Real estate developers and building owners
Completion Bonds and Performance Bonds (GFA and GEC)
Completion bonds and performance bonds are intended to cover the risk of default by the person who undertakes to sell and build a property. They are written by banks and insurers.
The purpose of this guarantee is to protect the purchaser from default by the property developer under a contract of sale in the future state of completion (VEFA). It is a legal guarantee within the framework of the protected sector (article L261-10-1 of the Construction and Housing Code). It can also be issued outside the protected sector.
Within the framework of a property development contract (CPI) and more particularly in the protected sector, the property developer has the obligation to provide the client with a guarantee covering the proper execution of his commitments (article L222-9 of the Construction and Housing Code). Such a guarantee may also be requested in a conventional manner by parties outside the protected area and in the case of a general contractor’s contract.
Issued under the sale of immovable property to be renovated regime, this guarantee is intended to cover the default of the property developer. This is a legal obligation under Article L262-4 of the Construction and Housing Code in the protected sector.
For development and subdivision projects, the developer must provide a guarantee of completion of the works if he intends to sell the lots before their completion (article R442-13 of the town planning code).
Construction site insurance
Construction site insurance are guarantees taken out as part of a construction operation. As such, some are expressly imposed by law and others are advised and generally imposed by the various parties to the transaction.
This is an insurance that covers damages to the decennial work. It aims to pre-finance the repair works. DO insurer then makes a recourse against the decennial insurer of the person responsible of the damage. This legal guarantee is made compulsory by Article L242-1 of the Insurance Code.
This insurance covers the so-called “non-builder” (project owner, seller after completion, property developer, etc.) from the consequences of his decennial liability likely to be characterised within the meaning of Article 1792 of the Civil Code (Article L241-2 of the Insurance Code). This guarantee is essential in particular in the event of sale of the building constructed within 10 years of its completion.
Damage guarantee is optional, however, it is recommended and usually imposed by the various parties to the construction operation (companies, contractor, bank, guarantor, etc.). It is usually intended to cover damage to the work during the construction period. Its main purpose is to cover serious damages to the work that may result from natural phenomena or from the actions of contractors or third parties.
The client, in view of his various obligations, is obliged to cover himself against the risk of his third party liability being incurred, and this is all the more justified in view of the importance of the commitments in the context of a construction operation. This guarantee generally covers the project owner during the construction period.
This is an insurance contract for major construction sites (those usually exceeding a total construction cost of €15M) that covers the decennial liability of those involved in the act of building when the cost of damage exceeds certain trigger thresholds. This so-called “second line” contract mutualises the risk and therefore secures the project owner in the progress of his building site.
Guarantees and contract bonds
Various guarantees related to a real estate transaction may be required and are designed to address specific risks.
The project owner and the contractor are required to provide guarantees covering the payment of contracts signed with their co-contractors. In the context of works contracts, this will be the guarantee referred to in Article 1799-1 of the Civil Code. In the case of subcontracting contracts, it will be the guarantee referred to in the law relating to subcontracting (Law n°75-1334 of 31/12/1975).
In return for the immobilisation of the property, the promisor may require the future purchaser to provide him with a guarantee, issued by a banking institution or insurer, for all or part of the immobilisation indemnity.
The real estate sector has various specific guarantees that may be required by co-contractors. To this end, tailor-made contractual provisions may be required.