LIABILITY RESERVES SERVE TO SECURE POSSIBLE WARRANTY CLAIMS.
13.02.2014
Typically, retention deposits are agreed upon for construction projects.
These serve to secure the client against possible warranty claims. They entitle the client to withhold part of the work remuneration for a limited period of time and to indemnify themselves from this amount in the event of defects due to the contractor's unwillingness to remedy the situation. The retention amount is usually 2-51% of the work remuneration and can be retained until the end of the warranty period. So that the contractor can receive his full work remuneration immediately after completion of the work, it is usually possible, depending on the agreement, to replace this retention amount by presenting a bank guarantee. Such guarantees are issued by banks or insurance companies. They undertake to pay the client the agreed retention amount upon request at any time up to the end of a certain period of time. The guarantees are usually formulated in abstract terms. This means that there are no conditions attached to the occurrence of the guarantee. As soon as the client formally calls on the guarantee, the guarantor must pay the amount within the agreed period. Payment can only be refused if the guarantor is served with a court order prohibiting the payment before the payment deadline expires. This would have to be obtained by the contractor together with an interim injunction. This is only possible if the client can be proven to have abused the law in court.