© Domingos Oliveira/ RTL Luxembourg
Developer bankruptcies have raised concerns among property buyers from the last two years, leaving many questioning their recourse and whether the completion guarantee provides any real protection.
Just two years ago, buying off-plan property in Luxembourg was considered a safe bet. But recent bankruptcies have left many buyers stranded, facing significant delays and financial uncertainty. In Oberkorn, for example, several homeowners have been waiting for over 18 months for construction to progress.
So, what should buyers do when faced with such a situation? Is it worth pursuing legal action against the developer? And what exactly does the completion guarantee cover?
Mario Di Stefano, lawyer and managing partner at DSM Avocats, emphasises the importance of thorough research before signing a sales agreement. "I'm often surprised that buyers put more thought into their kitchen design than into the key issues surrounding the construction of their home. It's vital to read the guarantee and the specifications to understand your risks and know who you're dealing with," he advises. "Everyone has access to the commercial register and can consult the latest company financial statements in Luxembourg."
For those hesitant to carry out such research, Di Stefano recommends consulting a lawyer and possibly an architect to ensure their expectations align with the project. He also warns buyers currently in the midst of construction to be cautious with the payment stages. In the event of a developer's bankruptcy, payments for unfinished work will not be covered by the completion guarantee.
"The completion guarantee is not a comprehensive insurance," Di Stefano stresses. He also aims to correct "a common misconception" among buyers that, in the event of the developer’s failure, the guarantor will complete the building. "That’s not how it works. It’s simply a financial guarantee. The buyer automatically becomes the project owner," he clarifies, and the buyer must then decide on the next steps.
Mario Di Stefano, managing partner at DSM Avocats / © DSM Avocats
If only one buyer is involved, the process is simpler, but in co-ownership situations, all owners must agree. "In most cases, they have an interest in completing the construction," he explains. However, the value of the property may not be the same as originally paid, especially when multiple parcels are involved. The unsold units can also present additional challenges, with no one-size-fits-all solution. "It's case by case", explains Di Stefano.
In this context, Di Stefano clarifies that the completion guarantee only covers the completion of the building and any extra costs incurred from taking over the project by another builder. It does not cover delays, financial losses, or rent paid while waiting for the property to be finished. "I can take action against the developer, but it won’t help much if they are bankrupt," he warns.
For buyers affected by a developer's bankruptcy, Di Stefano advises against wasting time on legal delays, as prolonged waits can lead to greater damage. Once a new contractor is found to continue the work, progress can resume, and the protections of the guarantee should cover most additional costs.
However, he cautions that the guarantee does not automatically mean all expenses are covered: "The guarantor retains the right to withhold payment for any extra costs incurred," Di Stefano says. In practice, prices must simply align with market rates, regardless of the work undertaken. Regarding advances and additional payments made to the bankrupt developer, Di Stefano does not hold back: "Yes, you risk being left with nothing."
A key point: the completion guarantee becomes a refund guarantee when archaeological remains or protected species– whether animal or plant – are discovered on site. While rare, Di Stefano anticipates solutions will emerge in the coming months.
