Late delivery in an off-plan sale (VEFA): penalties, termination and the investor's loss of rent

A delay of six to twelve months in the delivery of a programme acquired in bulk is not just a scheduling inconvenience: it moves the date on which letting can begin, extends the period of interim interest, delays the start of occupation by a tenant already committed under a lease in the future state of completion and, in some structures, causes the completion condition of a tax advantage to be missed. Against the developer, the investor nonetheless has a contractual and statutory arsenal of which it generally exploits only a fraction, through a lack of familiarity with how the penalty clause, ordinary-law compensation and termination fit together. This guide addresses late delivery in an off-plan sale (vente en l'état futur d'achèvement, VEFA) solely from the standpoint of the professional or asset-holding buyer: legal characterisation of the delay, audit of the grounds for suspension, quantification of the rental loss and the additional holding costs, activation of VEFA late-delivery penalties, the threshold for VEFA termination and procedural strategy against a defaulting seller.

Characterising the delay: contractual date, completion and delivery are not the same thing

The sale in the future state of completion, defined in Article 1601-3 of the French Civil Code, immediately transfers to the buyer ownership of the land and of the existing constructions, the works to come becoming its property as they are carried out. The seller retains the powers of project owner until acceptance of the works. Three notions must be distinguished before any formal notice is served.

Completion is defined in Article R. 261-1 of the French Construction and Housing Code (CCH): the building is deemed complete when the works have been carried out and the items of equipment essential to its use in accordance with its purpose have been installed. The text specifies that non-conformities and defective workmanship do not prevent completion, unless they render the work or its elements unfit for use. Acceptance of the works (réception) is the act by which the seller, as project owner, accepts the work of its contractors: it triggers the warranties of Articles 1792 et seq. of the Civil Code, but it cannot be relied on against the buyer. Delivery, finally, is the physical making available of the property to the buyer, recorded in a joint report with reservations.

These three dates do not coincide. A deed of sale that stipulates an obligation of completion without fixing a delivery date exposes the investor to the developer arguing that it has performed its obligation although the property has not been handed over and cannot be let. The first check therefore concerns the contractual triggering event for penalties: the completion date within the meaning of R. 261-1, the delivery date, or obtaining the declaration attesting completion and conformity of the works (Article R. 462-1 of the French Town Planning Code).

Developers' contracts frequently express the delivery date by quarter or half-year, sometimes with a statement that it is a mere forecast. The case law on late delivery in VEFA holds that the stipulated period, even when expressed by reference to a period, constitutes a commitment: the delay runs from the last day of the period referred to. Provisions that tend to deprive the date of any binding character are deprived of effect, the judge refusing to validate an obligation whose term the debtor alone would fix.

Protected sector, free sector and the buyer's status: the preliminary framework

The bulk buyer often makes the mistake of reasoning by analogy with disputes involving private individuals. The framework is different and is built on two axes.

The first axis is the purpose of the building. Where the building sold is for residential use or mixed professional and residential use, the sale falls within the protected sector of Articles L. 261-10 et seq. of the CCH, whatever the status of the buyer. An institutional landlord that acquires fifty dwellings in bulk therefore benefits from the provisions of public policy: the financial completion guarantee of Article L. 261-10-1 of the CCH, the mandatory staging of payments under Article R. 261-14 of the CCH (35% on completion of the foundations, 70% when the building is watertight, 95% on completion of the building, the balance being payable on delivery and capable of being paid into escrow in the event of a dispute). Conversely, an acquisition of offices, business premises or a hotel falls within the free sector of Articles 1601-1 to 1601-4 of the Civil Code: no completion guarantee, no statutory payment timetable, no protective formalities. Everything then depends on what was negotiated.

The second axis is the buyer's status. Consumer law is largely out of play for the investor: the cooling-off period of Article L. 271-1 of the CCH is reserved for the non-professional buyer, and the control of unfair terms under Articles L. 212-1 and R. 212-1 of the French Consumer Code presupposes the status of consumer or non-professional. A management company, a property holding company or a structured SCI (French property holding company) making a bulk acquisition cannot in practice rely on it to strike down a clause suspending time limits drafted in broad terms or a derisory cap on penalties. The operational consequence is direct: for the professional investor, the quality of the drafting of the contract is the only safeguard. What was not negotiated at signing will not be recovered through consumer law at the litigation stage.

