50 years of the Breyne law: what about the financial guarantee?
Updated on 29.03.2022
On January 1st, 2022, the law regulating the construction and sale of dwellings to be built or under construction, better known as the “Breyne Law”, celebrated the 50th anniversary of its coming into force.
This law, which is said to have been hastily passed following the resounding bankruptcy of the Belgian developer ETRIMO, is an important milestone in the security of turnkey real estate sales in Belgium. It is still invoked every day in real estate disputes and remains more topical than ever.
This is the opportunity to come back throughout the month of January on specific questions regarding the application of this law:
- Its scope of application
- The contractual formalities to be respected
- The mandatory financial guarantee to be constituted and its release
- The particular role of the architect
This third section is dedicated to the mandatory financial guarantee.
The Breyne law obliges the seller to provide specific financial guarantees intended to protect the purchaser in the event of the work not being completed.
The aim is that, in the event of the developer’s bankruptcy, the client who still has a claim against the developer can appeal to it.
1/ What form can the mandatory financial guarantee take?
When the Breyne law applies, the seller or contractor must provide the buyer or client with financial guarantees.
These guarantees can take two forms:
- A bond set at 5% of the price of the building – most commonly deposited in an account at the Caisse des dépôts et consignations – for the approved contractor within the meaning of public procurement legislation;
- A total completion guarantee – i.e. the joint and several guarantee of a financial organization for the sums necessary for the completion of the dwelling house or the reimbursement of the sums paid in case of cancellation of the contract – for the seller or the contractor not approved under the public procurement legislation.
In practice, the second form of guarantee is rarely found, notably because of the prohibitive prices charged by the banks for its implementation.
2/ What are the consequences if the financial guarantee is not established?
The financial guarantee does not necessarily have to be in place on the day the contract is signed.
However, the Breyne law imposes a time limit within which it must be established; this depends in particular on the existence of suspensive conditions (mortgage, permit).
Once again, the contract and the contractual process must be well oiled, in order to determine how the realization of the suspensive conditions must be notified to the developer and systematically lead to the constitution of the financial guarantee.
And for good reason, the absence of a mandatory guarantee can lead to the nullity of the agreement.
3/ How to release this guarantee at the end of the construction period?
The Breyne law stipulates that half of the guarantee can be released on provisional acceptance, and the balance on final acceptance. But how can this be done in practice?
- For approved vendors/contractors:
The developer must produce a bond release form signed by the owner(s). This must be a certified signature.
- For unlicensed vendors and contractors:
The practical procedures to be followed in this case are in principle defined by the credit agency itself.
What should be done at the end of the project if the client no longer gives any sign of life or refuses to cooperate in order to release the guarantee? The precise procedure to be followed is also provided for in the Breyne law, but it is cumbersome. It involves a formal notice by a bailiff and a court summons.
Our experience allows us to assist you in settling these formalities while limiting costs and ensuring that you obtain a date of receipt.