You want to buy a newly constructed property and you’ve found the perfect one. You think you’re going to buy your future home from a developer, because when you think of buying a new-build property, off-plan sale (in French VEFA – Vente en Etat Futur d’Achèvement – sale in future state of completion) immediately springs to mind. However, some investors and private individuals are planning to purchase a new-build property outside this well-defined legal framework. In practical terms, this means “associating” yourself with a company that will build the property: often a société civile d’attribution.
This alternative may seem attractive at first glance. The promoters of these operations emphasize the flexibility of the project, specifically the possibility of personalizing one’s future home. The lack of margin – real or assumed – on the part of the project initiators is also emphasized. These aspects are attractive, but they should not overshadow the risks involved in buying a new-build property outside of an off-plan sale. Before committing yourself, it is more than advisable to be accompanied by a lawyer who is an expert in off-plan sale, as becoming a partner in a « société civile immobilière » entails numerous risks, which it is crucial to identify before committing yourself. In this article, we detail the major dangers of such a purchase, and how to protect yourself.
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1. Buying outside of off-plan: what’s behind it?
Because an off-plan sale offers solid guarantees (guarantee of perfect completion, biennial guarantee, completion guarantee), it imposes a strict framework and regulations that can be perceived as restrictive. Some sellers therefore consider other options. In most cases, the “purchasers” become “partners” in the company carrying out the project. There are also variants in which the purchasers become co-owners of a syndicate of co-owners who will carry out the renovation work on a building. Others, mainly investors, have been offered membership of an « A.S.L. » (association syndicale libre).
Whatever the method, the result is essentially the same: buyers take responsibility for the construction or renovation project, while the developer is relieved of this responsibility. How is this possible ? Quite simply. When you buy from a developer under an off-plan sale contract, the developer undertakes, for a given price and within a given timeframe, to deliver a specific property to you. Outside of the off-plan sale, you become a partner in a company to which you contribute funds to buy the land and build. The company then commissions an architect, design office or other contractor to carry out the construction work. It is this company, and ultimately its associates, that will bear all the contingencies of the building site. These alternatives to the off-plan sale may seem attractive, particularly in terms of customization or price, but they are not without consequences.
2. The main risks involved in buying a new home outside of an off-plan
a. Budgetary uncertainty
Unlike within the off-plan sale, where costs are defined contractually and staggered by calls for funds as work progresses, a purchase outside the off-plan sale can quickly lead to unforeseen expenses. Several factors can cause the budget to explode:
- Cost overruns due to unforeseen technical issues, which may, for example, require modifications to the project,
- Climatic contingencies,
- Company failures, which are unfortunately common in the construction industry.
Outside of off-plan sales of new-build sales, the partners will have to bear the financial burden of all contingencies that arise during the construction period. They will never be able to hide behind the amount initially agreed to refuse to pay additional sums, as this is not a sale price, but a budget.
This risk is all the more acute when you don’t know the financial capacities of the other partners. If some of them are impecunious or simply bad sports, you will have to bear their share so that the company can meet its commitments to companies, for example.
b. Lack of legal and financial guarantees
One of the main advantages of off-plan sale is the guarantees offered to the buyer, notably the completion guarantee and the repayment guarantee in the event of default by the developer. Outside this framework, these protections disappear.
- If the project’s initiators prove incapable of bringing the project to completion, you’ll be a partner in a company that owns a plot of land and an unfinished building,
- Worse still, if they are dishonest and use the funds available in the company’s account for purposes other than building the structure, you will have infinite difficulty getting your money back, and the property you thought you were simply “buying” will still not exist.
If the project goes wrong – which is not uncommon in the construction industry – you will only have very limited recourse, whereas in the case of off-plan sale, purchasers can call on the completion or repayment guarantee, which, while not perfect, is still a considerable safety net.
Again, to sign a deed of sale in future state of completion, the notary will check that all insurance guarantees have been taken out: damage to works, developer’s liability, etc. This will not be the case if you are buying a property in the future state of completion. This will not be the case if you are simply signing a deed of purchase of shares in a non-trading company.
c. Delivery delays
Delays are often a critical factor in real estate projects. Except for off-plan sales, contracts do not always provide for penalties for delays or firm commitments on delivery dates. This can have serious consequences, particularly if :
- The buyer plans to rent out the property to generate income.
- A mortgage is already outstanding, resulting in additional costs.
If, in the case of an off-plan sale, late delivery is not always well compensated, outside an off-plan sale it will be even more difficult to obtain anything. Why is this? Because, if the companies’ contracts include penalties for late delivery, and assuming that the company or companies agree to pay them spontaneously – which is already almost a miracle – the penalties will be paid to the company carrying the project. Not to the partners, who will then have to agree on how the penalties are to be shared between them. And this distribution will not be made on the basis of the prejudice suffered by each partner, but in proportion to their shares in the company – and that’s assuming the company doesn’t still have invoices to pay.
And, in any case, even a considerable delay in delivery cannot be used to cancel the sale, since it is not an off-plan sale. Those who thought of themselves as buyers then discover that they are in fact partners, because what they have bought are shares in a company, through a building to be constructed by a developer. And, of course, the company will never agree to return their initial outlay, nor will they find a buyer bold enough to buy them back, unless it’s at a very low price.
d. Increased buyer responsibility
Buying a property outside of off-plan requires the buyer to take on responsibilities that, under the VEFA system, fall to the developer. Why should this be the case? Because the buyer is a partner in a company that is responsible for the success of the project. In the event of failure, if this company is a non-trading company, its partners are jointly and severally responsible for the liabilities.
Thus, in the most serious cases, the “purchasers” have paid for the land and the work – sometimes in a single instalment at the start of the project – but the project has turned into a fiasco. Not only have the partners committed their initial outlay, but they will have to collectively bear the company’s debts: unpaid bills, unpaid taxes, various penalties and fines.
Such a risk is not to be taken lightly.
3. How can I protect myself when buying a new property?
There are a number of measures you can take to limit the risks involved in buying a property without a VEFA:
a. Call in a real estate lawyer
A specialized lawyer can check your contracts, make sure you have all the necessary guarantees, and guide you through every stage of the project. They will also be able to dissuade you from embarking on a transaction if they consider it too risky.
b. Choose partners you can trust
It’s essential to surround yourself with reliable professionals and partners:
- A builder or developer with a good reputation and solid credentials.
- A project manager or architect to oversee the work and ensure compliance.
- Partners who are honest and committed to the project, and as aware of its specific features as you are.
c. Demand solid guarantees
Although VEFA does not apply, you can negotiate certain contractual guarantees, such as :
- Effective involvement in the governance of the project company
- Participation in the choice of contractors, etc.
- Decision-making power over funds paid into the company by its partners.
d. Anticipate costs
Set aside a budgetary reserve to cover any additional or unforeseen costs. This prudence is essential to avoid financial difficulties during the project.
4. Conclusion: be well informed to better protect yourself
Buying a new property outside of off-plan can offer a degree of flexibility, but this should not be at the expense of legal and financial security. Before committing yourself, take the time to study the risks involved, check the guarantees offered, and ask our firm for assistance. A successful investment depends above all on careful preparation.
