According to the terms of the previous contract,
the developer undertakes to reserve the premises
for the purchaser in case of completion of
construction. This contract is not binding on the
parties and does not obligate the developer to sell
the property to the buyer. Therefore, the purpose
of the pre-contract is only to ensure that the
developer reserves the agreed property for a
particular buyer and will not actively sell it to
other potential buyers for some period of time.
There are no legislative requirements regarding
the mandatory provisions of the preliminary
contract. As practice indicates, it usually includes
details of the approximate location of the
premises, detailed plans of the proposed
development, the number of main rooms and the
list of maintenance rooms, extensions, permits,
indicative price of the reserved accommodation,
etc. There is also no legal requirement for
notarization of the Preliminary Agreement.
If the parties enter into a Preliminary Contract,
the buyer has a ten-day time period to decide
whether to proceed with the final sales contract.
The consideration period begins after the buyer
has received a copy of the annex to the previous
contract, which includes technical description of
the property (plans, sections, information on the
coverage of each room, etc.), materials used for
construction and a description of common
equipment (elevator, basement, collective
heating, etc.) and other technical information.
During this period of discussion, the buyer may
withdraw from the contract and receive a full
refund of the deposit paid to the developer. If the
buyer renounces the contract after the reflection
period, he/she will lose the deposit, unless such
withdrawal is due to special reasons provided by
law, for example, the inability of the developer to
perform the actions according to the Preliminary
Contract (Aimvesting, 2019)
For sale and purchase of real estate at the
development stage the parties should conclude a
VEFA Contract. Before signing it, should
provide the buyer with a set of rules that will
apply to the property built, for example, the use
of communal property, economic use of the
property, service charges, etc.
Current French legislation establishes
requirements for mandatory provisions of the
VEFA Contract. In particular, it should contain
the following items:
− a detailed description of real estate under
construction and its location in the building;
− purchase price, payment terms and terms of
revision of construction in progress;
− completion date;
− guarantee of completion or reimbursement.
The VEFA may also contain certain conditions
precedent, i.e. the terms that the parties should
fulfill by a certain date in order to proceed with
the sale and purchase of the property. In practice,
such requirements often include the buyer’s
obtaining a mortgage to pay the purchase value
of the property, under construction, or the
developer’s taking a bank loan to finance the
construction (since the initial purchase price
payments received from the buyers may not be
sufficient for such financing, and developers, as
a rule, do not invest their own funds). If the
parties do not fulfill their previous conditions, the
VEFA Contract is terminated and the developer
returns the deposit and / or the amount of the
purchase price actually paid by the buyer at the
time of such termination.
The VEFA Contract may provide a fixed or
preliminary purchase price. However, in most
cases it is a fixed price. If this is a preliminary
price, the VEFA Contract shall include the basis
on which such price may be revised and therefore
the final price is set. In any case, the final price
cannot increase by more than 70% of the increase
in the construction price index.
Buyer has to pay the purchase price in several
parts. The amount of each contribution is
calculated as a percentage of the total purchase
price, depends on the stage of construction and
the type of housing (apartment or house) and
cannot exceed the maximum established by law.
For example, the purchaser's payment to the
developer is no more than 20% of the total
amount at the stage of building the foundation of
the house. The deposit is also included in the
installment payments (in particular, it is part of
the last payment). The buyer pays for each stage
after the developer has received a written
certificate from the supervising architect
confirming the completion of the relevant stage
of construction. Thus, the buyer is protected from
any abuse by the developer and can influence its
behavior.
At the same time, the contract may also provide
for a penalty of up to 1% of the outstanding
amount per month to be paid by the buyer in case
of late payment of the purchase price. If the buyer
is unable to pay the relevant installment within a
month or longer, the developer may terminate the
VEFA Contract and file a claim for
compensation (FrenchEntrée, 2007).