Auditing the legitimate grounds for suspending the period

Every VEFA contract contains a clause listing the legitimate grounds for suspension: bad weather, strikes, default of a contractor, reorganisation proceedings against a trade contractor, legal challenges to the building permit, archaeological discoveries, administrative orders. In almost all cases, the developer's defence consists of neutralising the delay by accumulating these grounds. Auditing this tally is the core of the preparatory work.

Several principles structure the challenge:

• the ground for suspension must be provided for in the contract and defined with sufficient precision, a clause referring globally to “any event liable to delay the works” being too indeterminate to have effect;
• the seller bears the burden of proving the event, its duration and its real effect on the critical path of the programme, a weather record not amounting to proof of a work stoppage;
• the certificate of the site works supervisor, systematically produced, does not bind the judge: it is evidence coming from a contracting party of the seller, subject to the free assessment of the court;
• clauses with a multiplier, which convert one day of bad weather into two or three days of postponement, are fragile beyond what the technical resumption of the works justifies;
• the default of a contractor does not in itself constitute force majeure within the meaning of Article 1218 of the Civil Code, the developer being responsible for its own organisation and for the choice of its subcontractors.

In practice, the contractual programme must be reconstructed, compared with the site meeting minutes and a day-by-day tally demanded. The gap between the delay claimed by the developer and the delay that can be justified determines the base for VEFA late-delivery penalties and, where applicable, the seriousness of the non-performance within the meaning of Article 1224 of the Civil Code.

Quantifying the investor's loss

Quantification is the exercise that buyers neglect most and the one that determines the balance of power. It is not limited to missing rent.

Net rental loss

The loss of rent is calculated net, and not gross: it is necessary to deduct the costs not incurred during the period of delay, the co-ownership charges not called for lack of delivery, the absence of property tax if the triggering event has not occurred, and to take account of the rent-free period that would in any event have been granted to the first tenant. For a residential building acquired in bulk, the loss must be calculated after applying a realistic marketing vacancy rate and the average letting period, failing which the item may be reduced by the judge on account of the uncertainty of letting.

Where the loss takes the form of a missed opportunity (an identified tenant that withdraws), the item is a loss of a chance (perte de chance) and will be compensated in proportion to the probability of the commitment, not at its face value. Hence the value of keeping a written record of interrupted letting negotiations.

Additional holding costs and financing costs

The most solid item is the additional financial cost. It includes the lengthening of the interim interest period on the tranches released as stage payments are called for, extension of the credit line and associated fees, the cost of a refinancing made necessary by the shift of the term, the carrying cost of a shareholder current-account advance, and the delay in the date rent begins, which affects the calculation of bank covenants. These amounts are documented by the amortisation schedules and bank amendments: they are certain, liquidated and hard to challenge.

To these are added, depending on the transaction, security and caretaking costs, property management fees incurred while the property is empty, the costs of extending a construction-damage insurance policy (dommages-ouvrage) or a rental guarantee, and the costs of reorganising an operator's move.

Downstream commitments and tax effects

An investor that has signed a lease in the future state of completion (BEFA) is in a position of double exposure: it owes the tenant compensation or penalties on its own account, whereas its recourse against the developer is capped by the penalty clause (clause pénale) of the VEFA. That differential must be identified before signing and passed on through a mirror clause. Failing that, the developer's delay turns into a dead loss for the buyer. The delay and delivery penalty clauses specific to that lease are detailed in our article on the lease in the future state of completion.

On the tax side, incentive schemes for rental investment make the advantage conditional on completion within a fixed time. The Pinel scheme, closed to new acquisitions since 31 December 2024 but still running for transactions already entered into, thus required, for an acquisition in VEFA, completion within thirty months of signing the authentic deed (Article 199 novovicies of the French General Tax Code). Loss of the tax reduction is a head of compensable loss, provided it was brought to the seller's attention. The same reasoning applies to the recovery of VAT conditional on para-hotel operation whose start is delayed.

