In the case of a sale in the final state of completion, the completion guarantee and the repayment guarantee are the two methods designed to protect the buyer against the risk that the seller no longer completes the immovable sold. As a reminder, the contract of sale in the future state of completion is that which is concluded with a real estate developer and which is subject to the provisions of articles 1601-1 and following of the Civil Code.

Because of the nancial issue and the risks to which the consumer exposes himself when he acquires a work to be built, the legislator has provided rules to protect the buyer. Article 1601-5 thus requires the seller to provide the buyer with a guarantee of reimbursement of the payments made in the event of termination of the contract, or a guarantee of completion of the building. The seller will have the choice to opt for one of these two formulas.

The chosen guarantee can therefore be activated by the buyer if the promoter can no longer finish the work. It should be noted, however, that it is not specifically provided for the case of a company going bankrupt. In practice, however, it will be essentially in the case of a promoter in a critical financial situation, that this guarantee will have to be used.

As regards the guarantee of completion, it may be provided in two different forms. According to art. 2 of the Grand-Ducal Regulation of 24 February 1977 made in implementation of article 1601-5 of the Civil Code, “The guarantee of completion takes the form of:

Or an opening of credit by which the one who has consented to it is obliged to advance to the seller or to pay on his behalf the sums necessary for the completion of the building.

Or a bond agreement under which the surety is obliged to the buyer, jointly with the seller, to pay the sums necessary for the completion of the building.

Before being able to benefit from this guarantee, the purchaser must prove that the developer has failed to complete the property. In practice, it may be difficult to provide this proof. In fact, in a first phase, the builder’s financial difficulties usually result in a net slowdown in work and a reduction in his presence on the spot, rather than a total and permanent abandonment of the site. Thus, if the bank refuses to find with the buyer a contractual default of the promoter, the consumer will have to seize the competent court which will assess if it is in the presence of an incompleteness.

The guarantee of repayment is, in turn, that which takes the form of a suretyship agreement under which the surety undertakes to the purchaser, jointly and severally with the seller, to reimburse the payments made by the purchaser in the event of amicable or judicial resolution of the sale due to lack of completion (Article 3 of the Grand-Ducal Regulation).

This guarantee therefore enables the purchaser facing a defaulting promoter to obtain repayment of the sums he has already paid in respect of the various installments of the sale price. The guarantee will be able to play therefore only if the contract is solved and if the purchaser has already made a payment The purchaser will have to seize the competent judge so that the latter complies with the contractual non-performance and pronounces the resolution of the contract. In the event that the culpable incompleteness is indisputable, however, the buyer could also terminate unilaterally, but only after having formally called on the promoter to perform his obligations: However, the buyer would take the risk that the banker held the guarantee of reimbursement disputes the merits of the termination, so it would have to go through the court. It would also take a risk vis-à-vis the promoter because it can be difficult to assess whether the completion is really definitive or if it is a significant delay. It is also interesting to note that the Grand-Ducal Regulation explicitly provides that the guarantee of reimbursement may also be invoked in case of resolution by mutual agreement.

It should be emphasized that during the contract, the seller and the guarantor banker will be able to switch from one form of guarantee to another without having to obtain the agreement of the buyer. who will have to be hardly informed. This option of substitution must, however, have been provided for in the notarial act. The Civil Code also provides that the guarantee of completion may be automatically replaced by the guarantee of reimbursement in case of material or legal impossibility to continue construction.

The Grand-Ducal Regulation of 1977 provides that both the completion guarantee and the guarantee of repayment are given by a banking institution. Under this warranty, the buyer will have a right to act directly against the bank.

The completion or refund guarantee is extinguished with the completion report of the building.

Consequently, it will also cover the defects of conformity, the vices and the poor workmanship which would be of such gravity that the real estate could not be used according to its destination, so that the purchaser could refuse to receive the keys. On the other hand, defects that would not prevent the habitation of the property or that would appear only following the delivery of the building will no longer be covered by this warranty.

We therefore find that the consumer who concludes a contract of sale in the future state of completion to acquire a home is in principle well protected against the risk of incompleteness on the part of the real estate developer falling bankrupt. This is unfortunately not the case for the risks covered by the biennial and decennial guarantee. Note that the guarantee of completion or refund is mandatory: the provisions that require it are mandatory so that any stipulation to the contrary would be ineffective. A notary should not agree to draft a notarized deed of sale in a future state of completion if the promoter has not taken out such a guarantee.