Poor parquet installation: termination for cause and loss of entitlement to remuneration

If a construction contract is terminated for good cause due to defective performance, the contractor may forfeit their entire claim to remuneration if the work carried out is of no value to the client. The Berlin Court of Appeal has confirmed this in a recent ruling concerning the laying of parquet flooring of the wrong grade.

Facts

The defendant (client) commissioned the claimant (contractor) to carry out parquet flooring work for a construction project. The contract specifications provided for the installation of parquet flooring with the high-quality ‘Kreis’ grade in accordance with EN 13489, which specifically excludes sapwood. However, the claimant included a product in the specification that merely had a so-called ‘free’ grading and thus also contained sapwood. Whether the defendant had been informed of this deviation prior to placing the order was disputed between the parties.

After the parquet had been installed, the defendant complained about the defective work and, by letter dated 25 February 2022, set the claimant a deadline of 25 March 2022 to remedy the defects. However, the claimant disputed the agreed scope of work, claimed that the installed parquet flooring was in accordance with the contract, and refused to carry out remedial work on the already completed flats at its own expense. Consequently, the defendant terminated the contract for work and services on 28 March 2022 for good cause. The claimant subsequently claimed the outstanding remuneration of approximately €90,000; the defendant sought damages of approximately €345,000 by way of a counterclaim.

The Berlin Regional Court dismissed the claim in its judgment of 4 June 2024 and awarded the defendant damages of approximately €345,000 on the counterclaim. The claimant had merely provided a “fundamentally defective (partial) service”, as she had installed parquet flooring that did not correspond to the contractually agreed “circle” grade. Termination for cause was justified because, despite being given a deadline, the claimant refused to remedy the defects and had presented the installed parquet as being in accordance with the contract. There was no entitlement to remuneration, as the service provided was of no value to the defendant. The claimant lodged an appeal against this.

Decision

The Kammergericht essentially upheld the first-instance decision. The claimant’s appeal was successful only in respect of a minor adjustment to the amount of damages. The key points of the decision can be summarised as follows:

‘Circle’ grading as a performance requirement: The Senate interpreted the contract specifications to mean that the statement ‘Classification according to EN 13489: Circle’ constituted a requirement set by the client, whilst the specification of the specific product was merely a statement by the claimant as to the means by which it intended to fulfil this requirement. As the two statements were not semantically equivalent, the requirement for circular sorting took precedence. A reduction in the scope of work solely by naming a different product without a clear indication of the deviation was ruled out.

Invalidity of Section 4(7) VOB/B: The Senate clarified that termination under Section 4(7), third sentence, VOB/B was not an option, as the VOB/B had not been agreed in its entirety. In this case, according to the case law of the Federal Court of Justice (BGH), the provision does not withstand a substantive review under the law governing general terms and conditions and is therefore invalid.

Termination for cause (Section 648a BGB): While defective performance alone is generally not sufficient grounds for termination, there were additional circumstances in this case that made further cooperation unreasonable: the claimant disputed the scope of performance required, presented its performance as being in accordance with the contract, claimed hindrance due to force majeure, and ultimately refused to carry out cost-neutral rectification. The defendant was not required to rely on the successful rectification of the defects using the incorrect material.

Loss of the claim for remuneration: The Senate confirmed that, following the justified termination for good cause, the claimant is not entitled to remuneration for the services rendered. The work was, on the whole, worthless, as the installed parquet of the incorrect grade had to be completely removed and re-laid. An economically viable rectification using the non-contract-compliant material was not possible.

Engaging a third-party contractor prior to termination: The client is not prevented from engaging another contractor to carry out the work prior to termination. They must merely ensure that the third-party contractor does not commence work until after the termination. The prior commissioning does not interrupt the causal link between the defective performance and the damage. However, the prior expiry of a deadline for rectifying the defect previously set for the claimant remains unaffected by this and is an absolute prerequisite for the recoverability of the third-party contractor’s remuneration as damages or costs of substitute performance. 

Practical note

The decision of the Kammergericht has fundamental significance beyond the individual case for the possibilities of termination under VOB/B contracts.

The starting point is the decision of the Federal Court of Justice (BGH) of 19 January 2023 (VII ZR 34/21). In this judgment, the Federal Court of Justice clarified that the termination provision in Section 4(7), sentence 3 of the VOB/B – which grants the client a right of termination in connection with Section 8(3)(1), sentence 1 of the VOB/B in the event of defects prior to acceptance – does not withstand a review of its content under the law governing standard terms and conditions pursuant to Section 307 of the German Civil Code (BGB). The Federal Court of Justice justified this on the grounds that these termination provisions place the contractor at an unreasonable disadvantage: the VOB/B allows the client to terminate the contract due to defects prior to acceptance without the strict requirements for termination for good cause (in particular, the unreasonableness of continuing the contract within the meaning of Section 648a of the German Civil Code (BGB)) having to be met. 

The decision of the Kammergericht now confirms the possibility of resorting to extraordinary termination under Section 648a of the BGB for precisely this scenario: despite the invalidity of Section 4(7) of the VOB/B, the client nevertheless retains the option, in the event of serious defects prior to acceptance, to terminate the contract for good cause under Section 648a(1) of the BGB. The requirements are, however, stricter: the mere existence of a defect is not sufficient. Rather – as in the present case – additional circumstances must be present which render the continuation of the contractual relationship unreasonable, such as the contractor’s persistent refusal to acknowledge the defect as such and to carry out a cost-neutral rectification.

In practice, this means that clients who have included provisions in their VOB/B contracts that deviate from the VOB/B – for example, regarding formal acceptance – cannot rely on the right of termination under Section 4(7) VOB/B in the event of defects prior to acceptance. However, they are not left without protection; rather, they may terminate the contract for good cause under the (more restrictive) conditions of Section 648a of the German Civil Code (BGB). In this respect, the present decision provides valuable guidance on the requirements to be met for the continuation of the contract to be deemed unreasonable.

For contractors, the judgment demonstrates how serious the consequences of defective performance can be: in the event of a justified termination for good cause, there is even a risk of losing the claim to remuneration for the services rendered. Furthermore, liability arises for all additional costs incurred in remedying defects and completing the work. 

References

(KG Berlin, judgment of 3 March 2026 – 21 U 109/24)