Transfer of Shares in an Allocation SCI: Beware of Recourse Against Builders

You have just acquired shares in an allocation société civile immobilière (SCI) in Wittenheim. The property seems perfect, until one day a water leak appears, revealing hidden defects. You turn to the architect who designed the building, but he gives you a flat refusal: 'You were not my client, I have no contractual relationship with you.' What can you do? This decision of the Court of Cassation of 13 December 1989 answers a crucial question: can the new owner of shares sue the builder on a contractual basis, or must he be content with a quasi-delictual liability action (based on fault, without a contract)? The answer is clear and unequivocal: the transfer of shares transfers a security, a right of claim against the company, but not the contractual claim against the builder, unless that claim is expressly assigned.

The Facts: A Story Like Many Others

Mr and Mrs X, owners in Guebwiller, had acquired shares in an allocation SCI. This company had a building constructed by an architect and contractors. After a few years, defects appear: water ingress, cracks. The X couple sue the architect for damages. But the architect retorts: 'You are not my contracting parties, it was the SCI that signed the project management contract.' The X couple then turn against the sellers of their shares, but those sellers had transferred the shares without transferring any potential legal actions. The case goes up to the Versailles Court of Appeal, which dismisses the X couple's claim. Appeal to the Court of Cassation: the Court of Cassation upholds the appeal judgment. The judges consider that the transfer of shares in an allocation company does not, by itself, entail subrogation (transfer) of the ordinary contractual claim that the transferor (the seller of the shares) held against the builder. The transferee (the buyer of the shares) therefore has no direct contractual claim. He can only act on a quasi-delictual basis (Article 1240 of the Civil Code) against the architect, provided he proves fault, damage and a causal link.

The Court's Reasoning — Analysed

The Court of Cassation relies on a fundamental principle: the shares of an allocation SCI are securities (shares) representing a right of claim against the company. The company itself owns the building. By transferring his shares, the seller does not transfer the building, but his stake in the company. Consequently, the construction contract between the SCI and the architect remains a separate contract, to which the transferee is not a party. For the transferee to be able to sue the architect on a contractual basis, the seller would have to have expressly assigned that claim (conventional subrogation) or the law would have to provide for it. This is not the case here. The Court specifies that the contractual claim belongs to the transferor, who can exercise it himself, but does not automatically transfer it. In practice, this means that the X couple cannot rely on the terms of the construction contract (for example, the contractual decennial liability) directly against the architect. They must base their claim on quasi-delictual liability (civil wrong), which requires demonstrating a fault by the architect, independent of the contract. This distinction has important consequences: the limitation periods are not the same (5 years for a quasi-delictual claim, compared to 10 years for a contractual claim in construction matters, for example) and the burden of proof is heavier for the claimant.

What This Means for You — in Practice

If you are an owner of shares in an allocation SCI: you are not protected by the contractual guarantees that the SCI obtained from the builder. In the event of defects, you will not be able to sue the architect directly on the basis of his contract. You will have to act on a quasi-delictual basis (Article 1240 of the Civil Code), which requires you to prove fault, damage and a causal link. For example, if water ingress due to a design error causes you €15,000 of damage, you will have to demonstrate that the architect made an error (non-compliance with professional standards) and that this error caused the water ingress. In practice, this can be more difficult than simply invoking a contractual guarantee clause.

If you are a tenant of a flat in an allocation SCI: this decision does not directly concern you, but your landlord (the SCI) retains its contractual claims against the builder. If you suffer from defects, report them to the SCI, which can take action.

If you are considering acquiring shares in an allocation SCI: before signing, require the seller to expressly assign to you, by a separate deed, all legal claims he holds against the builders (architect, contractor). Without such an assignment, you will be defenceless. Also have a full technical survey of the building carried out to identify any pre-existing defects. A concrete example: in Guebwiller, a buyer of shares had to pay €25,000 for roof repairs, without being able to recover from the company that had poorly laid the tiles, due to the lack of assignment of the claim.

Four Tips to Avoid This Type of Dispute

• Require an express assignment of contractual claims: in the share transfer deed, include a clause by which the transferor assigns to you all contractual liability claims he holds against the builders. This will allow you to sue directly in court.
• Have a technical audit carried out before acquisition: before buying shares, commission a building expert to inspect the property. This will allow you to detect hidden defects and negotiate the price or obtain guarantees.
• Check the insurance policies taken out by the SCI: ensure that the SCI has taken out assurance dommages-ouvrage (structural damage insurance) and decennial liability insurance. In the event of a claim, you can call on these policies, which are not linked to the status of transferee.
• Keep all documents: carefully retain the construction contracts, handover minutes, invoices and correspondence with the builders. These items will be useful to prove quasi-delictual fault.

Further Reading: Related Case Law and Developments

This 1989 decision is in line with a consistent line of authority from the Court of Cassation: the transfer of shares does not, by itself, transfer contractual claims. This solution is found in a judgment of 12 June 1987 (No. 85-17.123) where the Court had already held that the transferee of shares in a construction-sale company could only sue the builder on a quasi-delictual basis. Since then, the case law has not changed. The courts remain strict: only the contracting parties (the transferor, the SCI) can rely on the terms of the contract. For the transferee, the only avenue is quasi-delictual liability. This means that proceedings must be brought within 5 years from the date the damage became apparent (ordinary limitation period), compared to 10 years for a contractual claim in construction matters. This difference in time limits can be fatal: if the transferee discovers the defect after 6 years, it will be too late to sue on a quasi-delictual basis, whereas the contractual claim would still be available. Hence the importance of an express assignment of the claim.

Checklist Before Taking Action

• Q: Can I sue the architect directly if I bought shares in an SCI? A: Yes, but only on a quasi-delictual basis (Article 1240 of the Civil Code). You must prove fault, damage and a causal link. You cannot rely on the terms of the construction contract.
• Q: Can the seller of the shares sue on my behalf? A: Yes, the seller retains his contractual claim against the builder, even after the transfer. You can ask him to take action, but he is not obliged to do so. It is better to provide for an assignment of the claim in the deed.
• Q: What is the limitation period for a quasi-delictual claim? A: 5 years from the date you knew or ought to have known of the damage. If the defect was hidden, the period runs from its discovery.
• Q: What if the seller refuses to assign his claims? A: You can negotiate a reduction in the purchase price to compensate for the risk. If the refusal is unjustified, you can withdraw from the acquisition or request additional guarantees (bank guarantee, insurance).

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