Buying Property – Who Is Liable for Damage and Hidden Defects?

Search, buy, move in – the path to owning your own home is not always that simple. After purchasing a property, the initial excitement can quickly turn into frustration when hidden defects such as mould or leaking pipes come to light. But who is liable in such cases – the buyer or the seller?

German law generally distinguishes between material defects and defects in title. Material defects are physical defects affecting the property, such as damaged thermal insulation, a failed heating system or, even more seriously, a structurally unsafe foundation. In other words, they concern anything related to the building fabric.

A property should therefore be free from material defects if, at the time of handover, it is suitable for the residential use specified in the purchase agreement.

By contrast, a defect in title exists when the buyer does not receive the rights owed under the agreement and is therefore unable to exercise unrestricted control over the purchased property. This may be the case, for example, if third parties can assert claims relating to the buyer’s acquisition and thereby restrict the buyer’s rights. Such restrictions may include encumbrances entered in the land register, such as mortgages or usufruct rights.

Both types of defects may also be apparent or hidden. Apparent defects are immediately visible, such as holes or patches of mould. Hidden defects, on the other hand, are more problematic. These are weaknesses that are not immediately recognisable to either the buyer or the seller and only become apparent after the buyer has moved in, such as water damage or corroded pipes.

The situation becomes particularly serious in the case of deliberately concealed defects – hidden defects that the seller knowingly fails to disclose.

The German Civil Code, known as the Bürgerliches Gesetzbuch or BGB, states: “The seller must provide the buyer with the item free from material defects and defects in title.”

In other words, when a property is purchased, the seller is generally liable for defects under the statutory warranty provisions. For example, if a property purchased for residential purposes is uninhabitable because of a leaking roof, it does not meet the condition contractually agreed upon, and the seller may be held liable.

The seller may also be liable for a hidden defect that is discovered at a later date if it can be clearly established that the defect already existed before the purchase agreement was concluded.

However, sellers may exclude liability for defects discovered after the purchase. The exclusion of warranty claims is usually indicated in the purchase agreement by wording such as “purchased as is” or “purchased as inspected.” In such cases, the seller generally accepts no liability upon handover, regardless of whether signs of age and use were known when the agreement was concluded.

However, if serious defects were deliberately concealed from the buyer, the buyer may be entitled to hold the seller liable. The buyer must not have been aware of the defects beforehand, and their lack of knowledge must not be the result of gross negligence.

It is also important to note that the burden of proof lies with the buyer. A building surveyor or construction expert is generally commissioned to determine how long the defect has existed. An expert report can also establish whether the seller temporarily or superficially concealed the defect.

If this is the case, the buyer is entitled to subsequent performance, meaning that the seller must remedy the defect. If the defect cannot be successfully rectified, the buyer may be entitled to withdraw from the purchase agreement or reduce the purchase price.

To avoid unpleasant surprises, buyers are advised to obtain information from the seller about possible material defects and defects in title before signing the purchase agreement. This includes, in particular, information about potential pest infestations, moisture problems and groundwater contamination.

The year in which the property was built should also be taken into account when assessing its condition. Defects that are typical of a particular construction period are generally not covered by the seller’s warranty obligations. Examples include outdated heating systems and pipes in houses built around 1900.

It is also advisable to bring another person to the property viewing. In the event of a legal dispute, this person may be able to confirm statements made by the seller.

In addition, buyers should consider consulting a building surveyor before signing the purchase agreement. This allows potential defects to be identified and remedied before moving in, or gives the buyer the opportunity to withdraw their interest in the property.

Buyers who discover defects only after completing the purchase do not necessarily need to act immediately. Property owners generally have five years to assert warranty claims relating to material defects. In the case of defects in title, the limitation period may be as long as 30 years.