Activating the penalty clause: conditions, limits and interplay with the actual loss

Formal notice and liquidation

Article 1231-5 of the Civil Code governs the penalty clause. Its fifth paragraph lays down a condition that is often forgotten:

“Except in the case of definitive non-performance, the penalty is incurred only when the debtor has been served with formal notice.”

The formal notice (mise en demeure) must therefore be sent by registered letter with acknowledgement of receipt, refer to the clause, recall the contractual delivery date, expressly dispute the grounds for suspension relied on and quantify the tally as at the date of dispatch. A claim made only at the delivery report loses the penalties accrued beforehand where the contract does not provide for a waiver of formal notice.

The judge's power and the cap

The judge may, even of his or her own motion, moderate a manifestly excessive penalty or increase one that is manifestly derisory. This latter power is the investor's real lever: developers' contracts frequently stipulate a penalty of a very small amount relative to the price, sometimes capped by a number of months. Where the stipulated penalty is out of all proportion to the loss actually suffered, documented by the quantification of holding costs and rental loss, the application for an increase under Article 1231-5 is admissible. It requires the actual loss to be produced, which brings us back to the quality of the quantification. The regime for judicial revision of the penalty is set out, beyond VEFA alone, in our study of the penalty clause in contracts.

Penalty clause exclusive or not of additional loss

As a matter of principle, the penalty clause is a fixed sum: it sets the compensation due in advance and the creditor cannot claim in addition reparation for the excess loss. The investor has three routes to get beyond that cap:

• stipulate from signing that the penalty is a floor that does not exclude compensation for additional loss, or confine its object to simple delay alone while reserving the other heads of claim;
• show that the seller's breach goes beyond simple delay and rests on another basis, for example a non-conformity of the programme delivered, a breach of the duty to inform or fraudulent fault;
• pursue the tortious liability of a third party to the contract, in particular where the delay stems from a separate fault of a participant in the construction.

An enforcement lever deserves to be made systematic: set-off, provided for in Article 1347 of the Civil Code, between the penalties quantified and the balance of the price payable on delivery. Provided the claim for penalties is certain, liquidated and due, and formal notice has been served, set-off can be notified to the seller and the notary. It must be distinguished from the escrow of the 5% balance provided for in Article R. 261-14 of the CCH, which applies only in the event of a dispute over conformity or reservations and is not intended to cover delay.

Termination of the VEFA: threshold of seriousness, mechanics and contra-indications

VEFA termination is the most visible weapon and, for an investor, rarely the most rational. Its regime falls under Article 1224 of the Civil Code, which opens three routes: operation of an express termination clause, termination by notification from the creditor after formal notice under Article 1226, or judicial termination under Article 1227.

The threshold is that of sufficiently serious non-performance. A delay of a few weeks does not reach it. A shift of several quarters, not justified by legitimate grounds, coupled with a stopped site and the seller's inability to present a credible completion programme, does reach it. Seriousness is assessed in light of the economics of the contract: where the buyer has brought the delivery date within the contractual field by expressly linking it to a letting commitment or an operating timetable, the demonstration is greatly facilitated. This is an argument that is prepared at signing, not at the litigation stage.

Three procedural precautions govern the effectiveness of the approach. First, termination by notification under Article 1226 is carried out at the creditor's own risk: if the judge, seised afterwards, finds the seriousness insufficient, the buyer itself becomes the contracting party in breach. Second, Article 1228 allows the judge, depending on the circumstances, to order performance of the contract rather than pronounce termination, or to grant the seller a period of time. Finally, since the VEFA effected a transfer of ownership and was registered, the court claim seeking termination must itself be registered with the land registration service (service de la publicité foncière) under Article 28, 4°, c of Decree No. 55-22 of 4 January 1955, on pain of inadmissibility. Omission of this formality is a recurring cause of losing a case.

There remains the economic trade-off. Termination puts the investor in the position of having to return an asset under construction and to recover a partly paid price, a claim whose recovery depends on the developer's solvency. In a market where the value of the completed asset exceeds the acquisition price, termination destroys value. The trade-off is therefore made case by case: specific performance under Article 1221 of the Civil Code, coupled with a daily penalty (astreinte) and a claim for damages, rather than termination, where the asset retains its asset value.

