Buying on plan a new real estate property in France

Vente Vefa

Buying on plan a new real estate property in France:

The sale in the future state of completion (VEFA)

 What you need to know before any commitment

 

 

The acquisition process follows the regime of the sale in the future state of completion (VEFA). Under this contract, the buyer becomes the owner of the land and any pre-existing buildings as soon as the sale is completed.

As the work progresses, he then becomes the owner of the building that he builds. He is then required to pay the price in instalments, according to the progress of the work.

Before committing yourself to the acquisition of a property on plan to be your main or secondary residence after construction, be perfectly informed about the risks and guarantees specific to this type of purchase.

 

I. THE DIFFERENT STEPS OF THE ACQUISITION OF A PLAN PROPERTY

I.1 The first step: signing a reservation Contract

The purchaser and the property developer start by signing a preliminary reservation contract.

The purpose of this contract is to determine in advance the conditions of the future sales contract.

It also compels the seller to book the property chosen by the buyer.

In return, the purchaser undertakes to pay a security deposit.

The reservation contract must also include all the information listed below relating to the parties (1), the future accommodation (2) and the terms of the sale (3).

 

1.1.     Information relating to the parties

The contact details of the seller and the buyer must be included in the contract.

If you wish to set up a Société Civile Immobilière to buy the property, you must include a clause authorising the company to take your place as purchaser.

The seller must also provide certain guarantees to the purchaser (see below). These guarantees must be mentioned in the contract.

 

1.2.     Information relating to the future accommodation

In accordance with Article L 261-11 of the Code de la construction et de l’habitation, the contract must include a “description of the building or part of the building sold“.

This description must be precise and cover the accommodation itself as well as its equipment and annexes. It must also mention the materials used, as well as the location of the accommodation in the building or in the building complex (e.g. in the case of the sale of an apartment in a building to be constructed).

A dimensioned plan, which shows the length and surface area of the various walls and rooms, is also necessary (art. R 261-13 of the Code de la construction et de l’habitation).

 

1.3 Information relating to the terms and conditions of the sale

The contract must specify, in the first place, the delivery time of the accommodation, as well as any penalties due by the seller in case of delay.

The price must be determined. If it can be revised, the contract must indicate this and specify the conditions of a possible revision. In addition, the conditions for spreading the price as the work progresses must be indicated.

The reservation contract can be signed at a notary’s office. However, it can also be a privately signed deed, drawn up directly between the seller and the purchaser. In fact, only the contract of sale itself, which will take place at a later date, must be a notarial deed.

Finally, in accordance with Article R 261-28, the seller may ask the buyer to pay him a part of the price (deposit) as soon as the preliminary contract is concluded, in exchange for the reservation of the property. This proportion may not exceed 5% of the price if the contract of sale itself is signed within one year after the preliminary contract, and 2% of the price if the contract of sale is signed within one to two years. This sum is generally held in escrow by the notary of the program.

 

Please note: if the final sales contract is signed within more than two years, the seller cannot ask for a deposit.

 

1.4 A sale subject to many conditions.

It is not uncommon for the property developer to not yet own the land at the time when he markets his program

In this case, the sale is carried out on the condition that the developer completes the acquisition of the land and that the building permit is cleared of any recourse, i.e. there is no longer any possibility of challenging it in court.

These points should be checked before signing the reservation contract. You may be committing yourself to a purchase that may not take place if the property developer is unable to market enough plots to acquire the land or if action is taken against the building permit.

 

1.5 Withdrawal always possible

The non-professional purchaser may withdraw from the contract within ten days of notification or delivery of the draft deed.

The time limit is therefore 10 days from the notification, i.e. delivery of the contract to the purchaser in person or by registered letter.

After this period, the purchaser is definitively committed.

 

I.2.       The second steps: the signing of the contract of sale at the notary

Like all real estate sales contracts, the contract of sale in the future state of completion is signed before a notary. The deed of sale will then be a notarial deed. It must include the information contained in the reservation contract.

