What applies to the contract for work and services does not necessarily apply to a sales contract: BGH Senates after all are on the same page regarding fictitious compensation for damages

The Fifth Senate, which is responsible for work and services law, has recently abandoned its long-standing case law, according to which the purchaser could demand compensation for (yet) unpaid defect rectification costs. However, the Seventh Senate, which is responsible for sales law, has retained the possibility of fictitious damages (fiktiver Schadensersatz) (judgment of 12 March 2021, ref. no.: V ZR 33/19).

The constellation of fictitious damages is to be found quite frequently: after the purchase, the buyer discovers a defect. After having set a deadline unsuccessfully, he demands compensation from the seller. If the purchased item - as in the present case - is a real estate property, the compensation for damages will usually not be directed at compensation for value, but at the cost of repair. In order to avoid having to bear the costs himself, the buyer usually files a claim before having the defect fixed; thus demands so-called fictitious compensation.

According to the Fifth Senate, this shall continue to be possible. This is because it is not reasonable for the purchaser to initially pay the - in some cases considerable - costs out of his own pocket, the senate argues.

What is surprising though, is that despite the fact that the Seventh Senate does not consider fictitious costs to be refundable, the Fifth Senate did not refer the matter to the Grand Civil Panel. However, this is required under Section 132 (2) German Judicial System Act (GVG) if a senate wishes to deviate from another senate. This is intended to ensure the uniformity of the BGHs rulings and legal certainty.

But is the jurisdiction of the two senates perhaps not at odds with each other? After all, the two senates are responsible for different areas of law: Whereas the Fifth Senate is responsible for the sales law, the Seventh Senate is responsible for the law of work and services. According to the Fifth Senate, what applies to the law of work and services does not necessarily apply to sales law.

Unlike in sales law, the purchaser is entitled to an advance payment under works and services law. Therefore, even without the possibility of fictitious damages, the purchaser is not forced to initially pay the costs of remedying the defect out of his own pocket. Nor would there be any obligation to refer the case on the grounds of fundamental significance (Section 132 (4) GVG), since the decision of the Seventh Senate was limited to the area of works and services law and could not be applied to other types of contracts.

Therefore, the question of whether a contract is to be classified as a sales contract or a contract for work and services has become much more important. If the item has not been repaired yet, the purchaser can only claim compensation for the reduction in value caused by the defect under the law for work and services. This is often significantly less than the potential repair costs. The purchaser can also demand an advance payment for the repair of the defect. However, this advance is earmarked for repairing the defect and must be repaid by the purchaser if he does not carry out the repair. The buyer, on the other hand, can demand compensation for the costs of remedying the defect under sales law, even without repairing the purchased item.

As for the purchase of second-hand real estate, it does not make a difference whether the contract was to be classified as a sales agreement or a work and services contract, the Fifth Senate argued. Because even after the change in case law, damages were to be measured by the costs of remedying the defect also in work and services contracts, if the defect is hard to live with for the real estate buyer. This, the Seventh Senate had expressly clarified in its decision of 8 October. This would enable real estate purchasers to claim compensation for the costs of remedying defects irrespective of the contract and of whether the repairs were actually carried out: as compensation for loss of value in the case of a contract for work and services, as fictitious compensation in the case of a contract of sale.