At the earlier stage of the preliminary contract under Article L. 261-15 of the CCH, the logic differs: the deposit, capped by Article R. 261-28 of the CCH at 5% if the deed is to be concluded within the year and at 2% if the period is between one and two years, must be returned within three months in the cases listed in Article R. 261-31, in particular where the contract is not concluded because of the seller.

Defaulting developer: completion guarantee, collective proceedings and the creditor's rank

Late delivery is often the symptom of a financial difficulty of the developer. The investor must then reason as a creditor.

The financial completion guarantee of Article L. 261-10-1 of the CCH, now exclusively extrinsic since Decree No. 2016-359 of 25 March 2016 and issued by a credit institution or an insurer, guarantees completion of the building or reimbursement of the sums paid. It guarantees neither compliance with the time limit, nor payment of the penalties, nor compensation for the rental loss. Calling on it presupposes a characterised financial default by the seller, not a mere delay. The guarantee certificate should be requested without delay, its scope checked and the guarantor put on formal notice to appoint the party responsible for resuming the works.

Where collective proceedings are opened, the mechanics change. Article L. 622-21 of the French Commercial Code stays individual proceedings. The fate of the VEFA is played out on the ground of contracts in progress under Article L. 622-13 of the Commercial Code: the buyer may serve formal notice on the administrator to rule on continuation of the contract, silence for more than one month resulting in termination by operation of law. Penalties that fell due before the opening judgment must be declared in the liabilities within two months of publication in the BODACC (Articles L. 622-24 and R. 622-24 of the Commercial Code), on pain of being unenforceable. The timetable of the collective proceedings then takes precedence over the contractual timetable: it is at that point that the investor's actual rank is decided. The position of buyers facing a seller in collective proceedings is covered separately in our article on the property developer in court-supervised reorganisation.

Procedural timetable: which step, at what time

The chronology of steps determines the outcome far more than the quality of the substantive arguments.

• From the first slippage in the programme: letter of reservation, request for the updated programme and site meeting minutes, reminder of the provisions on grounds for suspension.
• When the contractual date is exceeded: formal notice quantifying the penalties, repeated periodically to cut off any discussion about knowledge of the delay.
• Where the site has stopped or there is a technical dispute: application in summary proceedings (référé) under Article 145 of the French Code of Civil Procedure for the appointment of an expert, before any trial, to record the state of progress, the defects and the effect of the delay. This measure fixes the evidence and interrupts limitation.
• Where the claim for penalties is quantified and not seriously disputable: summary proceedings for an interim payment (référé-provision) under Article 835, paragraph 2, of the Code of Civil Procedure, a fast and effective route on the penalty clause.
• On the merits: summons before the tribunal judiciaire of the place where the building is located, which has jurisdiction in real property matters under Article 44 of the Code of Civil Procedure.

As to limitation, the damages action based on the delay is time-barred after five years from the day the buyer knew the facts enabling it to act (Article 2224 of the Civil Code). This must not be confused with the regime for apparent defects and non-conformities: the seller is discharged of them only at the end of the period provided for in Article 1642-1 of the Civil Code and the action must, on pain of being time-barred, be brought within the year following the date on which the seller may be discharged (Article 1648, paragraph 2). The warranties of perfect completion, of good working order and the ten-year warranty are moreover owed by the seller under Article 1646-1 of the Civil Code.

What is negotiated before signing

Most of the delay litigation is won at the drafting stage. For a bulk buyer, four points are non-negotiable.

A firm delivery date, expressed as a day and not as a quarter, with a clearly identified starting point for penalties and a contractual definition of delivery distinct from completion. An exhaustive and defined list of grounds for suspension, excluding contractor default and the multiplier, coupled with an obligation to notify the event within a short period on pain of forfeiture. A penalty clause calibrated to the real economics of the case, expressly stipulated not to exclude compensation for additional loss, and whose cap, if there is one, is correlated with the commitments entered into by the buyer under the BEFA. Finally, a clause bringing the delivery date within the contractual field, mentioning the letting or tax commitment that the seller knows to be decisive for the buyer's consent: that is the stipulation that will tip the assessment of the seriousness of the non-performance on the day termination has to be considered.