The draft deed is sent to the buyer at least one month before the date of signature at the notary’s office.

By signing at the notary’s office, the buyer is definitively committed.

 

I.3.       The thirs step : the payment of the price as the work progresses

According to article 1601-3 of the Civil Code, this type of sale obliges the buyer to pay the price “as the work progresses”.

The Code de la construction et de l’habitation provides more specific rules regarding the spreading of the payments.

In particular, Article R 261-14 provides for a maximum percentage of the price that may be demanded by the seller depending on the stage of the work:

– 35% of the price on completion of the foundations (recorded by a professional in accordance with Article R 261-11);

– 70% of the price at the time the house is put out of water (the stage from which the house is weatherproof);

– 95% of the price on completion of the building.

 

The remaining 5% is paid upon delivery of the building, i.e. when the keys are handed over. The buyer can then visit the finished property and check its conformity. If the buyer disputes the conformity of the property, this sum corresponding to 5% of the price can be deposited.

Article R 261-14 also provides that the sums may be paid “either by constant periodic payments or by successive payments, the amount of which is determined according to the progress of the work.”

Penalties for late payment may be charged to the buyer who is late in paying the seller.

 

I.4.       Step 4 : delivery of the property

When the property is completed, the buyers are summoned to delivery by registered letter.

The property is considered to be completed when it is ready to be used: all the works as well as the equipment (kitchen, bathroom…) must be completed.

The accommodation must also be supplied with electricity, gas and running water.

It must have, if necessary, accessible stairs and a working lift.

However, if minor finishing touches (such as traces of paint) have not yet been completed, delivery is still possible. Indeed, these elements do not make the accommodation unfit for use.

In concrete terms, delivery takes the form of the handing over of the keys to the buyer by the seller, followed by a visit to the premises.

This is the moment when the buyer can observe any possible defects.

To do this, he may be accompanied by a building professional.

At the end of the visit, a delivery report is drawn up by the parties.

Any defects or elements that do not conform to the sales contract must be recorded in it, as well as any finishing work that has not been completed.

Finally, delivery is the moment when the balance corresponding to approximately 5% of the price (or more, depending on the payment instalment chosen) is paid by the purchaser. If faults are found, this sum can be consigned.

If the purchaser finds other defects after delivery, he can indicate them in a specific inventory of fixtures. This inventory shall be drawn up within one month of delivery. The Seller must then repair the defects within one year.

Please note: delivery should not be confused with receipt of the work. Indeed, the receipt took place beforehand, between the seller and the builder. It is good to know the date of reception, because it is this date that causes the deadlines relating to the various guarantees to run out (see below). A copy of the reception report can also be useful in the event of a dispute.

 

II.          GUARANTEES FOR THE BENEFITS OF THE PURCHASER

The VEFA contract is for a property that does not yet exist. The buyer must therefore benefit from solid guarantees which will determine him to conclude the contract.

 

II.1.     Completion guarantees

Before concluding a contract of sale for a building to be constructed, the seller is obliged to take out a financial guarantee for the completion of the building (GFA) or a financial guarantee for the repayment of payments made (GFR), in the event of non-completion (Article L 261-10-1 of the Construction and Housing Code).

Thus, the purchaser is guaranteed to become the owner of a completed building, or at least to be reimbursed the amounts paid in the event of non-completion of the building. In this situation, the seller’s default is characterized by insufficient cash flow at the completion of the work. The buyer can then implement the guarantee provided by the seller.

The GFA can take two forms: the guarantor, which must be a bank or an insurance company, undertakes either to open a credit in favour of the seller to provide him with the sums necessary for the completion of the building, or to pay these sums as joint and several guarantor of the seller.

As for the GFR, it necessarily takes the form of surety by which the guarantor becomes joint and several guarantor of the vendor.

These guarantees terminate upon completion of the permanent. The contract of sale may provide for the possibility for the guarantor and the vendor to replace the GFA by a GFR and vice versa, provided that the purchaser is informed accordingly.

