Delay / Verzug

December 14, 2022

In commercial transactions it is not uncommon that a service owed is not or can not be rendered on time. The performance here is classically the delivery of goods. However, performance in the legal sense means any action to fulfil a debt, so that this also includes, for example, the payment of rent, the completion of an order or the payment of a settlement claim. If a service is due and the debtor does not perform it, the creditor can put him/her "in default", so that there may then be a so-called "default of payment".

In principle, a reminder is required for default, but in exceptional cases the reminder can be omitted. The preconditions for default and the legal consequences of default are regulated in sections 286 cont. of the German Civil Code (BGB).

When are you in default?

One is in default when

- The performance owed is due,

- The debtor has been reminded, unless a reminder is not required according to section 286 (2) BGB,

- and the default is not excluded according to section 286 (4) BGB, which is the case if the performance does not take place due to a circumstance for which the debtor is not responsible.

When is a service due?

The term due date is understood as the point of time from which the creditor can demand performance. If no time for performance is specified or can be inferred from the circumstances, performance must in principle be made "immediately", section 271 (1) BGB. It will often be the case that the contract specifies a certain date or a deadline by which performance must be made. Common phrases are "payment within 30 days after receipt of the invoice". It may also be that special regulations for the time of performance are stipulated by law. In the case of residential tenancies, for example, the rent must be paid by the third working day of the month at the latest according to section 556b BGB, electricity bills are due at the earliest two weeks after receipt of the payment request, section 17 StromGVV. If no time for performance has been determined, the circumstances of the respective debt relationship shall be taken into account.

For example, the claim of the purchaser of software individually tailored to his/her needs for the delivery of documentation necessary for the operation of the software only becomes due upon completion of the work on the programme (BGH, judgement of 20.02.2001 - X ZR 9/99). In many cases, therefore, payment does not have to be made "immediately". If the due date is neither determined nor can be inferred from the circumstances, the debtor must perform as quickly as objectively possible for him/her. The creditor has to wait only within very narrow limits, if at all.

Reminder and dispensability of the reminder

If payment is not made after the due date, the debtor is immediately in default without further ado. In principle, a reminder is required for default to occur. A reminder in the legal sense is any clear and specific request by which the creditor unambiguously expresses that he/she demands the performance owed (BGH, judgement of 10.03.1998 - X ZR 70/96). A reminder is a non-formal business transaction, to which the provisions on a declaration of intent applies. It may only be issued after the due date. A deadline for performance does not have to be set in the reminder.

In certain cases, however, a reminder is dispensable. The law conclusively lists such cases in section 286 (2) BGB. In somewhat simplified terms, a reminder is not required if

  • A date has been agreed for the performance
  • A preceding event, e.g. the receipt of an invoice, is required from which an agreed deadline can be calculated in calendar terms (e.g. "one week after receipt of the invoice").
  • The debtor seriously and finally refuses performance, or
  • The immediate occurrence of the default is justified for special reasons and under consideration of the interests of both parties (e.g. if the debtor himself announces the immediate performance and then does not perform, so-called self-reminder, or if the debtor prevents the receipt of the reminder by his behaviour).

Furthermore, a debtor of a claim for payment is in default at the latest if he/she does not pay within 30 days after the due date and receipt of an invoice or equivalent payment schedule, as stated in section 286 ( 3) sentence 1 BGB. However, this only applies to consumers if these consequences were specifically pointed out in the invoice.

Liability is required

The debtor may oppose the occurrence of default by objecting that he/she is not responsible for the circumstances as a result of which performance has not been effected, section 286 (4) BGB. It follows from the wording of the law that the debtor bears the burden of proving that he/she is not responsible.

What the debtor is liable for is determined as usual according to sections 276 - 278 BGB. However, he/she is not responsible for a temporary impossibility of performance due to force majeure or serious illness (in this case there must be no substitute possibility) and also if the creditor fails to perform a necessary act of cooperation. There may also be a legal impossibility due to unforeseen legal prohibitions, e.g. an import restriction. However, the debtor can not rely on circumstances that are within his/her sphere of risk. Thus, he/she can not invoke miscalculations, delivery bottlenecks, financial difficulties or the like in order to counteract the default.

