In December 1959 the first defendant purchased a plot of land on which an apartment block was being built. The basic construction work had been completed, though the building inspectorate had not yet approved it, and a start had been made with the internal decoration. On 22 February 1960 the defendants leased one of the apartments to the plaintiffs, the lease to run from 1 March 1960, or at the latest from 1 April. The plaintiffs moved their furniture into the apartment when it was apparently ready, but they could not move in themselves because on 29 March the building inspectorate having ascertained that, inter alia, the reinforced concrete ceilings were not up to specifications, prohibited further work and declared, under para. 79 par. 2 of the Hesse Building Regulations, that the building should not be occupied until final approval. In the expectation that the objections could soon be allayed and final approval obtained, the parties agreed that the plaintiffs should temporarily move into a hotel at the defendants' expense, but by early May 1960 it had become clear that in view of the inadequacy of the foundations, extensive support works would be required before final approval could be granted. On 27 May 1960 the defendants informed the plaintiffs in writing that it was impossible for them to honour the contract of lease, and refunded the building cost premium. The plaintiffs rented another apartment, and moved into it on 18 June 1960. The defendants paid the plaintiffs' expenses up to this point, but refused to pay anything in respect of the higher building cost premium, extra expenses of moving and so on.

The plaintiffs have put in an itemised claim amounting to DM 5,893.92. The Landgericht held that claim justified in principle, and the defendant's appeal from this holding was dismissed. The defendant's further appeal is now dismissed.

Reasons

I. The Court of Appeal held that the plaintiffs' claim for damages for non-performance could be supported by the meaning, if not by the terms, of para. 538 par. 1 BGB in connection with para. 537 BGB.

II. No legal error to the detriment of the defendant was committed by the Court of Appeal. Indeed, it was unnecessary for the Court of Appeal to invoke the principle underlying the decision of the Bundesgerichtshof in BGHZ 9, 320, whereby para. 538 BGB can be construed so as to entitle the lessee of property yet to be produced to claim damages for non-performance if defects in the sense of para. 537 BGB are present at the time when the property is made ready for delivery, whether or not the lessor was at fault. In our case the defects which rendered the leased property incapable of contractual use were already present at the time when the contract was made. The plaintiffs were to move in on 1 April, if not on 1 March, and the building was essentially ready on 22 February. It is beyond dispute that an apartment is defective in the sense of para. 537 BGB if the concrete ceilings in the building are not up to official specifications and if its foundations are so defective that extensive support work is required before the building regulations are satisfied. The appellant puts forward far too narrow a conception of 'defect' in this connection, especially in its contention that a defect in the foundations of the building does not constitute a defect in the leased apartment. We need not here decide whether every trivial defect in the rest of the building which could have an effect on the apartment actually leased, such as a defective water pipe in an adjacent apartment (reference omitted), should be treated as a defect in the leased property, but it is perfectly evident that an apartment is defective in the sense of paras 537, 538 BGB if there are defects in the foundations or the roof or other parts of the building which are essential for the leased apartment. It was a certain, or at least a probable, result of the building fault which admittedly existed at the time of the lease that the building inspectorate would prohibit occupation and refuse the approval required for it to be used as a dwelling. That approval had not yet been refused at the time of the lease is immaterial: it is sufficient that the building defects on which the refusal was based were already present. It follows that para. 538 BGB can be applied directly. Nor is it necessary that the defendant should have been at fault, for his liability flows from the guarantee, implied by law into the lease, that the property is free from defect.

III. The appellant contends that paras 275, 323 BGB are applicable here rather than paras 537, 538 BGB, and that the claim should therefore be dismissed. It is generally agreed that paras 275, 323 BGB, which deal with subsequent impossibility, are capable of application to a contract of lease, but it is nevertheless the clear intention of the legislator that they should be subordinated to the special provisions of paras 537, 538 BGB if these provisions are applicable (references omitted). That is the case here. As we have said, this is a typical instance of the strict liability of the lessor for defects existing in the leased property at the time of the lease, a liability based on paras 537, 538 BGB, not a case of subsequent impossibility in the sense of paras 273, 323 BGB, for which the landlord is not responsible.

The appellant's reference to the jurisprudence of the Reichsgericht is wide of the mark. The cases cited (RGZ 82, 203, 207; 146, 60, 64; 157, 363, 367) involved situations where, after the lease was concluded, reasons for which the lessor was not responsible rendered it impossible for him to fulfil the contract. In RGZ 82, 203, 207, the premises were leased before the First World War for use as a dance hall, a use which was rendered impossible by a wartime ban on dancing in public. In RGZ 146, 60, 64, premises had been leased for use as a retail outlet, and could no longer be used for that purpose after the enactment of the statute for the protection of retail trade on 12 May 1933. In RGZ 157, 363, 367, the restaurateur's licence which the lessee needed was withdrawn owing to the fault of a sub-lessee for whom he was responsible: here, too, the lessor was held not liable because it was not his fault that the performance of the contract had become legally impossible.

The situation before us is different in that the plaintiffs' inability to occupy the apartment because of the refusal of building approval was due to defects of construction which already existed at the time the contract was formed. Nor was it, as the appellant contends, legally impossible for the defendants to let the plaintiffs have the leased premises. There was nothing impossible about proceeding with the requisite support works and so on, and thus obtaining official approval. The defendants may not have had the funds to do this, but that does not affect the plaintiffs' claims under paras 537, 538 BGB, any more than the fact that the defendants had been deceived by the architect who sold them the property. It is against him that they must seek recourse.

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