 

WARNING: Whatever the type of guarantee, before signing the reservation contract, the purchaser must absolutely check the identity of the Financial Institution that has granted its financial guarantee for the programme. Indeed, some purchasers have found themselves with unfinished buildings even though they had paid a large part of the price because not only had the developer gone bankrupt but also the financial institution that had to provide its financial guarantee.

 

A piece of advice to give to any buyer: only contract with developers whose financial partner is a financial institution that provides all the guarantees of solvency, such as a major bank established in France.

 

II.2.     Warranties against construction defects

2.1.     The guarantee of the perfect achievement

Under the terms of article 1792-6 of the Civil Code, “The guarantee of perfect completion, to which the contractor is bound for a period of one year from the date of acceptance, extends to the repair of all disorders reported by the client…”.

The guarantee of perfect completion therefore concerns faults and other disorders reported after acceptance of the work. It has a duration of one year.

If the purchaser notices any defects within this period, he must report them to the company either directly in the reception report (when the defects are apparent), or later by registered letter.

The builder (or the seller) and the buyer then agree on a deadline for repairs. If the work does not take place within the set deadline, the purchaser may refer the matter to the competent court.

 

2.2.     The two year guarantee

This guarantee, also known as the “guarantee of good working order”, is valid for 2 years from the reception of the work. It is based on article 1792-3 of the Civil Code.

Its effect is to oblige the manufacturer to repair or replace equipment that does not work. By “elements of equipment” is meant all those that can be removed without compromising the entire work. For example, this may include shutters, but not paint, which is considered a purely visual item, not intended to “work”.

To implement this guarantee, the purchaser must report malfunctions to the manufacturer by registered letter. He will then give formal notice to the manufacturer to act at his own expense within a specified period of time.

 

2.3.     The ten-year guaantee

This warranty is the longest of the three legal warranties. It has a validity period of 10 years from receipt of the work.

It concerns all damage which compromises the solidity of the building or makes it uninhabitable, unfit for the use which was initially intended for it (e.g. risk of landslide, malfunction of the heating system, etc.). This includes equipment “inseparably forming a body with the work” (art. 1792-2 of the Civil Code), namely all equipment that cannot be dismantled without damaging, at least partially, the building.

This warranty is based on article 1792 of the French Civil Code, which lays down the principle of liability as of right of the manufacturer. The purchaser does not have to prove a fault on the part of the manufacturer for the latter to be held liable. The manufacturer can only be relieved of his responsibility if he demonstrates that the cause of the damage is foreign to him.

 

II.3.     Insurance policies for structural damage

This is a compulsory insurance for anyone wishing to have work carried out. It is governed by Articles L 242-1 and 2 of the Insurance Code. In the case of a VEFA, the person who has the work carried out is the seller. It is therefore up to him to take out such insurance and attach the corresponding certificate to the contract of sale (see above). If he does not take out such insurance, the seller is liable to a 6-month prison sentence and a €75,000 fine.

The principle of this insurance is that in the event of a claim, all the work covered by the ten-year guarantee (see above) is reimbursed rapidly, without the need for a court decision. This insurance has a duration of 10 years from the date of the reception of the work. It therefore expires at the same time as the ten-year guarantee.

The work-damage insurance takes effect at the time of the expiry of the guarantee of perfect completion, i.e. one year after the reception of the work. Nevertheless, repairs can be taken over before the expiry of this period. This occurs in particular in the event of non-performance of the contractor’s repair obligations.

In the event of a claim, the purchaser must report it immediately to the insurer. The latter then makes contact with the responsible builders.

The insurer must submit an offer of compensation to the purchaser within 90 days. There are several possible scenarios:

– If the buyer accepts the offer, compensation is paid within 15 days;

– If the insurer fails to meet the deadline, or if he offers clearly insufficient compensation, the purchaser can start the work himself after having informed him, and the compensation paid will be increased by default interest;

– If the insurer refuses to cover the claim, the purchaser may ask it to apply the ten-year guarantee.

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