Buying under construction: how the government is going to protect shareholders

Luxembourg is discussing a revision of the legislation relating to completion guarantees in VEFA transactions (vente en futur état d'achèvement - sale of property under construction). The government has stated its intention to adapt existing rules to better protect buyers, especially given the challenges of today's property market.

Construction completion guarantees are governed by Article 1601-5 of the Civil Code and the Grand Ducal Decree of 24 February 1977. These documents set the standards to be met by banks and insurance companies providing such guarantees. The main objective is to minimise the risks to the buyer in the event that the developer fails to complete the project.

One of the features of the legislation is the possibility of converting a completion guarantee into a repayment guarantee. This can happen if there is a provision to that effect in the contract and the buyer must be notified of such changes.

Every VEFA transaction must be formalised in the form of a notarial deed. This provides the buyer with additional guarantees related to legal protection and confirmation of the legality of the transaction.

As part of the coalition agreement, the government has committed to reviewing the current VEFA guarantee legislation. The focus will be on improving the existing mechanism to ensure that it meets the requirements of the current market and provides even greater protection for buyers. Issues raised in parliamentary enquiries will also be taken into account in the analysis.