Property developer insolvent: Recognize signs and react well

The developer is not only responsible for the development, but also for the sale of the property. Bankruptcy can affect any property developer. Regardless of size or experience with construction projects.

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What needs to be taken into account in the event of property developer insolvency in 2024?

Property developers develop new development areas and invest in good locations in order to make maximum profits. Property developers take on bank loans and generally high financial investments and the associated risks. This enormously increases the risk of bankruptcy. The builders, subcontractors as well as buyers and owners are directly or indirectly affected by this. Therefore, you should know the general things described in this page to understand when you should trade.

First signs. This is how you recognize an impending insolvency of the property developer.

    The developer asks for advance payments and advance payments. Construction stops or construction delays occur. Subcontractors are not paid and lead to unrest and construction stops. Material that has already been delivered is picked up. Check online in your federal state whether there is a record of the developer's insolvency. Subcontractors contact the builders directly to clarify financing for the continuation. The builder is suddenly no longer accessible or is difficult to reach

The property developer declares bankruptcy – what are the consequences of bankruptcy?

The first consequence is that the construction site will be shut down.


From this point on, builders and buyers are (often unknowingly) on their own. The property developer is often unavailable at first and no one is informed. The insolvency administrator often comes onto the scene.


If there is not enough insolvency assets, the insolvency proceedings cannot even be opened. This would be the worst consequence for the builders and also the owners. This means that claims for damages can often not even be asserted, even though the builder has outstanding services to be paid.

The first effective steps should now be taken quickly:

If insolvency is suspected, timely legal or insolvency advice is essential in order to understand possible options for action and avoid formal errors.


Further steps differ significantly between builders and owners and buyers of the property(s) in question.

After that, things move quickly – opening insolvency proceedings in the event of insolvency

If the property developer is actually insolvent, the process begins. As soon as the insolvency proceedings are opened by the insolvency court, the debtor loses the opportunity to dispose of his assets (§ 80 InsO). At the same time, there is a ban on enforcement by the creditors through individual compulsory enforcement. The insolvency proceedings are managed by the central person of the insolvency administrator, who is appointed by the insolvency court.


The insolvency administrator's main task is to identify the insolvency estate. This is collected as much as possible during the insolvency proceedings and the claims of the creditors are satisfied.


Further details on the insolvency process for companies can be found on the “Company Insolvency” page.

Special case 1: Termination during the insolvency of a property developer

A property developer's insolvency alone is not a reason for withdrawing from all contracts. However, resigning at this delicate stage presents a particular problem.



However, there are regular reasons for withdrawing from the contract, which are also an indirect consequence of insolvency. These include late completion or serious defects in the construction. If the builder goes bankrupt, the building is often abandoned or neglected. However, termination in this phase can have serious consequences, as there are special regulations that ensure that the purchase price does not have to be reimbursed from the insolvency estate.

Special case 2: Warranty claims are asserted

Asserting warranty claims if a property developer goes bankrupt can be difficult, especially if defects appear in the house after it has been handed over. If the property developer is insolvent, the buyer often cannot directly demand that the hired tradesmen correct the defects. In rare cases, however, contracts contain clauses that allow the buyer to assert such claims directly against the craftsmen.


After the opening of insolvency proceedings, the buyer may be able to request the assignment of these claims from the insolvency administrator.


In order to reduce the risk of insolvency, warranty bonds or performance securities can be agreed in contracts. A performance security in the form of an advance payment (5%), which the developer can withhold, makes it possible to continue the project with these funds in the event of insolvency or incomplete services. The legal basis for this can be found in Section 632a Paragraph 3 BGB.

Well-known examples of property developer insolvency:

Insolvency of a large Bavarian property developer: “Project Immobilien”

The company offers regular updates and information on its own website.

https://www.project-immobilien.com/presse/newsmeldung/insolvenzverwalter-verhandelt-mit-bauunternehmen-ueber-weiterfuehrung-der-bauprojekte/

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