Germany: Renovated and Still Worth Less? The Mercantile Depreciation in Construction and Real Estate Law

“Why does the builder actually still want money? We have remedied the deficiency!” A statement that comes up again and again in building law practice. The answer is: mercantile inferiority.

A cost factor that is often underestimated:

The mercantile depreciation is based on the market experience that a property that had serious defects can retain a “damaged prestige” despite renovation (as in the case of an “accident car”). The market may react to this with a lower willingness to buy and with price discounts. A reduction in value is therefore to be assumed in particular if the remedy of defects cannot be conclusively verified (e.g. because the work would have to be destroyed for inspection or in the case of structural defects). Ultimately, the decisive factor is that a residual mistrust of the relevant public demonstrably reduces the achievable revenue. As in the current case of the Higher Regional Court of Brandenburg, judgment of 28.08.2025 case no. 10 U 86/24, this must be critically examined, in particular if new material was used in the context of the remedy of the defect and the remedy of the defect was carried out comprehensively and professionally. For this reason, there is usually no justified mistrust in the case of complete dismantling and rebuilding of a (part of) the plant.

Excursus: Relevance in real estate transactions

In the case of real estate transactions, the “risk of defects” under construction law can be transformed into a risk of disclosure under purchase law: Sellers may have to disclose significant defects even if they have already been professionally remedied, but the buyer can expect clarification (e.g. due to a mercantile depreciation). If a necessary clarification is fraudulently omitted, any contractual exclusion of liability for material defects is invalid, § 444 BGB, so that the seller is liable for this “defect”. In addition, the buyer is entitled to contest the contract on the grounds of fraudulent misrepresentation, § 123 BGB.

Tips for practice:

Preservation of evidence through third-party expert opinions: In order to counteract the accusation of “remaining mistrust” as far as possible, it is advisable for a publicly appointed expert to document the remedy of the defects. A corresponding expert opinion may be able to eliminate or at least reduce the alleged mercantile flaw.

Causality test: Not every defect automatically leads to a reduction in value. It must be substantiated that marketability is actually impaired.

Conclusion:

A defect is not always legally settled with its technical elimination. The mercantile depreciation is the economic receipt for the “psychological damage” to the object. Early legal and expert support for the elimination of defects is essential, especially for contractors, in order to avoid claims as far as possible.

By MELCHERS, Germany, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact germany@transatlanticlaw.com

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