Buying a new build

1 - The reservation contract:

   Even though this is not a legal requirement, the contract of reservation is a necessary step. It is not binding as the purchaser has the right to pullout of the sale. However, with the exception of a few cases with legal intervention, the purchaser will lose the deposit made as a guarantee.

Contents:

The reservation contract must include:

• The approximate surface area,
• The number of main rooms and the nature of secondary rooms (outbuildings, utility rooms e.t.c…
• The status if the building is under co-ownership.
• The provisional price of sale and conditions to be revised.
• A description of the technical quality of the build (materials used, equipment, etc…)
• The planned date for the final signing of the contract of sale.

The absence of any of the above details will result in a null and void contract.

In certain cases the vendor must mention any loans he has taken out against the property.

   Of course there is nothing to stop the vendor accepting additional contracts, but the terms stated in the reservation contract must be respected, even if they are not stated in the final act of sale.

   If the purchaser is not happy with oral agreements certain developers also add the following to the contract of reservation:

• The date of handover of the property,
• A schedule of payments,
• A fixed and final price,
• Loans applied for to purchase the build. Etc.

*** If requested a suspending clause can also be added which states that the guarantee deposit will be returned if the mortgage application is rejected.

2 - The guarantee deposit:

   This amount depends on the length of time between handover and signing the final contract and signing the reservation contract :It should not exceed the following conditions:

• 5% of the total price if handover occurs within a year,
• 2% if handover takes place between one and two years,
• Beyond these time frames a deposit will not be requested.

*** At this stage there is no risk of losing the deposit as it is left in an account in the purchaser’s name either with the notaires or in a bank.

3 - Withdrawing from a contract:

   Once a contract of reservation has been signed you can withdraw your offer within 7 days by way of a registered letter and recover all of the guarantee deposit.

   After 7 days the purchaser will lose the deposit if he/she pulls out of the final signing. Apart from cases with legal intervention whereby the vendor has not respected terms stipulated in the reservation contract.

Examples:

• When the vendor has not been able to secure loans.
• If the final act is not signed within the stipulated time.
• If, due to circumstance or the quality of the build, it has fallen in value by more than 10%. This situation could arise due to a drop in the market value, materials used, the finish of the property etc…).

*** Article 1616 of the civil code states that, when an official report states that « the market value » of the property has fallen by more than 5% of that which was stated in the initial contract, the purchaser can terminate the contract or demand a price reduction and organise a new time schedule for handover. Case study: The court of Appeal recently judged that clauses in construction contracts allowing more than a 5% drop in market value of a build are not legal (decreed 24/11/99).

• When all parts of the construction are not completed  (lift, waste disposal areas, garden etc.).
• When the final sale price exceeds 5% of the projected price.

4 - The contract of sale:

   The contract of sale must be drawn up one month before the scheduled final signing. This allows opportunity to study the content of the contract, as there will be no further opportunity to amend the contract. 

   This contract of sale must include an exact description of the apartment and the building: cross section, area, public facilities.e.t.c…

• If the accommodation is in a group of buildings it’s imperative that the exact position of neighbouring blocks are stated. This will ensure that the environment won’t be damaged in the future.
• The co-owners must be approached in order to learn of any possible clauses in the regulations that could limit the use of the property. (Prohibited activities e.t.c. etc.).

5 - The final price:

   The sale agreement naturally includes the final price of sale for the properties and the methods and schedules of payment. Usually the schedule of payments is related to the work’s schedule:

The maximum percentages:

• 35% after the foundations are complete (20% for a detached house),
• 70% After the roof is completed  (45% for a detached house),
• 95% Of the price after the work is completed (85% for a detached house),

Therefore 5% will remain outstanding until the sale is completed (15% for a detached house).

*** Above is an example of a payment schedule-The developer may request additional payments to speed up the build.

    By signing of the sale contract, the price becomes fixed and final. It can however vary within a limit of 70% according to the national index of the building, however this kind of index linking is becoming less and less frequent.

6 - Date of completion:

   It is not obligatory to state a final date in the reservation contract. However it should be mentioned in the final act of sale. Unfortunately the law allows a margin of approximation. (Example: « the second part of 2004 »).

It is best to confirm as precise a date as possible and also include a penalty clause to avoid delays.

• Delays are usually accommodated in cases of bad weather, bereavement or natural disasters.
• In any case if the delay detriments the build in any way, legal compensation can be sought.

7 - The Purchaser’s guarantees:

The contract must contain guarantees for the purchasers, which come in various forms.

   The guarantee of reimbursement through a financial establishment. In the case of non-completion of the build the contract is cancelled and the purchaser will receive back any payments already paid.

   An « extrinsic » guarantee of completion, proving that an external organisation will provide necessary funds to complete the build for either the vendor or purchaser. This is basically a financial guarantee.

   An « intrinsic » guarantee of completion, proving the developer concerned has a healthy financial status, but this does not guarantee payment. The contract will state that when the foundations of the build are completed , the financing of the operation is 75% guaranteed through the developer’s own funds, sales or pre-approved bank credit (60% if the developer’s own funds are more than 30% of the final  build  cost). Also stated is the condition that once the build is water tight (with roof) the developer can no longer use bank credit.