The nightmare of any purchaser of a future building is the non-completion of the building by the developer that has been declared bankrupt, with the impossibility to force him to perform his obligations, a situation which unfortunately occurs all too often.
The Civil Code (Article 1601-5) requires the developer of a VEFA (vente en l’état futur d’achèvement) building to provide the purchaser with either a guarantee of completion of the building or a guarantee of reimbursement of payments made if the building cannot be completed.
Objectives
With a completion guarantee, the buyer can have the building completed without having to pay a higher price to another developer. The repayment guarantee ensures the reimbursement of payments made in the event that the sale cannot be completed.
Scope of application
The scope of these mandatory guarantees is limited to VEFA sales.
They are not required if the construction is carried out by the State, municipalities, public institutions or companies in which these public authorities have a majority shareholding.
It is also not required for the construction of a multi-apartment complex acquired by a single buyer.
Furthermore, it does not apply for buildings which do not fall within the "protected sector" covered by the special legislation on VEFA sales.
For a building to be “protected”, three conditions must be met: it must be a building intended for residential use or for professional and residential use (i), the seller must be the project owner (“maître de l’ouvrage”) (ii) and payments or deposits must be made even before the construction is completed (iii).
Mandatory guarantees
Failure to comply with the obligation to mention the chosen guarantee in the VEFA contract gives rise to an action to invalidate the contract. The action can only be initiated by the purchaser and only before the completion of the work.
The law deems inapplicable any waiver of the completion guarantee.
The completion or repayment guarantee must be given by a banking or savings institution.
Choice between completion guarantee and repayment guarantee
The seller alone can choose which of the two guarantees to include in the contract. The seller and the guarantor have the option, during the execution of the sale’s contract, to substitute the completion guarantee for the repayment guarantee or vice versa, provided that this option has been provided for in the deed; moreover, the substitution must be notified to the purchaser, in order to be effective.
Both the completion guarantee and the repayment guarantee provide the purchaser with a direct claim against the guarantor. The purchaser does not have to contact the seller beforehand, but must of course prove the lack of completion.
Automatic substitution of the reimbursement guarantee for the completion guarantee
The reimbursement guarantee automatically replaces the completion guarantee if it is established that the construction cannot be completed. This non-completion must be due to material or legal reasons, which excludes the case of the invalidity of the contract invoked by the buyer, after the construction.
Scope and limits of the completion guarantee
The notion of "completion of the building" refers to the "complete" completion, i.e. the completion of "all the works, installations, equipment and elements of the building".
This full completion must be in accordance with the contractual provisions, which is not limited to the term as defined by article 1601-6 of the Civil Code (execution of the works and installation of the equipment elements essential for the use of the building in accordance with its destination).
In a co-ownership building, the completion does not only concern the private areas, but also the parts belonging to the co-ownership.
Although the completion guarantee aims to ensure the completion of the construction, it does not in principle cover delays or defaults, unless they are of a substantial nature or make the building or equipment unfit for use.
End of the guarantee
The completion or reimbursement guarantees end with the declaration of completion (“constat d’achèvement”) of the building.
If the parties disagree, the state of completion is established by an expert appointed by court.
The guarantee ends with the completion report signed by the purchaser.
In the case of co-ownership building, it seems that the bank remains liable with regards to the common areas until all the co-owners have accepted the declaration of completion, even if some buyers have already signed the document; however, the latter will lose their guarantee for their private areas, as opposed to the buyers who refused to sign.
[1] Cour d’appel luxembourgeoise, 16 février 2000, arrêt civil, Pasicrisie luxembourgeoise, t. 31, p. 239
[2] Elter et Schockweiler, Copropriété et vente d’immeubles à construire, n° 253
