3. VEFA Contract
The final contract is called the Vente en l’état futur d’achèvement (VEFA).
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3.1 Preparation of Contract
- 3.2 Contract Documentation
- 3.3 Price
- 3.4 Delivery Date
- 3.5 Fees
- 3.6 Grounds for Withdrawal
- 3.7 Insurance
3.1. Preparation of the Contract
Whilst there exists general statutory regulation of VEFA contracts, they come in different forms and most contracts will be prepared by a Notaire on the instructions of a developer.
The standard contract will then be used for all sales in a development.
So it may well be that the contract is written to the advantage of the developer.
A Notaire who refuses the 'reasonable' suggestions of the developer is unlikely to retain the business of that developer for very long.
This is one more good reason why you should engage your own Notaire to act for you.
3.2. Contract Documentation
The contract should be 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
Top Tip!
You should check for any differences between the terms set out in the preliminary contract and those contained in the VEFA contract.
In particular, you should check that the location and size of the property are as specified in the initial contract.
In the event of a later dispute, it will be the terms as set out in the VEFA contract that will apply.
You will not normally be provided with your own copy of the full technical supporting documentation (descriptif détaillé), which will be retained by the Notaire. 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 annuled.
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.
3.3. Price
The contract will give either a fixed or provisional price. In most cases, it will be a fixed price.
If it is a provisional price then it must also state the basis on which the price may be revised, which cannot be greater that 70% of the increase in the official 'cost of construction' price index.
Top Tip!
As market conditions have softened considerably in France during 2007, you should be able to negotiate hard on the deal.
Be tough on the level of the specification and endeavour to get a reduction on the advertised sale price.
3.4. Delivery Date
The contract is unlikely to state a precise date for delivery of the property.
The best you are going to get is a period, something along the lines of 'scheduled for last quarter 2007', or similar.
Clearly, you need to go for a precise a date as possible, so you can be clear from what date any penalties will apply for late delivery. Try and insist on a final end date, e.g. 31 Dec 07.
Even if you are able to do so, the developer will wish to include grounds on which the delivery date may be exceeded without penalty, e.g. strike action, exceptional weather conditions.
The law prescribes no specific penalities for a developer who does not deliver a property by the due date. If you wish to impose penalties for late delivery you will need to negotiate them into the contract documentation.
Top Tip!
You need to ask about the issue of penalities on late delivery before you sign the preliminary contract, as you will have greater leverage at this time.
The issue of penalties is one area of VEFA contracts where the law is silent and which, not surprisingly, developers resist being included in the contract! Unfortunately, delays in the completion of new off-plan developments is not uncommon, in most cases no more than a few months at the most, but in some cases running into a year or more.
In theory, 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.
You may wish to argue with the developer that, as penalties will be contained in the VEFA contract against the client for late payment, then there ought to be a reciprocal obligation on the developer for delay, as recent legal decisions in the courts seem to imply!
3.5. Fees
The Notaire and legal fees for a VEFA are lower than those for an existing property. Whilst the latter come out at circa 8% the fees for a VEFA are around 3%. Nevertheless, as it is a new property you will be paying VAT at the rate of 19.6%.
The appointment of a second Notaire does not ordinarily increase the fees, which are shared between the two Notaires. Only if you are seeking more detailed, specialist advice might your Notaire ask for an additional fee. It is a matter of negotiation.
Top Tip!
At the outset, ask the Notaire about the likely level and type of fees, so you can be satisfied that costs which are properly the responsibility of the developer are not being passed on to you.
Under pressure from the developer, some Notaires adopt the practice of passing onto the buyer, fees that should ordinarily fall to the seller, e.g. preparation of rules relating to the management of a block of flats, or the fees of a land surveyor. Smart developers normally include these costs within the purchase price of the property.
3.6. 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.
3.7. Insurance
When you sign the contract you become owner of the land on which the property is to be constructed, together with any construction that may already be on the land.
Like all owners it is, therefore, necessary to take out public liability insurance and insurance against fire and other risks. As stages on the construction of the property are reached, you may well find your insurer requires that you increase your insurance cover.
The builder continues in control of the project as maitre ouvrage until delivery, and to deal with architects, contractors and sub-contractors.
Next: Guarantees
House Buying Process in France