This newsletter covers the most commonly-encountered aspect of construction industry guarantees, the law governing house building guarantees.
The Guarantee Obligation
In the construction industry, guarantees usually mean contract performance guarantees. During the guarantee period, the party undertaking the guaran-tee may be exempted from liability only if it can prove that the cause of the fault arose subsequent to performance.
The guarantee obligation does not affect statutory rights relating to warranty, and so the beneficiary may also make warranty claims against the obligor.
House Building Guarantees
Guarantee obligations are governed by Gov-ernment Decree 181/2003. (XI. 5.) on Compul-sory House Building Guarantees (hereinafter the Decree).
The provisions of the Decree apply even if the contract does contain specific terms relating to guarantees.
Guarantee terms stipulated by the parties may be stricter than those provided in the Decree, but if they are less strict, i.e. less favourable to the benefi-ciary, they are void and replaced by those in the Decree.
Beneficiary and Obligor of Guarantee
The guarantee obligation is borne by the party un-dertaking the obligation to carry out construction and installation work in the construction contract, or in the absence of a construction contract, by the party which actually carries out the construction or installation (hereinafter together: contractor).
The guarantee may be exercised against the contractor or the contractor’s designee (person or organisation) by the owner or – until rights of ownership are transferred – the developer (hereinafter beneficiary).
Scope of the Guarantee
The guarantee extends to those parts and contents of the building defined in the Decree: the building structures of a newly-built dwelling and residential building, the construction and installation of hous-ing and building equipment, and the areas and parts of residential buildings serving the dwellings. Those items of equipment in the dwelling and in the building defined in the Decree are also covered by the guarantee if they constitute component parts of the dwelling.
The Guarantee Period
The guarantee period is the period of three years following the day of completion of the acceptance procedure.
Repair of Defects
Within 15 days of the beneficiary reporting a fault, the contractor must examine the fault and make a statement in response to the beneficiary’s request. The repair, replacement or repeat work must be carried out in such a way as to not obstruct the use of the residential building or dwelling.
Letter of Guarantee
The guarantee is exercised by means of a letter of guarantee. The contractor must issue a separate let-ter of guarantee for each dwelling and provide it to the beneficiary at the acceptance procedure.
The letter of guarantee must contain:
a) the definition of the items covered by the guarantee: the dwelling, the areas and parts of the building serving the dwelling and the structures and equipment,
b) the rights accruing to the beneficiary under the guarantee and the time limit and condi-tions for exercise thereof,
c) the name and address of the contractor and the organisation it designates to make repairs,
d) the date of completion of the acceptance pro-cedure,
e) the statement that the guarantee does not af-fect the beneficiary’s statutory rights.
Improper execution of the letter of guarantee or failure to provide it to the beneficiary does not af-fect the applicability of the guarantee commitment.
1. Structures of the Building Covered by the Statutory Guarantee for Dwellings and Residential Buildings
a) the foundations, walls and floor structures,
b) the surfaces of the dwellings (including paint-ing and wallpapering),
c) the doors, windows, balustrades and para-pets,
d) the chimneys,
e) the roof and roof superstructures,
f) the gutters and rainwater drainpipes,
g) the waterproofing, heat insulation and render-ing.
2. Equipment of the Dwelling and Building Covered by the Statutory Guarantee
b) heating equipment (individual heater, convec-tor, electrical storage heater),
c) hot water heater (gas water heater, electric boiler, bath water heater),
d) mechanical services equipment (wall tap, sink, bath, shower, washbasin, toilet cistern, toilet bowl, etc. and their fittings),
e) ventilation equipment (cooker hood, etc.),
f) built-in furniture (built-in wardrobes, kitchen cabinets, etc.)
g) roller shutters, blinds, sunshades,
h) the bell and the part of the entryphone inside the dwelling, and the entryphone and bell equipment including cables,
i) switches and power sockets connected by the dwelling’s electrical cables,
j) district heating and hot water equipment and their fittings, including the pipe sections within the dwelling and radiators, except pipes and equipment approved and used by the district heating supplier,
k) water, waste water and gas pipes and their fit-tings, including the section of pipes within the dwelling and their fittings; except, in case of gas pipes, pipes and equipment approved and used by the gas supplier.
l) electrical cables and earthing system, including the section of cables and the fittings within the dwelling, except unmetered appliances and meters approved and used by the electricity supplier,
m) ventilation and air-conditioning equipment serving the dwelling,
n) central aerial and amplification equipment, in-cluding the section of cables and the sockets within the dwelling,
o) passenger and goods lifts,
p) equipment for collecting waste generated in the household,
q) a well serving the dwelling and its fittings,
r) equipment within the boundary of the property for disposing of or soaking away the domestic sewage generated in the dwelling.
3. Parts of a Residential Building Serving the Dwellings and Covered by the Guarantee
a) roof terrace,
b) cellar or attic space or fuel store,
c) entry passage,
e) passages and access decks,
f) rooms for central equipment,
g) laundry room,
h) drying room,
i) perambulator and bicycle store,
j) dustbin store,
k) garage (or underground garage).
July 2007 Dr Gyula Horváth
This Newsletter gives only summary information. It is not comprehensive and does not qualify as advice.