Legal consequences of default

The debtor must compensate the creditor for the "damage caused by delay". The damage caused by delay is the loss suffered by the creditor precisely because the debtor has performed too late. The creditor must therefore be placed in the position he would have been in if he had performed on time. In particular, the following items of damage can be considered:

  • Lost profit, section 252:

The creditor can claim compensation for the profit he/she would have made if the performance had been made on time. A classic example is that of a trader who does not receive his goods in time and therefore can not resell them at a higher market price - for example if the buyer of the goods "bails out" because of the delay. The trader can then claim the difference between the contractually agreed price and the market price. However, damage caused by delay due to loss of profit may also exist, for example, if the creditor can credibly show that he/she would have profitably invested the money owed to him/her in shares (BGH, judgement of 18.02.2002 - II ZR 355/00). The burden of proof is on the injured party, but according to the established case law of the Federal Supreme Court (BGH), the requirements are not too strict (cf. e.g. BGH, judgement of 13.10.2016 - IX ZR 149/15). Circumstances must therefore be presented from which, in the ordinary course of events, the probability of a profit occurring arises and which provide sufficient starting points for an estimate of the amount of damage. The party liable to pay compensation can then prove that the profit would not have been achieved in the specific case.

  • Loss of use damage:

Loss of use damages are generally only considered if the untimely performance deprives the owner of a possibility of use, the constant availability of which is of central importance for the economic standard of living. A developer who does not complete a flat on time would have to compensate the damage the client suffers by having to continue paying rent (elsewhere) or not being able to rent out the flat. According to a decision of the BGH, in this case it is even possible to claim damages for own usage of the build or renovated apartment. This is possible if one did not have a roughly equivalent living space available during the period in question (cf. on all this BGH, judgement of 20.02.2014 - VII ZR 172/13).

  • Default interest:

Pursuant to section 288 of the German Civil Code (BGB), a monetary debt is subject to interest at a rate of 5 % above the base rate during the period of default. If no consumer is involved in the legal transaction, the interest rate for claims for payment is 8% above the base rate.

  • Costs of legal enforcement:

The creditor can not demand reimbursement of the costs for a first reminder, as this is not caused by the default, but only establishes it - something different, of course, if the default also occurs without a reminder. Compensable are all relevant and appropriate costs for a reminder or setting of a deadline after the default has occurred. This also applies to costs incurred by commissioning a lawyer to remind the debtor. Collection costs that are not related to the first reminder are also recoverable. The upper limit for the obligation to compensate is determined by the Act on the Remuneration of Lawyers (RVG) . The time spent by the creditor as well as his/her organisational or personnel costs are generally not compensable, so if he/she sends a reminder himself/herself, he/she can usually only claim 2 to 3 euros for paper and postage. If the debtor does not respond to a reminder at all, i.e. if the creditor can not foresee how the debtor will behave, the Federal Supreme Court has clarified in a recent decision that not only the lawyer's fees for a simple letter, but also the costs for a consultation regarding a further procedure are compensable (Federal Supreme Court, judgement of 17.10.2015 - IX ZR 280/14).

Another consequence of the delay is the intensification of liability pursuant to section 287 BGB. The debtor is liable during the delay for any negligence and also for accident, unless the damage would have occurred even if the performance had been on time. Section 287 BGB is particularly relevant in the case of impossibility of performance under section 275 BGB, because the provision of section 287 sentence 2 BGB covers accidental impossibility of performance and accidental unreasonableness of performance.

Example: If the thing to be delivered is destroyed during the delay, the performance gets impossible. The creditor will then claim damages from the debtor due to impossibility of performance. A precondition for compensable damage is that there is a connection between the delay and the damage - as shown, this is not a problem in the case of loss of profit due to the delay. As a rule, however, the delay itself has nothing directly to do with the destruction of the thing (and the impossibility associated with it), so that if the debtor is not responsible for the destruction, compensation is ruled out. Here, however, the aggravation of liability under section 287 BGB also comes into play for accidental damage. If, for example, the object is destroyed by floods (by chance), section 287 BGB overcomes the lack of a causal connection, so that a claim for damages does exist.

The claim for compensation for the damage caused by the delay occurs in addition to the claim for performance and remains in existence if the claim for performance is transformed into another claim for damages or restitution. This means that the creditor may continue to claim performance in addition to the damage caused by the delay.

Termination of the default

Default ends when the act of performance is fulfilled. However, there are also other reasons on the occurrence of which the default ends. These are in particular:

  • Loss of the claim (e.g. through rescission, revocation, impossibility).
  • Assertion of a right of retention
  • Deferment agreement
  • Statute of limitations
  • Waiver of the claim
  • The default then ends "with effect for the future", so that consequences of default once incurred - e.g. interest - continue to exist.