THE
PERFECT COMPLETION GUARANTEE

The “garantie de parfait achèvement” (guarantee of perfect completion) guarantees the purchaser of a property under construction that the work has been properly completed. Whatever the difficulties encountered by the builder, be it bankruptcy, judicial liquidation or any other default on the part of the contractor or builder, Article L261-10-1 of the French Construction and Housing Code protects all purchasers from having to take delivery of their home.

It represents a legal and financial guarantee for any buyer who purchases a property under a VEFA (Vente d’Etat Futur d’Achèvement) contract, or more specifically a sale off-plan.

On July 9, 1971, a law was passed on the initiative of Belgian Minister Breyne to protect future buyers from the possible bankruptcy of the contractor or property developer.

The law protects purchasers in terms of transfer of ownership, payment of the price, and the completion guarantee when the building site is handed over.

The Breyne law also applies to off-plan purchases of real estate, or purchases of buildings under construction. However, this law only applies to properties intended for residential use.

It is mandatory for all types of residential property, whatever their size, such as :

• single-family homes, whether or not on housing estates;
• residential buildings.

No property can be sold by a developer without this insurance, which guarantees the purchaser completion of his new property. However, this completion guarantee is optional for all office and retail projects.

Today, no one takes the risk of buying a property without a completion guarantee, whether it’s for a primary residence or an office building. Developers almost invariably take out a completion guarantee as part of their office construction projects. What’s more, banks require it to obtain a loan as part of project financing.

The perfect completion guarantee must be taken out before the start of construction, when the reservation contract is drawn up between the purchaser and the developer. It must be in place before any work begins.

Without this guarantee, you won’t be able to sign the deed of sale. The notary will make sure that you have the financial guarantee of completion, as well as the GPA (Garantie Parfait Achèvement) and DO (Dommage ouvrage) cover notes and the insurer’s receipts when you sign the deed of sale.

The obligation to take out a completion guarantee rests with the developer and the owner. It must be taken out in advance of the project, and may be financed by the developer’s own funds, although this is very rare. In most cases, a financing organization such as a bank or insurance company is required to set up the guarantee.

There are several parameters to take into account when determining the price of the insurance premium for the completion guarantee:

• Amount of work ;
• Project quality;
• The developer’s counter-guarantees ;
• The developer’s experience (and insurance claims record);
• The amount of equity invested by the developer in the project;
• The cost of construction.

Generally speaking, the cost of insurance will vary between 0.4% and 2% of the project’s sales including VAT. Most companies require a minimum premium of 4,000 euros.

Payment will be made annually in the form of a tacitly renewable single premium.

The financial completion guarantee is valid for one year from the date of acceptance of the work.

This perfect completion insurance covers unfinished work and various defects. Findings can be made :

• Before signing the handover protocol (mentioned in the acceptance protocol) ;
• On site delivery ;
• Within one year of completion.

To activate the warranty, the owner must note that certain work has not been completed, or that certain work does not comply with the standards or presents defects. It must be proven that the defects or the existence of unfinished work prevent the proper use of the property.

The report must be sent by registered letter with acknowledgement of receipt to the developer and to the insurer covering the liability. If the developer fails to respond within 90 days, the owner is entitled to have the work carried out at the contractor’s expense.

It is imperative to bring in another company only after taking the defaulting developer to court. As far as construction is concerned, there is a data sheet for each type of structure. The purpose of these sheets is to provide information on the tolerance threshold for each type of structure.

1. Bank guarantee of repayment: The bank reimbursement guarantee allows future buyers to be reimbursed the sums they have advanced in the event of a change in the start date of the work.
2. Damage to work guarantee: The damage to work guarantee covers repair work in the event of a claim covered by the ten-year guarantee insurance.
3. Guarantee of sale for buildings to be renovated: This guarantee protects the purchaser in terms of meeting the deadline for the work to be carried out.
4. Delivery guarantee: The delivery guarantee provides financial cover in the event of poor performance of the work specified in the contract.