French Law Is Well Endowed With Consumer Protection Laws

An introductory guide to the process of making a property purchase published for general information only..

It is not uncommon amongst the French to buy off-plan. The property is often part of a development within a city centre, near the coast or in a skiing resort. Buying a property ‘off- plan’ means buying a property from a developer that has yet to be built, on land. The huge scandals that we so regularly read about concerning the sale of off-plan developments Bulgaria, Dominican Republic, and certain other countries do not occur In France .
There is a strong level of consumer protection offered to those buying off-plan in France and things proceed satisfactorily.
The process of buying property in France is very structured and regulated and is intended to avoid problems both for the purchaser and the vendor. The French purchase process affords a certain amount of protection to the buyer. Nevertheless, as with any commercial transaction, you must take a commercial approach to the project.
Carefully selecting the development you plan to invest in increases your opportunity for realizing an attractive capital gain on the property, as prices on the whole development generally move upwards with the progress of building works.
The name of the contract you will need to enter into for such a purchase is called a «Vente en l’état future d’achèvement (VEFA)». It may also be called a «Vente sur plan».

1. Preliminary Contract

Buying a property off-plan is normally a two stage contract process. In the first stage you will sign a preliminary contract, before you enter into the final VEFA contract itself. The preliminary contract is called a «contrat de réservation».

1.1. Purpose of Contract

Before you sign the initial contract, make sure that the person explaining the procedure and negotiating the contract is a French licensed real estate professional. The development’s appointed notaire can only agree to the property being marketed if full planning permission, insurance and bank guarantees are in place.
The law prescribes only a minimum level of information need be provided in the preliminary contract although, to assist with marketing of the properties, most developers will generally offer a contract that provides an appreciable level of detail on the specification.
However, the full and final specification will be set out in the VEFA contract itself, and it is this specification that will serve as the final contract document between you. In practice, there may be little or no difference between the two documents, but you need to be aware of the formal legal position and the potential for the specification to change.

1.2. Deposit

French law strictly forbids the payment of any deposit before the signature of the initial «contrat de réservation».
Accordingly, if you are asked for a deposit by a developer before you sign the contract,you should refuse.
At the time you do sign you will be asked for a «dépôt de garantie». The deposit that can be required is 5% The deposit cannot be used by the developer to fund the development. It must be placed in a client account with the State Treasury Bank through the Notaire, and cannot be withdrawn until the sale is completed. The preliminary contract must state the latest date when the final VEFA contract will be signed.

1.3. Cooling Off Period

Once the «contrat de reservation» is signed you have a seven day 'cooling off' period, during which time you can withdraw from the contract and receive a full refund of your deposit.
The seven day cooling off period does not start until you have received a copy of the contract documentation, which should be sent to you by recorded delivery. It does not matter that you may have been handed a copy by the developer at the time you signed the contract. There must be formal, certified confirmation you have received the contract, which can normally only be achieved by a recorded delivery receipt.
If you withdraw from the contract beyond this date then you will lose your deposit, unless you are able to invoke one of the permitted reasons allowed by law, e.g. failure by developer to proceed in accordance with preliminary contract.

If you are seeking a mortgage to fund the acquisition, then a conditional clause is inserted in the preliminary contract, making signing of the final VEFA contract subject to you obtaining a mortgage with a time limit of 6 months – after which the developer may increase the price to the then current market value, or cancel and you forfeit deposit. In some cases a developer will have access to a mortgage lender for their clients, but whether on terms more or less favourable than you could obtain elsewhere, only you can judge.
If you are happy to proceed with the preliminary contract, then the final VEFA contract will be signed when full details of the proposed development are known, and the contract documents have been prepared by the Notaire, (and mortgage finalised).

2. VEFA Contract

The final contract is called the «Vente en l’état futur d’achèvement» (VEFA).

2.1. Preparation of the Contract

The standard contract will then be used for all sales in a development.

2.2. Contract Documentation

The contract is a comprehensive document that must contain a full description and plans of the proposed dwelling and its precise location . It must also include a technical description of the materials and equipment used in the construction, and list the communal facilities and their conditions of use. This document is called the «notice descriptive»
You will be provided with your own copy of the full technical supporting documentation («descriptif détaillé»). Nevertheless, you are entitled to consult the documentation at any time, and it forms part of the contract.
When the property has been completed you need to be able to compare any difference between the property shown on the plan and the actual realisation. Indeed, the law states that if you are not given this information (or the right of access to it), then the contract is capable of being annulled.

