Housing project failure costs €9m

A group of more than 50 house-buyers have lostmillions of euros and will never see the propertiesthey have paid for.

7 January 2014

A GROUP of more than 50 house-buyers have lost
millions of euros and will never see the properties
they have paid for – and may even have to pay for the
half-built walls to be demolished.

They had invested more than €9m in 2006 in an off-plan building project at Cutry in Lorraine, where they were promised that the properties would be built, that they could gain tax credits by renting them out, and that they could sell the houses after nine years.

However, although property developer Yves Richard and his Groupe Richard Immobilier firm had been paid the bulk of the money for the work, the company went bust in 2008. It was then that the buyers discovered that the half-built buildings would never be finished
as the builder’s insurance cover was not valid.

Now they must continue to pay the mortgages they took out – with a total monthly bill of €70,000 and some paying more than €900 for the next 30 years – and, in a final blow, they have been asked by the mairie in Cutry to foot the €150,000 bill for demolishing the properties as they are in a dangerous state.

François Guerrand, who heads the association representing the house-buyers, said there were 60 families involved who had invested in projects at Cutry, consisting of 34
flats and 30 houses.
“Our aim was to rent out the properties for nine years minimum to benefit from a tax credit offered by the state. There is a shortage of housing in France and the government incites people to build flats and houses and offers a tax reduction under the 2003 Loi Robien,” he says.

Cutry, in the north-east of France, is very close to the border with both Belgium and Luxembourg and was an ideal site for the project due to the demand for housing there.
“We bought our project off-plan in 2006 as a vente en l'état futur d'achèvement (VEFA) with the completion due in 2008 and 2009. After the developer collapsed in 2008 we discovered that our insurance would not pay for the buildings to be completed.
“The work was guaranteed through what is called the garantie intrinsèque, but this, we discovered, was worthless.

In effect the builder – through the notaires who signed the warranty – had guaranteed that the project would be completed, but we discovered afterwards that the conditions of this insurance had not been met.
“False declarations on the state of project had been given to the notaires, who accepted them.
“Now the mayor of Cutry has ordered that the buildings be demolished as they are dangerous. We have rejected this but, nonetheless, the mayor has a problem because the site is not safe.
“The properties were badly designed and badly built. With the winters, the bricks have started to break up. The buildings are falling apart – and in any case we could not have finished the buildings ourselves because we had already paid for nearly 100%
of the work.

Yoann Glasson, of building consultants Lamy Expertise, said it was highly unusual for the developer of such a VEFA scheme to also be the builder, and this had raised questions of responsibility. The builders should have had their own funds or another type of insurance – a garantie extrinsèque, which is backed by a bank – to ensure the buildings were completed.

Property developer Yves Richard was finally ruled insolvent in 2010 and was banned by the commercial court in Briey from running a company for 15 years
and ordered to pay €4m damages to the liquidator.

Mr Guerrand, head of an association representing the house buyers, said criminal proceedings had been started against Mr Richard but that would not get back their money. “We’re going to launch a civil action at the Tribunal de Grande Instance (TGI) in Paris against everyone involved: the developer – or at least the liquidator looking after his affairs – plus the insurers of the notaires, the architect, the bank and the agent who sold us the development. We have at least two years of legal delay in front of us.
“The justice system is too slow and fraudsters are not punished and can continue to drive around in their luxury cars. The law is there to protect the weak, but it is failing to do that. There are thousands of development projects like this across France. We were told that we had insurance to ensure that the project would
be completed, but the insurance was dependant on the
developer: so, in effect, we had no insurance.”

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