reservation contract: wrong impression
It has been a long time since a decision has been made by the
French Supreme Court (Cour de Cassation) regarding
off-plan property and the obligations resulting from the signing of
a reservation contract. Since the recession started, a lot of
developments have been left unfinished in Greece and in Spain, but
luckily this is still rare in France, where the effects of the
recession have not been felt as badly as in some other European
countries and developers have tried to carry out surveys and
marketing plans before starting any development.
Planning permission is becoming increasingly difficult to obtain
in certain areas of France and local authorities are not willing to
have skeleton buildings erected on their communities; as a result,
they usually ask for some guarantees from the developer that the
construction will be completed.
Recent research has showed that purchases of new builds in
France have dropped by more than 20% in the first quarter of 2012,
but that some developers have survived the recession. For those who
have to give up on projects, the question of informing and
explaining the reason why to their customers may increase the risk
of litigation. An example of this is provided by a court case from
November 2011 in which a developer had to abandon the construction
of the development after being unable to obtain one of the
compulsory guarantees. No reason was given why he could not obtain
it and he simply refunded the deposit paid by his customers. Many
customers accepted this fact, but in this particular case the
problem was that the developer decided to abandon to the project
more than two years after the clients signed reservation contracts.
Some clients went to court to prove the developer's liability for
negligence and tried to complete the transaction to obtain
compensation.
The reservation contract has a different effect from the other
binding contracts for the purchase of a property, ie compromis
de vente or promesse unilaterale de vente. The reservation
contract is a sui generis contract and was described by the court
as a contract that only obliged the developer to propose the
purchase of the property to the purchaser, nothing more.
From this definition given by the court, and despite the
obligations set out in the Construction and Habitation Act and in
the Civil Code, the developer has only a limited responsibility and
obligations, and is within his rights to cancel the project up to
the very last minute. In fact the developer is not bound by an
obligation to actually build; if he cannot complete the
construction, he does not have to go ahead and offer the property
for sale to the purchasers.
The reservation contract is regulated by the Construction and
Habitation Act, which imposes on the developer a duty to provide
some information to the purchaser on the potential purchase and
notably regarding the description of the property, price, stage
payment, timescale for the construction and completion of the
deed.
Any potential purchaser who signs a reservation contract will
expect the developer to be committed to the terms of the contract
and complete the purchase of the property at some point during the
stage of the construction.
The reservation contract is often signed at the beginning of the
construction or even before any authorisation such as planning
permission is obtained. It is for this reason that developers will
insert several cancellation conditions to make sure they will be
able to withdraw from the contract should one of the conditions not
be fulfilled. In this particular case, it is believed that the
developer did not manage to obtain one of the guarantees to secure
the construction of the building. The purchasers believe that the
developer was negligent and tried to prove him liable when he
decided to give up and declare the contract null and void.
The question was raised with the court as to whether or not the
developer acted in good faith. However the court does not have to
consider the good faith of the developer and would allow him to
declare the reservation contract void even if it was the
developer's failure to request the required authorisation within a
reasonable period that caused the contract to be void. Essentially,
it is the purchaser's responsibility to prove the developer's
negligence to the court and it now seems that the developer can
walk away from his responsibilities.
The fact that the developer does not have any obligations
resulting from the stipulation of the contract questions the point
of signing such a contract.
It will be the solicitor's or notaire's responsibility to
explain to his clients the legal implication of the reservation
contract so that the parties know what to expect when they both
sign it.
