculation is not always obvious at first glance. It is worth working through the payment plan carefully before signing so that it is clear whether and from when the protection of the Act applies.

The BTVG protects on three levels. The information obligations are meant to ensure that the buyer knows what they are entering into before becoming bound. This includes details of the subject matter of the contract, of the payments and of the type of security. Missing or unclear mandatory details are a warning sign.

The form obligations concern the structure of the contract itself. The developer contract should record the essential points in writing and comprehensibly, from the scope of services through the payment plan to the security. This allows it to be checked later what was actually agreed if the building deviates from the target.

The security obligations are the centrepiece. They ensure that the buyers’ advance payments are protected if the developer fails to perform. Which security model is used must be set out in the contract. A detailed review of the whole contract is shown in the article on reviewing a construction contract before signing.

The BTVG knows several ways to secure the advance payments. First, contractual security, where a bank guarantee or insurance stands behind the payments made. Second, land register security in combination with an instalment plan, where registration in the land register and a payment plan tied to the progress of construction work together. Third, the pledge model.

In practice, land register security in combination with an instalment plan is the most common. It combines real-rights protection of your legal position with a payout mechanism that follows the actual progress of the building. The money thus flows in stages that are meant to correspond to the value being created.

Which model suits your case depends on the specific arrangement. What matters is that the security is validly agreed and actually takes effect when it counts. Insufficiently worded security often protects less than its name promises.

The trustee is a central protective figure of the BTVG. It must be a lawyer or a notary, and it must be named in the contract. If this detail is missing, an essential element of the statutory protection is missing. The trustee stands between the parties and ensures that the buyers’ funds are used for their intended purpose.

Its core task is supervising the progress of construction. It releases the instalments only once the respective progress is confirmed. This confirmation is given by experts or chartered engineers who assess the actual state of the building. This is intended to prevent money from flowing out before the corresponding value has been created.

For you as the buyer this means an important control mechanism. Check whether the trustee is named and how confirmation of construction progress is arranged. These points help to decide whether the security holds when it counts.

The greatest risk is the developer becoming insolvent. If the building is not completed, everything depends on whether your advance payments are effectively secured. Missing or insufficient security can mean that money already paid is lost. This is precisely what the BTVG is meant to protect against, which is why the security must be examined so carefully.

A second risk is deviations between the owed target condition of the building and what is actually erected. What was agreed follows from the plans, the scope of services and the building description. Where the building deviates from this, questions of warranty and damages arise, similar to construction defects after handover.

In addition, there is delay in completion and dispute over outstanding payments. Special rules also apply to refusing payment because of defects, which we address in the article on the remuneration claim and refusal of payment. An early legal assessment helps in choosing the right response.