The developer is also obliged to provide you with the set of the rules that will apply on the development, e.g. use of the communal areas, business use of the property, service charges.
This document is called the «cahier des charges» and it is important you read and understand it.
Not only will the VEFA contract be in French but it will contain a large number of technical terms and drawings that the layman is unlikely to be able to understand. Even a French person would have difficulty in grasping the detail of the contract. Accordingly, you would be well advised to appoint your own professional advisor, such as an architect, to take you through it.
Provided you have previously signed a preliminary contract, you are entitled to be supplied with a full copy of the final VEFA contract at least one month before signature, in order to give you time to properly understand and agree the contents.
If this period is not respected then, even though you may sign, you will retain a right of retraction. The one month period of reflection does not start until you have received a copy of the contract, sent by recorded delivery. You need to review with care the level of precision in the contract and how much discretion may be left to the developer.
Thus, it is not unusual for the contract to provide a clause granting the developer up to 5% dimensional tolerance. You need to decide whether or not this is acceptable to you. The developer is likely to seek as much tolerance as possible, and if you give them too much room for manoeuvre you may well end up with something you did not quite expect and be unable to do anything about it!

One other important issue you need discuss with the developer and the Notaire is the level of discretion that may be left to the developer to choose or change materials, colours and fittings etc.
Thus, it is not unusual for the developer to include a clause with the words 'or equivalent' in the contract, relating to the use of materials or equipment. You may wish to insist that any changes in the specification be subject to your prior authorisation, or to ensure that the level of discretion is drawn as tightly as possible.
The contract will normally grant the purchaser some choice about colours and fittings etc. from a catalogue supplied by the developer. If it does not, you should try and insist upon it.

2.3. Price

The contract will be given for a fixed price.

2.4. Delivery Date

The contract will state the quarter of the year of completion. The law prescribes specific penalties for a developer who does not deliver a property by the due date. Delays caused by “force majeur” – i.e. very bad weather; will be taken into account.
Fortunately, delays in the completion of new off-plan developments is uncommon, in most cases no more than a few months at the most. but in some cases running into a year or more.
You are entitled to withdraw from the contract and receive full reimbursement, if there is an unreasonable and substantial delay.
Only a court of law could determine what might reasonable in the circumstances, but the general principle the courts operate is that delay is not generally a sufficient reason to withdraw from the contract. You may well be awarded 'damages' if you suffered injury as a result of the delay, but you would not be awarded 'penalties', unless you had a suitable clause in the contract.

2.5. Fees

The Notaire and legal fees for a VEFA are lower than those for an existing property. Whilst the latter come out at circa 11% to 15% the fees for a VEFA are around 3%. The appointment of a second Notaire does not ordinarily increase the fees, which are shared between the two Notaires.

2.6. Grounds for Withdrawal

The law stipulates several grounds on which the purchaser can withdraw from the contract and recover all monies paid to the seller.

  • The developer did not respect the date in the preliminary contract for signing of the final VEFA contract;
  • The final purchase price in the VEFA contract or at completion is at least 5% higher than the provisional price, excepting any increases permitted by a price revision clause that may be in the contract;
  • You are refused a mortgage as set out in the contract, or the mortgage offer is lower by at least 10% than that set out in the contract;
  • The property at completion is different than that set out in contract and these differences reduce by more than 10% the value of the property;
  • That communal facilities, as set out in the VEFA contract, are not provided. If you wish to withdraw using one of these grounds then you must send a recorded delivery letter to the seller and the bank (or Notaire) holding the deposit. You are entitled to a full refund within three months of your demand.

3. Guarantees


3.1. Checking Out the Developer

The VEFA contract provides a range of legal guarantees for the purchaser, but perhaps the most important factor in the whole equation is the quality and track record of the developer.
All major developers are members of the Fédération des Promoteurs-Constructeurs, the professional body for property developers, and a list of all their members is contained on their web site.

3.2. Financial Guarantees

Under the terms of the VEFA contract the developer is obliged to provide a bond or financial guarantee that secures completion of the dwelling in the event of bankruptcy or liquidation of the business or failure to complete.
The guarantee is arranged via a bank or insurance company and takes the form of either a «garantie de remboursement» or a «garantie d'achèvement».
The «garantie de remboursement» provides for reimbursement of all sums paid by the purchaser in the event of default by the developer before works have started on site. Thus, where the developer is seeking planning permission that does not arise in time, or does not start on site on the due date, the contract can be terminated by the purchaser. This guarantee ensures all sums paid are reimbursed.
The developer has no discretion but to take out «garantie d'achèvement», which guarantees completion of the building works where the builder becomes bankrupt or otherwise fails to complete the building on time or to the agreed price.
Both of these guarantees are expensive and some developers actually use both in order to reduce costs, i.e. a «garantie de remboursement» at the early stages when payments are low and the «guarantie d’achèvement» in the latter stages when there is less to complete.

3.3. Building Guarantees

Under the terms of a VEFA contract, the developer is under an obligation to remedy any defects in the property that arise within the first year following handover of the property. In addition to this one year contractual guarantee, the developer is also required to give a ten year statutory building guarantee on the property.
The first year of this ten year guarantee runs co-coterminously with the one year guarantee under the VEFA.

