Fraudulent real estate sales program and unfinished work: our solutions for investors
You have made a rental investment in a program presented as turnkey by the seller and with a tax advantage. The building site is abandoned and you discover that the seller, who has become insolvent, has made you conclude a simple sale in a dilapidated state, dissociated from a works contract, thus devoid of the financial guarantee of completion of the works, which protects the purchasers and is inherent to the imperative regime of the sale of real estate to be renovated (RIV). We have successfully assisted our clients on several occasions who were confronted with this situation in order to have the transaction requalified and obtain compensation.
It is frequently the case where an investor (company or individual) is approached by a marketer of a real estate program sale/works associated with a tax advantage (Scellier, Malraux…) presented as turnkey by the seller/developer.
The investor pays the seller the price of the land and pays directly to the contractor presented by the seller the calls for funds to finance the work.
At this point, the construction site is abandoned and the contractor is subject to a judicial liquidation procedure.
The investor realizes that he did not sign a VIR, but a simple sale of land in a dilapidated state, without any mention of the renovation work in the notarized deed of sale, and that he therefore does not benefit from any financial guarantee of completion of the work.
He then finds himself alone, as he does not know the other investors in the project, and helpless in the face of a ruinous operation.
It is in these conditions that he requested our services.
Our priority was to bring together all the injured investors of the real estate operation to act in concert.
From a legal point of view, we collected evidence of :
- the confusion between the companies, seller and contractor, controlled and directed by the same person;
- that the seller acted as a project manager, in particular by being qualified as such on the preliminary declarations of work obtained before the sales;
- that the seller indirectly carried out the work via its “friend” contractor;
- the insolvency of the vendor and the contractor;
- the notary’s knowledge of the workings of the transaction and, consequently, his fault in not allowing the purchasers to benefit from the legal guarantee of completion of the work.
In a first case concerning a real estate transaction in Roubaix eligible for the Scellier tax scheme, we obtained a judgment from the Paris Court of First Instance on July 5, 2017, cancelling all the real estate sales, correlative bank loans and works contracts on the grounds of fraud in the public order regime of the VIR and ordering the notary to guarantee the purchasers the restitution of the sale price due to the insolvency of the seller:
“It thus appears that the deeds of sale which mention finishing works to be paid by the purchasers do not reflect the reality of the assembly, since from the signature of the reservation contract it is foreseen a total price including the price of the land and the price of the works.
In this case, it is a sale to renovate operation, subject to articles L 262-1 and L 262-4 of the construction and housing code.
The seller companies must be held liable for not having applied these provisions of public order.
Indeed, the arrangement providing for the sale of the land independently of the works does not reflect the reality of the planned operation.
The purchasers were thus deprived of the legal guarantees allowing the proper completion of the works in the event of liquidation of a company.
Consequently, the contracts of sale should be declared null and void and the companies S and V should be held liable for the damage suffered.
[…]
Mr. X could not have been unaware that the transaction contemplated was a sale of real estate to be renovated.
It was his responsibility as drafter of the deed of sale to draw up a deed that complied with public order legislation and to warn the purchasers of the absence of a performance guarantee.
The responsibility of Maître X must consequently be retained.
[…]
Maître X, whose fault consists of abstaining, in his capacity as drafter of the deed of sale, from signing a deed in conformity with public order legislation and from warning the purchasers of the absence of a performance bond, is required to guarantee the purchasers the restitution of the sale price, in view of the insolvency of
of SCI V.[1]”.
In a second case concerning a Malraux real estate transaction in Troyes, we obtained from the Court of Appeal of Reims, by a decision of December 14, 2021, the requalification of the transaction as a VIR and the joint and several condemnation of the marketer, the seller and the notary to pay damages to the purchasers as compensation for the prejudice suffered:
“Both the court and the tribunal consider that the fact of artificially and fraudulently dissociating a sale of buildings to be renovated into two distinct operations of sale and work in order to circumvent the specific regime protecting the purchasers, undeniably composes of a fault likely to engage the liability of the sellers.
[ …]
It is proven that the company Y had full knowledge of the arrangement made by Mr. Z in which it was totally involved. It could not have been seriously unaware that this arrangement consisted of a disguised sale of buildings for renovation. Its fault towards the purchasers thus consists in not having alerted them and, even more, in having contributed to this real estate operation carried out in fraud of the legislation on the sales of buildings to be renovated.
[…]
the notary in his capacity as drafter of the deed is required to authenticate it and to ensure its legal effectiveness. In the present case, the court considered that the notary had committed a fault insofar as he had not given his acts
their exact legal qualification, whereas it is obvious that he had the necessary information to do so, in his capacity as a legal professional.
If you intend to invest in a real estate transaction that is eligible for a tax scheme, or if, during the execution of the transaction, you are faced with an abandonment of the project coupled with the insolvency of the contractor and/or seller, we advise you to call upon the services of a lawyer in your region who belongs to the AGN network and who is an expert in this type of litigation. He will advise you before any sale is signed and will accompany you in case of difficulties in order to conduct the appropriate procedures for compensation.
[1] Judgment of the TGI of Paris of 5/1/17 RG 15/16224.
[2] CA Reims 14/12/21, RG 20/01233.
Our lawyers are at your disposal to answer all your questions and advise you. Our meetings can be held in person or by videoconference. You can make an appointment directly online at www.agn-avocats.com.
AGN AVOCATS – Real Estate Law
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