Buying on plan: VEFA (sale in future state of completion (VEFA)

  • 10 months ago

How does VEFA work?

On the day of the sale, the buyer becomes the owner of the land and the constructions which have already been carried out. The future structures turn into his property as it goes along. Consequently, the buyer receives suppositions in terms of the price, as the works move forward.

This operation is regulated by law, in order to protect the buyer who commits himself, while the place still needs to be built.

What is a reservation contract?

The preliminary contract, known as the reservation contract is a specific sales pre-contract, in the future state of completion. Any other pre-contract form is forbidden. The promoter promises to simply reserve a housing for the client, if the program is carried out. This contract is signed privately, between the promoter and the buyer.

Watch out for publicity! Sales brochures made by promoters don’t have any contract value. Only the content of the reservation contract shall apply.

What should the content of a reservation contract contain?

The preliminary contract must be drawn up in writing. It must indicate at least and under penalty of nullity:

  • the approximate location of the premises;
  • the number of main rooms and the list of service parts, outbuildings, clearances;
  • the situation of the building or the subdivision;
  • the quality of construction through an annexed technical note summary, along with the contract which shall indicate the nature and quality of the materials and elements of equipment, not to mention the collective equipment which is useful for the sold accommodation (elevator, cellar, collective heating, etc..);
  • the estimated price of the reserved accommodation, if applicable, the terms for its revision within the limits that are authorized by law (see following question);
  • the date on which the sale can be concluded; • time limits to carry out the work. At this stage, the delivery date is approximative;
  • if applicable, the loans that the promoter declares to obtain from the purchaser, specifying the amount of these loans and the name of the lending institution;
  • a complete reproduction of articles R261-28 to R261-31 of the Construction and Housing Code, related to the security deposit.

A copy of the reservation contract must be given to the buyer before any fund deposit.

It should be noted: The law dated November 23, 2018, known as ELAN law, allows the purchaser of a VEFA property to reserve the carrying out of certain finishing works or equipment installations which shall be obtained by the latter. If the buyer was to choose this option, the preliminary contract needs to include a clause with apparent characters, which shall stipulate that the buyer accepts the outlays, costs and responsibilities which may result from these works, that he carries out after the building has been delivered and state the cost of the works whose rights are reserved by the buyer, the latter are described and calculated by the seller and the time span in which the buyer can re-consider his decisions of reserving the carrying out of these works, mentioned above. If the buyer were to apply a “retraction”, the seller is required to carry out or make sure that the work is carried out, of which the buyer reserves the performance at the prices and conditions, mentioned in the preliminary contract.

However, the implementations of this provisions are subject to an implementation decree, which shall state the nature of the works that can be carried out by the buyer. The provision shall only be relevant once the application decree has been published.

How is a housing price fixed?

Estimated purchase price

The price is freely set by the promoters. However, some rules must be respected. The reservation contract must state the sale price of the accommodation and, if applicable, the reviewing requirements. Indeed, at the stage of the preliminary contract, the law authorizes the promoter to give an estimated price. However, it is in the buyer’s interest to negotiate a firm price while signing the reservation contract, to rule out any increase at the time of signature of the final contract.

Procedures for revising

As long as a reviewal price is planned, it is regulated to avoid any kind of abuse. The price can only vary, depending on the index variation of the building, known as BT01.

Can a promoter demand a deposit?

A special account

Even if it isn’t obligatory, it is often expected that the buyer shall pay a deposit. The deposit is made on a special account, opened in the name of the registrant in a bank, an establishment authorized to that effect or at a notary. No other amount can be demanded from the buyer or even accepted before the signature of the finalized sales contract.

A limited deposit

The amount of the security deposit is limited at:

  • 5 % of the sale price, if the sales contract is signed within 1 year,
  • 2% of the sale price if the contract is signed from 1 to 2 years.

No deposit can be claimed beyond two years.

Can the buyer reconsider his commitment?

Once the reservation contract has been signed, the buyer commits to round off the sale and sign the finalized contract. If not, the seller can keep the security deposit. However, the law authorizes the registrant to reconsider his commitment and recover the security deposit in its entirety, through several assumptions:

  • the buyer has a withdrawal period of ten days during which he has the possibility of reconsidering his commitment without any justification whatsoever. The funds are then returned to him, without deduction or compensation, within twenty-one days from the day following the date of this withdrawal.;
  • as soon as a loan is requested, the act is concluded under the condition precedent of obtaining this loan. If the loan(s) is refused by the bank, the contract falls through and the registrant recovers his security deposit; • the promoter may forsake the real estate project due to an insufficient number of reservations, administrative or other obstacles. In which case, the registrant purchasers are protected;
  • if the sales contract is not concluded because of the seller within the period provided in the preliminary contract, the buyer may request for a refund of his security deposit;
  • if the sale price eventually exceeds more than 5% of the budgeted price, the buyer can give up on the purchase and recover his security deposit;
  • the purchaser is also authorized to give up on his purchase if any of the equipment provided for in the reservation contract, has not been carried out in the end (an elevator for example);
  • the buyer may give up on his purchase if the commodity in its consistency or the quality of the planned works, provide a reduction in value which is greater than 10%.

In all these assumptions, the funds need to be returned within three months.

When and how to the sign the finalized sales contract?

The contract project

Few months after having signed the reservation contract, the buyer receives the finalized sales contract project. This document needs to be sent to the latter at least one month before the date of signing the deed, along with the annexes.

Content of the contract

The law requires the presence of certain clauses in the contract:

  • the detailed description of the accommodation and its location in the building or complex;
  • the price, the terms of payment and any conditions for reviewing the price (see question 3). A penalty may be provided in the contract, in case of a delay in payment;
  • the delivery time; the completion or reimbursement guarantee undersigned by the promoter (see question 8);
  • the condition precedent of obtaining loans.

The contract must also include as annexed, or by reference with documents deposited at a notary, the useful indications relating to the consistency of the property (plans, sections, indication of the surfaces of each of the rooms, etc.) not to mention its technical features (including the materials which are used).

The co-ownership rules are also given to the purchaser when the contract is signed; however, this needs to be reported to him beforehand so that the latter has the time to examine these.

Form of contract

The contract must be concluded through an authentic deed.

Buying off-plan: how is the price paid ?

The buyer pays the price of the property, which he purchased through several installments as the works move forward. This schedule is strictly regulated by law. Payments, including the security deposit, cannot exceed the total:

  • 35% of the price on completion of the foundations, observed by an architect;
  • 70 % de-commissioning, which means once the structural works are finished (finished exterior walls, laid roofs, finished terraces);
  • 95% upon completion of the work. The key elements to make the accommodation functional, must be installed;
  • the balance, or the remaining 5%, is payable when the property has been made available to the buyer. However, it can be grounded in case of a dispute on the compliance with the provisions of the contract.

If the property remains unfinished, how is the buyer protected?

The law compels the promoter to provide a completion guarantee of the building, a reimbursement guarantee of the amounts paid by the buyer, in case the works aren’t finished.

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