Improper Price Adjustment Clause in Home Construction

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Higher Court of Zweibrücken: No Higher Price Due to Increased Material Costs

Rising construction costs and high interest rates have not made purchasing property any easier. However, those who have agreed on a fixed price with a construction company must be able to rely on that price. This is demonstrated by a decision of the Higher Regional Court of Zweibrücken dated July 13, 2023 (Case No.: 5 U 188/22). The court ruled that a contractual clause allowing the construction company to unilaterally increase prices despite a fixed price agreement is invalid.

Deciding to build a house or purchase a property is usually associated with significant financial expenditure. This is especially true in the current times of rising construction costs and high interest rates. Therefore, it is important to carefully review clauses in the contracts concluded, according to the law firm MTR Legal Rechtsanwälte, which advises on real estate law among other areas.

Construction of a Solid House at a Fixed Price

In the underlying case at the Higher Regional Court of Zweibrücken, a couple signed a contract in December 2020 with a construction company to build a solid house on their property for a price of 300,000 euros. The parties used a contract template from the company for the contract conclusion. This template contained a clause stating that both parties are bound to the agreed price for one year from the signing of the contract, with the restriction that construction work must begin within three months of contract conclusion.

However, the start of construction was delayed. Consequently, about six months after the contract signing, in June 2021, the construction company notified that the agreed price would increase by about 50,000 euros to 350,000 euros. The company justified this by stating that there had been extraordinary price increases in building materials which had not been foreseeable at the time of the contract signing.

Homeowners Demand Reimbursement of Additional Costs

The couple did not accept this price increase. Instead, they demanded that the company begin construction. When the company refused to start the construction, the couple terminated the contract and hired another construction company. However, this company estimated a higher price for the construction of the solid house than the original fixed price.

The couple thus demanded that the initially contracted construction company reimburse the additional costs for the construction of the house. They justified their claim by stating that the higher costs had arisen solely because of the company’s refusal to begin construction at the contractually agreed fixed price.

The couple’s lawsuit was successful in the first instance at the District Court of Kaiserslautern (Case No.: 2 O 274/22). Although the construction company appealed against this judgment, it was unsuccessful at the Palatinate Higher Regional Court of Zweibrücken.

The construction company had argued that constructing the solid house at the originally agreed fixed price was no longer economically feasible. For the company, the contractually agreed price was threatening its existence and fulfilling the contract was no longer reasonable.

Higher Court of Zweibrücken: Price Adjustment Clause Invalid

With this argument, however, the company did not succeed at the Higher Regional Court of Zweibrücken. After the court had indicated its intention to dismiss the appeal, the company withdrew the legal remedy.

Since the company did not want to implement the construction of the house at the agreed price, the couple had the right to terminate the contract and hire another company. The couple could demand compensation for the resulting additional costs from the construction company, the Higher Court emphasized.

The court explained that the construction company owed the construction of the house at the contractually agreed fixed price. According to the price adjustment clause included in the contract, the company could have unilaterally increased the agreed compensation. Since this would unduly disadvantage the customer, the clause was invalid, according to the Higher Court of Zweibrücken. The customers could not have known from the clause at the time of the contract conclusion what price increases they might have to expect. The company could have secured itself against the risk of unforeseen material price increases with provisions that would have sufficiently taken into account the interests of the customers, the court stated.

The decision shows that the secure conclusion of contracts in real estate law plays a significant role and that reviewing clauses in construction or purchase contracts can be worthwhile.

MTR Legal Rechtsanwälte advises in real estate law.


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