10. Financial Guarantees in French Building Contract (CCMI)
If you use the CCMI building contract the law requires the builder to provide a bond, or financial guarantee, that secures completion of the dwelling in the event of bankruptcy or liquidation of the business. The guarantee also covers a failure to complete by the due date or at all.
The guarantee is arranged via a bank or insurance company and takes one of two forms:
- Garantie de remboursement
- Garantie de livraison
10.1. Deposit Guarantee - Garantie de remboursement
The garantie de remboursement provides for reimbursement of all sums paid by the client in the event of default by the builder before works have started on site.
Thus, where the builder is seeking planning permission that does not arise in time, or the builder does not start on site on the due date, the contract can be terminated by the client.
This insurance is not obligatory.
The best advice in these circumstances is not to pay over any deposit until there is a start on site, in which event the builder is also relieved of the need to take out this insurance.
10.2. Completion Guarantee in France - Garantie de livraison
The garantie de livraison guarantees completion of the building works where the builder becomes bankrupt or otherwise fails to complete the building on time.
This insurance is obligatory.
It is not unusual for there to be a client ‘excess’ in the contract, but it cannot exceed 5% of the price.
In relation to the programme, the clause is triggered only where the delay exceeds the due date by more than 30 days. The guarantee will also cover the payment to the client of the penalties contained in the contract.
Where the clause operates the client can have the project completed by third party.
Needless to say, insurance companies will always seek to limit their liability and, in particular, the operation of the guarantee is less clear in relation to minor delays than in respect of complete failure or bankruptcy of the builder, as the law lacks a degree of precision.
Where there is merely a delay in completion of the works they generally prefer to pay out damages rather than assume responsibility for organising completion of the works by another contractor.
Both of these guarantees are expensive and some builders actually use both in order to reduce costs i.e. a garantie de remboursement at the early stages of the building works when payments are low and the garantie de livraison in the latter stages when there is less to complete.
Moreover, many builders ignore the provisions of the law altogether and do not take out the insurance.
As there is no monitoring or enforcement of compliance they are able to get away with it.
If you decide to use such a builder it is possible you will get your house built for a lower price, but, you also run a risk of losing a lot of money if things do go seriously wrong. For something as important as your future home, it seems a high risk strategy.
Accordingly, it is imperative you see the financial guarantee provided by the builder and that you check with the notaire that it is paid up and satisfactory.
Indeed, if you are using a mortgage to fund the project under a CCMI contract, the lender will also wish to see that the guarantee is in place before release of funds.
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