The recent bankruptcy of real estate development companies has highlighted a series of complex but fundamental questions surrounding completion and/or reimbursement guarantees issued in the context of off-plan sales (ventes en l'état futur d'achèvement) ("VEFA").
Specifically, purchasers are confronted with the fact that the completion guarantee that the developer has issued to their benefit, when transformed into a reimbursement guarantee, generally only covers the value of the construction already completed, excluding the price of the land and any potential additional/complementary works ordered subsequent to the signature of the notarized deed and the issue of the guarantee.
Similarly, undue payments made to the developer for uncompleted works, something which is prohibited, are not reimbursed when the reimbursement guarantee is called, thus the purchasers may have to pay them a second time upon the implementation of the completion guarantee and the actual completion of the works.
The financial losses may thus be quite heavy for the purchasers in case of the developer's failure, leaving them no other choice than to obtain compensation for their losses.
However, a failing developer generally being equivalent to a bankrupt developer, in general purchasers have only little hope of obtaining indemnification from said developer.
Therefore, purchasers will certainly attempt to seek, whether rightly or wrongly, the liability of the other actors who advised during the acquisition process, in particular that of real estate agents, notaries, and even banks having financed the acquisitions.
In this context, and even more so given the current market situation, it is essential that professionals becoming involved with purchasers in the context of the entry into off-plan building sales contracts explain clearly to those purchasers the risks associated with their acquisition, and the potential limits of the guarantees they intend to have issued to their benefit.
Likewise, it will be imperative for real estate professionals to inform their clients that under Article 1601-9 of the Civil Code, or Article XVII of the Law of 28 December 1976 on the sale of buildings to be constructed and the obligation to guarantee because of faulty construction, developers are prohibited from claiming in advance payment for works not actually completed, the risks associated with such payments, as well as the criminal penalties for non-compliance with those provisions.
To avoid triggering their liability, professionals involved in the sale must imperatively prove that they have fulfilled their obligation to provide advice and information. To do this, they must keep written records of the entirety of the advice and warnings they gave to the purchasers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.