4. Guarantees for 'Off-Plan' French Property
4.2. 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.
However, 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 garantie d’achèvement in the latter stages when there is less to complete.
Since 2015 there has been a change in the law which requires developers to provide a garantie extrinsèque; a guarantee by a bank or insurer of funds to complete the development in the event of bankruptcy or similar by the developer.
You should ask to see the financial guarantee provided by the developer and check with the notaire that it is paid up and satisfactory.
Whilst these guarantees will ultimately provide you with the assurance you need that, if things go wrong, you are protected do not assume that the process of getting your money from the insurer will necessarily be an easy one. Particularly in the event of bankruptcy the whole legal process could drag on for years, as insurers seek to delay payout until court proceedings are finalised.
If the property is being constructed without using the VEFA contract, then these guarantees may not be in place, in which case the developer has no right to demand the stage payments available in this contract.
Next: Building Guarantees
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