PROPERTY LAW: THE FUTURE (OR) FINANCIAL GUARANTEE OF COMPLETION
WHAT IS IT?
The future completion guarantee is a form of protection offered to purchasers of property, usually as part of a construction or property development project, more commonly known as a “vente en l’état futur d’achèvement” (VEFA).
This involves buying a property that is still under construction.
To prevent any problems with the delivery of the property, a guarantee can be put in place.
This guarantee ensures that the property purchased will be completed in accordance with the terms of the contract, even if the builder goes bankrupt or encounters financial difficulties before construction is complete.
For example, when you buy a flat in a building that is under construction, the future completion guarantee ensures that even if the contractor runs into problems and is unable to complete the building, you will not lose your investment.
If the seller defaults, the guarantee comes into play to finance the completion of the work or reimburse you.
CAUTION: the GFA is compulsory in the residential property development sector (e.g. property developers, developers and builders of single-family homes).
On the other hand, it is optional for office or commercial buildings.
GUARANTEE BY WHOM?
This guarantee is often required by law in many countries to protect buyers against the risks associated with buying off-plan.
It is usually issued by an insurance company specialising in construction.
As stated in article R216-17 of the French Construction and Housing Code, this guarantee is provided by a bank, a financial institution authorised to carry out mortgage transactions or an approved insurance company.
HOW DO YOU QUALIFY AND ASSERT YOUR RIGHTS?
To benefit from this guarantee, the buyer must generally comply with certain conditions, such as regular payment of the agreed instalments or immediate notification in the event of a problem or delay in construction.
In principle, the completion guarantee ends when the building is completed (Article R261-24 CCH).
In other words, once the works have been completed and the equipment essential to the proper use of the property has been installed (e.g. gas, water, electricity, etc.).
However, if the terms of your contract do not state that the guarantor must bear the cost of completion, then there will be no set deadline.
Do you have any questions about GFA?
Do not hesitate to contact our firm, which will be able to advise you as best we can.
