|
Buying property that
is to be constructed (Part 1)
Many
more of those interested in purchasing French real estate property are
considering buying property that is to be constructed.
There are many such developments now coming onto the market in
France
and buying a villa or apartment off the plans is
becoming popular.
The
purchase of such properties raises distinct legal issues and this issue of
the week will look at the basic legal framework for the purchase of a
property off the plans. The
second part of this issue of the week will look at the financial aspects
of such a purchase, including an analysis of tax saving schemes commonly
referred to as ‘leasebacks’.
How
is the purchase structured?
The
normal structure for such a purchase is what is known as a ‘vente en état
futur d’achèvement’, of which the acronym commonly used is ‘VEFA’.
This means that the property will be sold prior to the construction
being completed. With a VEFA,
a preliminary contract is signed which is very different from the type of
contract used with a re-sale property.
Effectively, the purchaser reserves a particular property and the
developer agrees to sell the property to him or her at the agreed price
and with the agreed specifications if the development goes ahead.
The developer must formally offer the sale to the purchaser within
a time period specified in the contract.
The
preliminary reservation contract should specify, amongst other things:
-
the approximate habitable surface area of the property;
-
the number of principal rooms;
-
where the property reserved is situated in the development;
-
the quality of the construction;
-
time limits for completion of the purchase and the construction.
The
purchaser becomes the owner of the property before the actual construction
is completed by signing the deed of completion.
In the deed, the developer undertakes to complete the construction
within a given time frame.
Once
the developer is in a position to formalise the sale to the purchaser
(i.e. planning permission has been obtained, the purchaser is protected in
the event that the project cannot be completed, the commercial viability
of the development has been ascertained), the draft deed of completion
will be notified to the purchaser. The
purchaser must then sign the deed one month after this notification and
could forfeit the deposit if he or she does not do so.
Is
a deposit payable and if so what is the amount?
A
deposit of up to 5% of the purchase price is payable at the time of
signing the reservation contract. Should
the signature of the deed of completion be envisaged in more than one year
from the time of the reservation contract, the deposit cannot exceed 2%.
If completion of the purchase is not scheduled to occur until more
than two years after the signing of the preliminary contract, no deposit
is payable.
How
is the price paid?
The
price is paid in accordance with a schedule of payments.
Once the next stage in the construction of the property has been
reached (foundations, roof e.t.c.) then an additional percentage is
payable. The balance of the
remaining 5% is only due upon delivery of the completed property to the
purchaser. The schedule of
payments is defined by the law. If
a purchaser is seeking to obtain a mortgage then it must be ensured that
the preliminary contract includes a condition that the mortgage is granted
as the law does not protect the purchaser to the same extent as with the
purchase of re-sale property.
How
is the purchaser protected against the developer’s insolvency and thus
inability to complete the project?
In
most cases (save where it is literally guaranteed that the development
will be finished), the developer is required to provide one of two types
of warranty to the purchaser, bonded by a bank or other such financial
institution. This ensures that
the purchaser is refunded if the development cannot be completed or the
completion is finished regardless of the developer’s insolvency.
What
warranties exist in relation to the property itself?
There
are several different types of warranty in relation to newly constructed
property to protect the purchaser against apparent and hidden defects,
problems with phonic insulation e.t.c.
These are subject to varying rules and time limits for claims.
There must be in place insurance covering overall liability for
damage caused by the building works for ten years post completion of the
construction. In addition,
each contractor that works on the property must be covered by professional
indemnity insurance covering a ten year period from completion of the
works.
Part
2 – Financial aspects and taxation issues - will be published next week
02/06/2003
- Issue of the week
BACK
TO NEWS
|
