developer insolvent

What needs to be considered in 2025 in the event of property developer insolvency?

Property developers develop new housing areas and invest in good locations in order to make maximum profit. Property developers take on bank loans and generally make high financial investments and the associated risks . This increases the risk of insolvency enormously.

The builders, subcontractors as well as buyers and owners are directly or indirectly affected. Therefore, you should know the general things described on this page in order to understand when you should act.

First signs. How to recognize an impending insolvency of the property developer.

  • The developer asks for advances and installments
  • Construction stops or delays occur
  • Subcontractors are not paid and lead to unrest and construction halts
  • Material that has already been delivered will be picked up
  • Check online in your state to see if there is a record of the developer's insolvency .
  • Subcontractors contact the builders directly to clarify the financing for the continuation
  • The developer is suddenly no longer reachable or only difficult to reach

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

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

From this point on , builders and buyers are (often unknowingly) left to their own devices . The developer is often not reachable at first and no one is informed. The insolvency administrator often then comes into play.

If there is not enough insolvency assets , insolvency proceedings cannot be opened at all .
This would be the worst possible consequence for the builders and the owners . Claims for damages can often not even be made, even though the builder has yet to pay for the work.

Now the first effective steps should be taken quickly:

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

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

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

If the property developer is actually insolvent, the proceedings begin . As soon as the insolvency proceedings are opened by the insolvency court, the debtor loses the ability to dispose of his assets ( Section 80 InsO ). At the same time, the creditors are prohibited from executing the debt by way of individual enforcement proceedings. The insolvency proceedings are managed by the central person, 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 in as large a quantity as possible during the insolvency proceedings and the creditors' claims are satisfied.

Further details on company insolvency proceedings can be found on the " Company Insolvency " page .

Special case 1: Termination during insolvency of a property developer

A property developer's insolvency alone is not grounds for termination and withdrawal from all contracts. However , terminating a contract during this delicate phase poses a particular problem .

However, there are regular reasons for termination and withdrawing from the contract , which are also indirectly the consequence of insolvency.
These include late completion or serious defects in the construction . If the builder is bankrupt, the construction is often left unfinished or neglected. However , termination at this stage 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 in the event of a property developer's insolvency can be difficult , especially if defects in the house appear after handover. If the property developer is insolvent, the buyer often cannot demand that the tradesmen they hired repair the defects directly. In rare cases, however, contracts contain clauses that allow the buyer to assert such claims directly against the tradesmen .

After the insolvency proceedings have been opened, the buyer may be able to demand that the insolvency administrator assign these claims.

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 client can retain, 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 of the German Civil Code (BGB) .

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