Off-Plan Buyers Need Greater Protection
Friday 07 December 2018
The legal framework used for the sale of off-plan properties should be tightened up, argues a French consumer group.
The purchase of off-plan apartments is popular in France, with a strong new-build programme and around 100,000 sold each year.
Around half of the properties are bought by individual investors who seek a rental property.
The properties are built and sold under a contract called Vente en l’Etat Futur d’Achèvement (VEFA), a form of contract that is regulated by statute, but which has many variants.
Whilst the contract must meet certain minimum requirements (notably building and financial guarantees), many other aspects of the contract are left to the discretion of the developer, such as whether any penalty clauses are included in the contract.
In a review of the operation of the contract amongst its readers the consumer group Que Choisir found that in the event of delays and defects arising with a development there was a lack of adequate protection to buyers.
The group was particularly critical of the ease with which developers could escape liability for damages under the contract when a delay occurred in the delivery of a development.
Around one-third of those in the survey stated that they had experienced a delay in obtaining delivery, in many cases at a substantial cost to themselves, either through additional housing costs they were obliged to meet, mortgage payments, or a loss of rental income on the development.
Although the law allows developers to escape liability for damages in the event of ‘force majeure’, most contracts contained a clause that widened the definition to include a ‘legitimate cause’, covering a multitude of different circumstances. It was this clause rather that the more legally precise force majeure that was used in escaping liability under the contract.
In nearly three-quarters of the cases examined delays that occurred were stated to be due to ‘exceptional’ weather conditions, but rarely did developers provide detailed supporting evidence, in many cases none at all.
The report considered that courts were also too accommodating in their interpretation of developer problems, and that consumers had a right to expect that provision for inclement weather should be included in the delivery programme for the development.
Over two-thirds of those in the survey stated that the property had defects on handover, when the law then grants the buyer the right to take possession but withhold payment of the 5% retention pending resolution of the defects.
However, few buyers were aware that they had a right to consign the deposit, and there were many instances of the developer refusing to hand over keys until payment of the retention has been made, a practice that is illegal.
The consumer association is calling on the government to create a system of automatic, mandatory consignment of the deposit at the time of delivery if the property is accepted subject to defects being remedied.
Missing from the report was a consideration of the preliminary reservation contract (contrat de réservation) that many buyers enter into in the process of off-plan purchases.
This contract is one frequently used by developers to secure funding and banking support for the development, but offers no guarantee to the buyer that the development will ever be built.
There are numerous instances when due to an eventual lack of demand, failure of planning permission or other events the development does not proceed, and the developer is obliged to return the deposit to the buyer.
In addition, it is not usual for there to be differences in the specification given in the preliminary contract and the final VEFA contract, not all of which may be easily apparent to the buyer.
You can read a full explanation of the VEFA contract, and about buying off-plan property in our