Sale of building in future state of completion: completion guarantee and money back guarantee
By Lex Thielen 1
Definition
The completion guarantee and the money-back guarantee are bank collateral intended to protect the purchaser of a building in the future state of completion - which pays down payments as the work progresses. - against the risk that the construction may not be completed for reasons inherent to the developer.
While the completion guarantee allows the purchaser to complete the construction without, if necessary, having to pay a higher price himself from another manufacturer, the refund guarantee ensures the return of the goods. payments made in the event of termination of the contract due to lack of completion.
Scope
The scope of this guarantee obligation is limited to the sale in the future state of completion.
It does not play in the case of a forward sale, because in such a sale of building to build the buyer pays in any case only upon delivery of the completed building.
The guarantee of completion or repayment is not required when the construction in question is carried out by the State, municipalities, public institutions and companies in which these public authorities have a majority stake.
Nor is it required for the construction of a multi-family home acquired by a sole proprietor.
Moreover, it does not apply in the case of a sale in the future state of completion of a building that does not fall within the "protected area" covered by the special legislation for the sale of buildings to be constructed. For a building to be built to be part of the protected area, three conditions must be met: it must be a residential or professional building and residential, the seller must have reserved the powers of the owner of the work and must be paid or deposits must be made even before the completion of the construction. A sale of a building to be constructed for which one of these conditions is not fulfilled does not fall within the scope of this particular legislation, and therefore the seller is also not subject to the obligation of the completion guarantee or the guarantee of repayment.
Mandatory nature
Because of the specific nature of the contract for the sale of buildings to be constructed, the relevant legislation expressly enumerates certain indications which must appear under pain of nullity in the contract. In the event of a sale in the future state of completion, one of these mandatory details is the guarantee of completion, or the guarantee of reimbursement of the payments made in the event of termination of the contract.
Failure to comply with the obligation to mention this warranty will void the contract of sale in the future state of completion. This is a relative nullity that can only be invoked by the purchaser and this only before the completion of the work.
This obligation is of public order while it aims to protect the purchaser. It can not therefore be excluded even if, according to private international law, a foreign law was applicable to the sale in the future state of completion.
Finally, under article 1601-5 of the French Civil Code, any waiver of the legal guarantee is deemed unwritten.
The completion guarantee constitutes for the seller an obligation of result. This is also the case even if it has been voluntarily agreed on a building that is not part of the protected area.
Choice between completion guarantee and money back guarantee
The choice which of the two warranties he wants to provide in the contract belongs to the seller alone. During the execution of the sales contract, the seller and the guarantor may substitute the completion guarantee for the repayment guarantee or, conversely, provided that this option has been provided for in the deed of payment. sale; Moreover, for it to produce effects, this substitution must be notified to the purchaser.
Form of the guarantee
The guarantee of completion or refund must be given by a bank or savings institution.
The completion guarantee takes the form:
• or an opening of credit by which the one who has consented to it is obliged to advance to the seller or to pay on his behalf the sums necessary for the completion of the building, this agreement having to stipulate for the benefit of the acquirer or sub-purchaser the right to enforce it;
Or • a suretyship agreement under which the surety agrees to the purchaser, jointly and severally with the vendor, to pay the sums necessary for the completion of the building.
It should be noted that, unlike the money-back guarantee, the completion guarantee is for an indeterminate amount, since it is not calculable in advance how much the actual completion of the construction will cost in the event of default of the promoter-seller.
The repayment guarantee, for its part, must always be in the form of a suretyship agreement under which the surety undertakes to the purchaser, jointly with the seller, to refund the payments made by the purchaser in case of amicable or judicial resolution of the sale due to lack of completion of the building.
Conditions for the bringing into play of guarantees
The implementation of the completion guarantee can only be effective if the seller does not fulfill his obligation to complete the construction.
The guarantee covers all cases in which the seller is not able to ensure the completion, whether for reasons beyond his control or because of mistakes made by him or persons for whom he is responsible; thus the guarantee will have to play in case of bankruptcy, theft, breach of trust, fraud or embezzlement of the funds intended for the financing of the construction. 2
In order to benefit from the money-back guarantee, the sale must be settled and the resolution must be due to the seller's non-fulfillment of the seller's obligations. failure to complete.
Both the completion guarantee and the money-back guarantee give the purchaser a direct right to the bank that has granted the guarantee. The buyer does not have to go to the seller first, but he must obviously prove the lack of completion.
Automatic substitution of the money back guarantee for the completion guarantee
The money-back guarantee is automatically substituted for the completion guarantee when it is established that the construction can not be carried out. This non-realization must be due to material or legal reasons.
So it was decided that: "The refund guarantee is, in accordance with Article 1601-4, 4th paragraph of the Civil Code, automatically substituted for the guarantee of completion only if it is established that the construction can only be carried out for material reasons or legal. The notions of physical or legal obstacles to the construction are to be interpreted restrictively. It follows that the cancellation, at the request of the purchaser, of the contract of sale in the future state of completion for defect of form, occurred after the construction of the building and therefore having in fact not constitute an obstacle to it, does not give rise to the replacement of the guarantee of repayment with the guarantee of completion and does not thus allow the purchaser to form against the guarantor an action in payment for the restitution advances received by the seller. " 3
Extent and limits of the completion guarantee
The concept of "completion of the immovable" is not limited to the definition of completion given by Article 1601-5 of the Civil Code concerning the transfer of ownership in the form of forward sales, but refers to the "complete" completion, that is, "all works, installations, equipment and elements of the building". 4
This complete completion must be a completion in conformity with the contractual forecasts, which is not limited to the completion defined in article 1601-6 of the Civil Code (execution of the works and installation of the elements of equipment essential to the use of the building according to its purpose).
In a condominium building, complete completion is not only for the private portions, but also for the common areas.
Although the completion guarantee aims to complete the construction of the building, it does not, in principle, concern either the failure to comply with the agreed construction deadline, the lack of conformity, or the various defects in construction, unless, however, they are of a substantial nature or render the building or equipment unfit for use.
End of the guarantee
The completion or refund guarantee ends with the completion report of the building.
In the event of disagreement between the parties, the completion of the refurbishment work shall be confirmed by an expert appointed by the judge hearing the application for interim measures, seised at the request of a party or the guarantor bank.
The completion report signed by the purchaser extinguishes the guarantee.
In the event of sale of a building to be constructed constituting a co-ownership, it must be admitted that the bank remains bound by the guarantee of completion of the common parts until all the co-owners have accepted the finding of the completion, even if some of them have already signed the finding of completion; however, the latter will no longer be able to rely on the guarantee in terms of their units, unlike those of the purchasers who have refused the finding of completion.
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1. Lex Thielen is a lawyer at the Court and author of the books "The professions of real estate in Luxembourg law", Editions Larcier, 2010, "The lease contract", Editions Promoculture / Larcier 2013, "All about real estate", Editions Promoculture / Larcier (1st edition 2015, 2nd edition November 2016) and "Immobilienrecht in Luxemburg, einfach erklärt" Editions Promoculture / Larcier 2016. This article has already been published in the issue 67 - May 2011 of habiter.lu, and has been updated.
2 . Elter and Schockweiler, op. cited, No. 253.
3. Luxembourg Court of Appeal, 16 February 2000, civil judgment, Pasicrisie luxembourgeoise, t. 31, p. 239.
4. Elter and Schockweiler, Co-ownership and sale of buildings to build, No. 253.