In a recent ruling, the Higher Regional Court (OLG) of Schleswig-Holstein has held that even a partial undeclared cash arrangement renders the entire contract void, meaning the craftsman cannot claim compensation for the services rendered.
The ruling is based on a case in which a craftsman carried out electrical installations for customers, with the parties agreeing that a certain amount would be paid against an invoice and a further amount would be paid without an invoice. Following the installations, the craftsman sought additional remuneration. The OLG stated that even a partial undeclared cash arrangement results in the entire works contract being void, with the consequence that neither can a further payment claim be asserted, nor can the customers claim damages for defective work. Reference should also be made at this point to a recent BGH ruling of 1 August 2013 (Az. VII ZR 6/13), in which the BGH had already clarified that, in the case of an undeclared cash arrangement, the customer is not entitled to any claims for defects.
Frequently asked questions
Frequently asked questions
What are the consequences of an undeclared cash payment arrangement for a works contract?
An undeclared cash payment arrangement renders the entire works contract void. According to the case law of the Higher Regional Court of Schleswig-Holstein, this applies even if only part of the remuneration is to be paid without an invoice. The contract violates the German Act to Combat Illicit Employment (Schwarzarbeitsbekämpfungsgesetz) and is therefore unenforceable.
Can a tradesperson claim compensation for services rendered under an undeclared cash agreement?
No. Since the entire contract for work and services is void due to the undeclared cash arrangement, the tradesperson is entitled to neither further remuneration nor compensation for the value of services already rendered. This applies even if only part of the fee was agreed to be paid off the books.
Is the customer entitled to remedy of defects under an undeclared cash payment arrangement?
No. In its ruling of 01.08.2013 (Az. VII ZR 6/13), the BGH clarified that the customer has no claims for defects under an undeclared cash payment arrangement. Claims for damages due to defective work are likewise excluded, as the contract is wholly void.
When does a partial undeclared cash agreement exist?
A partial undeclared cash agreement exists when only a portion of the agreed contract price is officially paid by invoice, while another portion is paid without an invoice and without tax reporting. Such a partial agreement renders the entire works contract void, not just the undeclared portion.
What risks does the client bear in an undeclared-work arrangement?
The client loses all contractual warranty rights. If defects occur, the client cannot demand subsequent performance, damages, or repayment. In addition, tax-related and regulatory consequences may arise due to participation in undeclared work.