In a contract for work and services, the contractor undertakes to construct a work for the customer in return for payment (§§ 1165 in conjunction with 1151 ABGB). The main obligation of the contractor is to produce the work and deliver it on time. Unless otherwise agreed, the customer shall owe the remuneration for the work in accordance with Section 1170 ABGB after completion of the work. If the remuneration for the work is not fixed in advance, it is only due upon receipt of the invoice by the customer. [1]
Particularly relevant in the construction industry is the provision of § 1170b ABGB, which includes the right of the contractor to demand security amounting to 20°% of the agreed remuneration for the work, subject to the setting of a reasonable deadline. If the work is to be completed within 3 months, a guarantee amounting to 40% of the agreed remuneration for the work can even be demanded.
This provision applies to contracts for work and services in the construction industry and ancillary construction trades. It is mandatory law and therefore cannot be contractually waived. The aim of this provision is to reduce the risk of insolvency in the construction industry. Security can be provided in the form of cash, cash deposits, savings books, bank guarantees and insurance. The primary aim here is to ensure that the collateral can be realized quickly. [2]
According to ErläutRV 1058 BlgNR 22. GP 72 f, the contractor should also be able to demand a guarantee in the event of the planning of a house construction or a heating system. This clarifies that planning contractors (e.g. architects, structural engineers and engineers) can also be construction contractors within the meaning of Section 1170b ABGB (OGH 26.04.2018, 6 Ob 65/18d).
According to Högel/Wiesinger[3], Section 1170b ABGB also applies if planning services have not (yet) been carried out and have therefore not (yet) contributed to the increase in value. Due to the clear wording of Section 1170b ABGB, the right to security is given upon conclusion of the contract. The obligation to provide security is a “non-enforceable obligation” of the customer. However, the contractual partner can demand the agreed remuneration (less expenses saved) after the contract is terminated in accordance with Section 1170b (2) ABGB (see OGH v 26.04.2018, 6 Ob 65/18d).
In practice, the provision of Section 1170b ABGB can lead to a race to set deadlines, as the following example shows: On September 1, the property developer (= contractor) requests the client of the construction project (= customer) to provide security by September 15. The latter fails to do so, which is why the contractor declares its withdrawal from the contract, setting a grace period until 23.9. The property developer can refuse further services on the basis of Section 1170b (2) ABGB. On September 17, the client declares his withdrawal from the contract, setting a grace period until September 24, because the developer is in default with his services.
§ Section 1170b ABGB and Section 918 ABGB (rescission with a grace period in the event of default) can lead to overlapping declarations of rescission by the contracting parties. So how are the consequences to be dealt with and which withdrawal is effective first?
According to the prevailing case law, rescission pursuant to Section 918 ABGB is conditional on the setting of a grace period, meaning that the declaration of rescission only becomes effective after the grace period has expired (exception: the contractual partner is obviously not ready to fulfill the contract and therefore there is no need to set a grace period). The ratio legis is to give the debtor a second chance to fulfill the contract – even if late – and thus to “save” the contract.
When a declaration of withdrawal pursuant to Section 1170b ABGB becomes effective has hardly been dealt with to date, but it can be assumed that in this case, too, the withdrawal only becomes effective once the grace period has expired. The main problem for the customer, however, is that the contractor is no longer obliged to complete the work (i.e. the construction work) after his declaration of withdrawal and setting of a grace period.
The grace period must in any case be reasonable; after all, the contractual partner should be given the opportunity to make up for its performance. According to case law, an absolute number of days is not provided for, but depends on the circumstances of the individual case. However, this inevitably means that the performance periods pursuant to Sections 918 and 1170b ABGB can diverge. In the construction industry, for example, the catch-up period pursuant to Section 918 ABGB will be longer for the property developer in order to give him a “realistic chance of catching up”. In contrast, the deadline for the provision of security pursuant to Section 1170b will be shorter for the client because, for example, the provision of a bank guarantee can naturally be obtained more quickly.
Furthermore, according to established case law, only the party in compliance with the contract is entitled to withdraw from the contract pursuant to Section 918 ABGB. Withdrawal within the meaning of Section 918 ABGB can only be lawfully declared after the own default in performance has ceased. The party ordering the work is itself in default after the expiry of the performance period for providing security, as a result of which it is no longer deemed to be in compliance with the contract. This means that the party ordering the work cannot release itself from the security obligation by declaring its withdrawal. He would then no longer be in compliance with the contract.
The answer to the question posed at the beginning is that the developer’s (contractor’s) declaration of withdrawal takes effect first, as his grace period expires first.
This has particular consequences for the rescission of the contract: If it is assumed that the work contractor’s withdrawal was effective first, the remuneration for the work is paid in accordance with Section 1168 ABGB. The contractor is then entitled to the agreed remuneration, less what he has saved due to his failure to perform. According to established case law, the customer is obliged to provide evidence of the amount of these savings, and this also applies to the termination of the contract pursuant to §§ 1170b in conjunction with 1168 ABGB.
If the customer of the work would have anticipated the contractor by withdrawing from the contract, the performance received would be reversed in the event of objective default by the debtor. If the work contractor is at fault for the delayed performance, the customer is also entitled to non-performance damages in the form of a claim for the difference.
Conclusion: In practice, the shorter withdrawal period with simultaneous withdrawal from the contract wins the race.[4] Moreover, after the request to provide security, the party ordering the work cannot use an objection of default to release itself from the obligation to provide the security.
[1] Welser/Zöchling-Jud, Bürgerliches Recht Band II Rz 1112.
[2] Welser/Zöchling-Jud, Bürgerliches Recht Band II Rz 1123 ff.
[3] Högel/Wiesinger, Offene Fragen zu § 1170b ABGB, JBL 2009, 156.
[4] Szelinger, ZAK 2018/424 S 227-2230 mwN.