Construction Contract: No Credit for Betterment in Defect Remediation

In its judgment of 27 November 2025 (VII ZR 112/24), the German Federal Court of Justice (Bundesgerichtshof, BGH) decided a question of central importance for construction practice: In the remediation of defects under construction and works contract law, contractors are not entitled to any credit for betterment. This applies even if the defect only becomes apparent years after acceptance and the structure could be used without any noticeable restriction in the meantime.

This means that, within the scope of warranty for defects, the contractor remains fully obliged to bear the costs of defect remediation. The fact that a defect only becomes apparent years after acceptance and that the structure was used without noticeable limitations until then does not justify a reduction of the remediation costs. Arguments such as “the structure has already been used for several years” or “the repair extends the service life” have thus been clearly rejected by the BGH.

What Is at Issue?

The “neu für alt” deduction due to betterment is a category of benefit offsetting. According to principles developed from section 242 of the German Civil Code (BGB) (good faith), the injured party should not be placed in a better economic position as a result of defect remediation than it would have been in without the defect.

The BGH’s decision addressed a previously unresolved question: whether a credit for betterment should at least be considered where a (hidden) defect only manifests itself relatively late, the client has suffered no loss of use up to that point, and the defect remediation extends the overall service life of the work.

Example: In the case of a central ventilation or cooling system in a commercial building with a usual/average service life of around 20 years, which could be operated for five years without any loss of use despite a defect, a mathematical deduction of approximately 25% of the defect remediation costs might be considered.

In earlier decisions, the BGH had already rejected benefit offsetting in cases where the alleged benefit (in particular an extended service life) resulted solely from a delay in defect remediation. The contractor should not benefit from disputes over defects lasting for years. However, it had remained open how to deal with cases in which there was no delay in remediation, but the defect simply only came to light at a late stage. This is precisely where the present decision comes in.

Facts of the Case

In the underlying case, the claimant commissioned the defendant in August 2009 to construct a silage bunker, which was completed in September 2010. Subsequently, the claimant complained of defects, in particular cracks and unevenness in the concrete surface. In order to clarify the causes, the claimant initiated independent evidentiary proceedings in February 2013, which concluded in June 2015. By action filed in July 2015, the claimant sought, among other things, an advance payment of costs in the amount of EUR 120,000.

The court of first instance upheld the claim; however, the appellate court reduced the advance payment claim by one third, reasoning that a “neu für alt” deduction due to betterment was to be applied. Based on an ordinary service life of the silage bunker of approximately 16 years, the claimant had been able to use the structure for around five years without significant impairment. This justified a deduction of one third of the costs required to remedy the defects.

Decision of the BGH

The BGH now clarifies that even in this constellation, benefit offsetting in the form of a credit for betterment is not to be applied. The Senate bases this conclusion on the following considerations:

First, benefit offsetting is precluded by the provisions of works contract defect law itself. This law does not distinguish according to the point in time at which a defect is discovered, notified, or remedied. The content and scope of defect rights generally remain the same regardless of whether a defect is asserted at acceptance, shortly thereafter, or only shortly before the limitation period expires. The law does not provide for any time- or use-dependent reduction of the obligation to remedy defects. Rather, the contractor must, without limitation, bear all expenses required for defect remediation (section 635(2) BGB).

This statutory assessment is particularly clear in the case of cure by replacement (§ 635(1) BGB). Even if the client has used the defective work for years beforehand, the law merely provides for the return of the old work and the surrender of benefits derived (§ 635(4) in conjunction with §§ 346 et seq. BGB). The legislator deliberately did not provide for any additional compensation for advantages resulting from the replacement itself—such as a longer service life.

Second, the BGH refers to the legal nature of the claim for subsequent performance (Nacherfüllung). This is not a claim for damages, but a modified claim for performance. By remedying the defect, the contractor ultimately fulfills its original obligation to produce the work; the client receives, for the first time, the contractually owed, defect-free work. The claim therefore remains part of the reciprocal relationship (synallagma) with the remuneration. Advantages that arise solely because defect remediation takes place at a later point in time have no connection to this synallagmatic relationship and therefore cannot be normatively linked to the costs of subsequent performance.

The BGH continues to allow an exception for so-called “inevitable costs” (Sowieso-Kosten). Costs that would have been incurred even if the work had been properly executed from the outset are not reimbursable. To this extent, the claim for an advance on costs or reimbursement of expenses may be reduced.

Practical Implications

For construction practice, the decision provides significant clarity: Even in the case of defects that occur late or remain undiscovered for a long time, the contractor remains fully liable for the costs of remediation. A credit for betterment is, as a matter of principle, excluded under works contract law—apart from genuine inevitable costs.