Conclusion

The termination reflex is the wrong reflex in most investor cases. It destroys value on an asset that retains its asset value, it exposes the creditor to the risk of the developer's insolvency and it shifts the debate onto an uncertain threshold of seriousness. The profitable strategy consists in documenting the tally of the delay very early, neutralising the grounds for suspension by an adversarial audit of the programme, quantifying the penalties through successive formal notices, then obtaining an interim payment in summary proceedings while pursuing specific performance of delivery. Termination is called for only when completion has become improbable or the asset has lost its economic purpose.

Before any decision, have an adversarial quantification of the loss prepared, distinguishing the net rental loss from the additional financial holding cost, and have the penalty clause in your deed audited: if it is manifestly derisory in light of that quantification, an application for an increase based on Article 1231-5 of the Civil Code is often worth more than an action for termination.

Frequently asked questions

Is a delivery period expressed by quarter enforceable against the developer? Yes. A period expressed by quarter or half-year constitutes a contractual commitment: the delay is counted from the last day of the period stipulated. Clauses that present that date as a mere forecast, without binding force, are set aside by the courts, an obligation not being able to depend on the sole will of the debtor. The professional buyer nonetheless has every interest in negotiating a firm date expressed as a day, because the room for interpretation of a quarterly date favours the seller.

Are VEFA late-delivery penalties due automatically? No. Article 1231-5, paragraph 5, of the Civil Code makes the penalty payable only after prior formal notice, except in the case of definitive non-performance or a contractual stipulation dispensing the creditor from that formality. A claim made for the first time at the delivery report loses the penalties accrued before formal notice. A registered letter should therefore be sent as soon as the contractual date is exceeded and repeated periodically, updating the tally.

Can one obtain more than the penalty clause if the rental loss is greater? In principle no: the penalty clause is a fixed sum and excludes reparation of the excess loss. Three routes make it possible to get round it: stipulate contractually that the penalty is a floor that does not exclude additional compensation, ask the judge to increase a manifestly derisory penalty under Article 1231-5 of the Civil Code, or act on a basis distinct from delay (fraud, non-conformity, breach of a duty to inform). The application for an increase requires a detailed quantification of the net rental loss and the additional holding costs to be produced.

Does an investor acquiring dwellings in bulk benefit from the financial completion guarantee? Yes. The protected sector of Articles L. 261-10 et seq. of the CCH is determined by the purpose of the building, residential or mixed, and not by the status of the buyer. The completion guarantee of Article L. 261-10-1 of the CCH and the mandatory staging of Article R. 261-14 of the CCH therefore apply to a bulk acquisition by an institutional landlord. However, that guarantee covers neither the delay, nor the penalties, nor the rental loss.

After how many months of delay can termination of the VEFA be sought? No threshold is fixed by any text. Article 1224 of the Civil Code requires sufficiently serious non-performance, assessed in light of the economics of the contract. A delay of several quarters not justified by legitimate grounds for suspension, combined with a stopped site and the absence of a credible completion programme, is generally accepted. The demonstration is markedly easier where the contract expressly mentions the letting or tax commitment whose fulfilment depends on the delivery date.

Must the action for termination of a VEFA be registered with the land registration service? Yes, and its omission is a frequent cause of inadmissibility. A court claim seeking termination of a right arising from a registered deed must be registered with the land registration service under Article 28, 4°, c of Decree No. 55-22 of 4 January 1955. As the VEFA effects an immediate transfer of ownership of the land within the meaning of Article 1601-3 of the Civil Code, the deed is registered and the formality is required before any hearing on the merits.

What should be done if the developer is placed in court-supervised reorganisation during the works? The financial completion guarantee certificate must be requested immediately and the guarantor put on formal notice to organise resumption of the works. At the same time, the buyer serves formal notice on the administrator to rule on continuation of the contract in progress under Article L. 622-13 of the Commercial Code, silence for more than one month resulting in termination by operation of law. Penalties that fell due before the opening judgment must be declared in the liabilities within two months of publication in the BODACC (Articles L. 622-24 and R. 622-24 of the Commercial Code), failing which they become unenforceable against the proceedings.