Payment plan: paid too much at the beginning?

Hello everyone,

my husband and I are planning a larger project. We want to build a 5-family house and are already advanced in the planning phase. At the moment, it is about finalizing the construction contract. We have chosen a developer who builds turnkey. We had already purchased a plot of land beforehand. The developer has proposed the following payment plan:

1st payment: 3% upon building permit application
2nd payment: 15% upon creation of the working plans
3rd payment: 5% at the start of construction
4th payment: 15% upon completion of the basement ceiling
5th payment: 15% upon completion of the ground floor ceiling
6th payment: 10% upon erection of the roof truss
7th payment: 5% upon installation of the windows
8th payment: 10% upon rough installation of heating, sanitation, electrical
9th payment: 5% at the start of interior plastering work
10th payment: 5% upon installation of the screed covering
11th payment: 4% at the start of tiling work
12th payment: 2% upon setting the door frames
13th payment: 5% at the start of exterior plastering work
14th payment: 1% upon readiness for occupancy/commissioning

It seems to me that we are paying too much at the beginning. We would be very happy if you could share your experiences/tips with us.

Thank you!

Is it a property developer or a general contractor?

I will quote from the website of the Bauherren-Schutzbund:

15% (of the contract sum) upon completion of the building application documents 15% upon completion of the earthworks and the foundation slab 30% upon completion of the exterior walls of the ground floor 15% upon completion of the roof frame without visible formwork (75% upon completion of the shell construction overall)

Legal justification
The clause is invalid due to a violation of § 307 para. 2 no. 1 of the German Construction Code in conjunction with the legal framework of § 641 para. 1 of the German Construction Code. Contrary to the statutory obligation of the contractor to provide advance services, 75% of the contract sum is already due solely upon completion of the shell construction. This violates the equivalence principle. According to the chamber's experience, which mainly arises from construction disputes involving experts and their expert reports, the degree of completion of the building upon completion of the shell construction overall should be rated at a maximum of 50%. A corresponding assessment supporting this is also found in § 3 para. 2 no. 2 of the Real Estate Agents and Property Developers Ordinance, which allocates 40% of the contract sum applied for the shell construction completion. As a result, if the present clause applies, the contractor's obligation to provide advance services would at least partially be reversed into an obligation of advance service on the part of the client.

Judgment: Regional Court Potsdam - 12. O. 474/06


Without claiming legal expertise, I think your construction intuition was not bad at all – you would be at 63% if I am reading this correctly.

Hi Sunflower

I would never accept the payment plan like this. You are advancing a very large amount of money. That’s 23% already at the first groundbreaking!!!

By that time, probably only about half of the planning/architect and construction supervision costs have been incurred, if at all. That means we are somewhere around 5-8% of the total costs.

This is all the more extreme since you are building a larger project. You don’t say how expensive, but “5-family house” sounds to me like a seven-figure construction sum. That means you are easily advancing six-figure amounts!

For comparison, I pay money for the first time at completion of the basement ceiling, and that is 15%.

Without knowing any background, there are now two possibilities:

· The [GU] wants to generate a very, very positive cash flow at your expense. The question then is how fair he otherwise accounts.

· Or the [GU] is more or less on the brink of bankruptcy and urgently needs fresh money.

Whether you want to go along with this you have to decide, but if you do, only with secured bank guarantees!


Best regards,

Andreas

Hello,

The developer proposed the following payment plan to us:

Please do not confuse the terminology; that often leads to incorrect answers. You are building, or want to build, not with a developer (BT), but with a general contractor/assumer (GU/GÜ).

1st payment: 3% upon building application
2nd payment: 15% upon creation of working plans
3rd payment: 5% upon start of construction
4th payment: 15% upon completion of the basement ceiling
5th payment: 15% upon completion of the ground floor ceiling
6th payment: 10% upon erection of the roof truss
7th payment: 5% upon installation of the windows
8th payment: 10% upon rough installation of heating, sanitary, electrical
9th payment: 5% upon beginning of interior plastering work
10th payment: 5% upon installation of the screed covering
11th payment: 4% upon beginning of tiling work
12th payment: 2% upon setting the door frames
13th payment: 5% upon beginning of exterior plastering work
14th payment: 1% upon readiness for occupancy/commissioning

It seems to me that we pay too much at the beginning. We would be very happy if you could share your experiences / tips with us.

Upon completion of the closed shell construction, you have already paid 68% of the agreed construction sum. Should it then—something I wish no one—the worst case happen, i.e. the contract would be terminated, you will never manage to realize the interior finishing from the remaining 32%! A rule of thumb says not to pay more than 57 up to max. 60% of the sum upon completion of the closed shell.

Payments should always be made only after the contractor has performed. In this respect, I do not see the first 2 payment steps as critical; slightly too high, otherwise okay. Because at this time the soil survey (owed service) as well as static calculations and execution plans are created. However, I do not like— but who am I?— that most of the payments have to be made in the first third of the payment steps. I would neither accept nor sign this form.

You have to decide whether the references of the preferred provider are convincing enough that you take the risk or withdraw from negotiations. I can hardly imagine that he will deviate from his payment steps. They were certainly drawn up in agreement with his BB as well as the contracts with the subcontractors.

Rhenish regards

I can only agree. I would not accept the payment plan as it is either.

After completion of the closed shell, you have already paid almost 70%. At that time, we had paid just under 50%.

In addition, I would not accept advance payments. All payments should be made after the work has been carried out and possibly after acceptance of the individual trades. Certainly not before.

Edit:
Construction expert was faster.

I can hardly imagine that he will deviate from his payment steps. They were certainly established in accordance with his BB as well as the contracts with the subcontractors.

We had our payment plan, although it was already fair, streamlined and tidied up a bit. It was no problem for our general contractor. Following up can therefore sometimes be worthwhile in one case or another.