French developer bankruptcy leaves 1,200 homes unfinished

The collapse of a property developer has left 1,200 flats and homes incomplete across France, with buyers who purchased off-plan continuing to repay mortgages on properties they may not receive for several years, and no certainty that they will ultimately be completed.

Fiducim, a Paris-based company, continues to operate a website advertising flats in Hauts-de-France, central France and on the Mediterranean coast, despite construction work having stopped at all of those sites.

One of its largest projects involved converting a former industrial building in Arras (Pas-de-Calais) into around 400 flats.

One couple who took out a €300,000 loan to buy two of the flats told France Télévisions that they were still making repayments, despite the properties remaining unfinished.

They had expected to use rental income from one of the flats to help cover the cost of the loan.

Liquidation

“The company is in judicial liquidation and it has been established there is no money, so there is no point in chasing after the company in the courts,” Thomas Chaboureau, the lawyer who represents 120 people who bought 65 flats from Fiducim, told The Connexion.

“But the way, the company was set up meant the actual sales for each development were handled through subsidiary companies and these hold the Garantie Financière d’Achèvement (GFA) insurance.

"We are going after them to make sure that the guarantors, who are mainly banks and insurance companies, complete the projects.”

Developers selling properties off-plan under VEFA contracts must provide buyers with a financial guarantee protecting against non-completion.

This is typically through a GFA, which is intended to ensure funding is available to complete the development if the developer runs into financial difficulties. 

However, putting the guarantees into effect is not always straightforward.

Banks and insurers issue GFAs to developers only after they have demonstrated sufficient buyer interest in a development, usually through deposits from a required percentage of purchasers.

This can encourage aggressive sales promotions, including discounts for early buyers or entry into draws to win a free flat, before construction work on a development has begun.

“Even if it goes well, getting the GFA to work will take time. The project in Arras is already years behind schedule and is now unlikely to be completed before 2029,” said Maître Chaboureau.

The circumstances surrounding Fiducim’s collapse remain unclear.

As recently as 2020, Fiducim ranked 23rd in financial newspaper Les Echos’ 2020 ranking of France’s fastest-growing companies.

Since then, France’s new-build housing market has slowed markedly. Delays caused by Covid lockdowns, followed by high inflation after Russia invaded Ukraine and higher interest rates have all been cited as contributing factors.

Many developers operating several sites appear to have faced cash shortages as builders required payment when construction reached various stages.

In some cases, there are suspicions that money intended for one project was used to fund work on another.

Checklist before signing a VEFA (off-plan) contract

1. Study the financial guarantee

A VEFA sale must include the required financial protection against non-completion. Check that the applicable GFA or reimbursement guarantee is in place and documented in the sale agreement.

2. Identify the guarantor

A GFA must be provided by an eligible third-party guarantor, such as a bank, authorised financial institution, insurer or mutual guarantee company. Buyers should keep the guarantor’s details with their contract in case problems arise.

3. Understand the limits of the GFA

The guarantee is intended to provide the funds needed to complete the development if the developer fails financially. It is distinct from a reimbursement guarantee and does not itself provide compensation for delays or construction defects.

4. Request the dommages-ouvrage insurance certificate

This is separate from the GFA and relates to certain construction defects. Retain the relevant certificate alongside the other contractual documents.

5. Check the developer’s financial position

Buyers can examine recent company accounts, court proceedings and insolvency notices rather than relying solely on the developer’s marketing material. Corporate information services including Pappers and Societe can provide relevant records.