In strict legal terms, if the developer is not also the builder, the ten year building guarantee is between the developer and the builder, to the benefit of the purchaser. The responsibility is referred to as «la responsabilité décennale» and operates on a reducing basis, with minor work guaranteed for a year and more major building work guaranteed for the full period.
In order to improve the enforceability of this rule, and reduce litigation between client and developer, the law requires separate client insurance is also taken out. The client insurance is called «assurance dommages-ouvrage».
The policy provides a similar ten year guarantee against defects in the workmanship in the event of default by the developer.

3.3.1. Developers Building Guarantee

The ten year building guarantee from the developer/builder operates through an insurance policy they are required by law to take out. This insurance policy is called the «assurance décennale». There are severe penalties for a developer/builder who does not carry this insurance cover. The ten year guarantee operates on a tiered basis as follows:

i. During first year from completion the developer is obligated to guarantee complete performance of the work - «la garantie de parfait achèvement».

ii. During second year to guarantee that fittings are in good working order, e.g. electrics, sanitary goods, heating, windows, shutters, and doors – «la garantie de bon fonctionnement».

iii. During the ten years from completion to guarantee all those works concerned with the stability and integrity of the building including those elements which ensure the building is wind and watertight, e.g. foundations, floors, walls, staircase, ceilings, door and window frames, major electrical and plumbing defects, roof, framework – «l’assurance décennale».

Where a defect arises the client is not obliged to prove the fault and the developer/builder is presumed to be responsible. The developer/builder can, however, escape liability on grounds of force majeur (event not foreseeable, irresistible and external).
Most importantly, beyond the first two years, the ten year guarantee does not cover defects in building products or equipment installed in the property. It only covers the workmanship of the contractor.
Accordingly, if, for instance, your boiler ceases to function after five years, you cannot go back on the builder, unless the cause of the failure was their installation work. If the builder was not at fault, you would need to examine the manufacturers' guarantee. There is also a guarantee that the property complies with current noise insulation standards – «la garantie de l’isolation phonique». This guarantee operates separately from the «assurance décennale» for the first year following handover, to the benefit of the first occupant of the property.

Moreover, in a recent judgement, the French Court of Appeal took the view that, even should a property comply with current noise insulation standards, if there remains a noise problem that can be objectively identified, then it is still possible to draw upon the ten year guarantee to seek redress. It will, as always, depend on the circumstances. Quite apart from the ten year guarantee on defects, there is also a right to bring a legal action against the developer for up to 30 years, if the property does not conform with the specification as set out in the sale contract.
So the 30 year rule does not cover 'defects' per se, but a lack of correspondence between the specification and the end product. There is a lot of litigation on this whole issue and the distinction can only finally be determined by a court of law.

3.3.2. Householder Defects Insurance

The purpose of the «assurance dommages-ouvrage» is to ensure, as far as possible, that you are satisfactorily protected in the event that the developer, or their insurance company, does not accept liability under the ten year building guarantee. In these circumstances it might take you years to obtain redress, even if you are ever able to do so.
The policy seeks to remove all of this uncertainty by placing an obligation on your insurer to meet the costs of remedying the defect, and leaving it to them to fight the battle as to who is responsible.

4. Payments

Under the terms of the contract you will be required to make stage payments to the developer.
The schedule is referred to as «l'échelonnement du paiement du prix» The payments will be a percentage of the total purchase price, which will vary depending on whether it is an apartment or a house.

Table: Payment Schedule : Stage Apartment House Foundation 35% 20% Superstructure 70% 45% Final Completion 95% 85% Handover 5% 15% ( note: T HIS ALTERS FROM DEVELOPMENT TO DEVELOPMENT )

The sum paid by way of deposit when the preliminary contract was signed should be included in these figures. Thus, if you handed over a 5% deposit for the purchase of an apartment then, on completion of the foundations, the developer is due a further 25%.
The contract will contain a penalty clause in the event of late payment by the buyer, up to a maximum of 1% per month on the outstanding sum. If not paid within one month the developer can terminate the contract and seek legal action for compensation.
You do not make any stage payments without receiving a written certificate («attestation») from the supervising architect or similar, confirming completion of the relevant stage of the development. Indeed, if you are buying with a mortgage the lender will require you produce the stage completion certificate before funds are handed over.

5. Delivery


5.1. Handover & Delivery

Accordingly, there is a formal and legal handover of the property between the developer and the owner. You will receive a written report on delivery, which is called a «procès verbal de livraison».
You may take “delivery” yourself – or can appoint another person or management company or Hussier, (court bailiff). A full delivery inspection of the property is essential. Where you are completely satisfied with the dwelling then you can accept delivery on an unconditional basis, and the outstanding 5% retention can be paid.
However, it may well be that the property does not conform in one or more respects with the contract you have signed, or, whilst it may conform, there may well be defects that need to be remedied.

The issue of the conformity of the building with the contract, needs to be distinguished from that of defects that may be found on the property when you are given the keys. Thus, for example, if the developer has not fitted the correct bathroom shower, it is a 'nonconformity'; if the shower leaks, it is a 'defect'.
In the first case, you may be entitled to withdraw from the contract and obtain reimbursement; in the second case there is no such entitlement, but you do have a ten year building guarantee.

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