Suspensive Conditions for Building Works Insurance: When the Bank Does Not Have to Check

You have just signed an individual house construction contract (CCMI) for your future home in Capbreton. The builder promised delivery within 18 months, but on condition that you obtain your mortgage and take out building works insurance (DO) and a delivery guarantee. The bank grants you the loan, but without checking that these insurances are in place. Later, the builder goes bankrupt, work stops, and you are left with an unfinished house and loan instalments to pay. Who is responsible? Should the bank have checked that the suspensive conditions were fulfilled before releasing the funds? This is the question the Court of Cassation decided in a ruling of 16 December 2009.

This decision, handed down by the Court of Cassation (the highest French civil court), concerns an individual house construction contract concluded subject to suspensive conditions (i.e., conditions that must be fulfilled for the contract to become final) of obtaining building works insurance and a delivery guarantee. The building owner (the owner) had sued the bank for liability for failing to ensure that these conditions were met before issuing the loan offer. The court ruled in favour of the bank: it does not have to check the fulfilment of these conditions.

But what exactly does this change for you, as an owner or future builder? And how can you avoid ending up in a similar situation, without insurance and without recourse? That is what we will look at in detail, with concrete examples from my practice in the South-West, particularly in Dax and Capbreton.

The Facts: A Story Like Many Others

Mr. X, owner of a plot of land in Capbreton, signs an individual house construction contract with a builder in 2004. The contract provides for two suspensive conditions: obtaining building works insurance (which guarantees the repair of damage affecting the structural integrity of the building for 10 years) and obtaining a delivery guarantee (which guarantees that the house will be delivered at the agreed price and within the agreed timeframes). These conditions are set out in the contract, but without being identified as such in the loan offer.

The bank, Caisse d'Épargne Midi-Pyrénées, issues a loan offer in July 2004, without checking whether these insurances have been taken out. The builder starts work, but difficulties soon arise: the site falls behind schedule, and defects appear. In 2006, the builder is placed into judicial liquidation (i.e., goes bankrupt). The house is not finished, and Mr. X is left with a loan to repay and an unfinished house.

Mr. X then sues the bank for liability, alleging that it failed to check that the suspensive conditions were fulfilled before issuing the loan offer. He argues that the bank committed a fault (negligence) by not ensuring that the building works insurance and delivery guarantee were in place, which would have prevented the loss. The bank, for its part, argues that it does not have to check these conditions, as they relate to the construction contract, not the loan contract.

The case goes before the tribunal de grande instance (TGI) in Dax, then before the court of appeal in Pau, and finally before the Court of Cassation. At first instance, the court rules in favour of Mr. X, finding that the bank should have checked. But the court of appeal reverses this judgment, and the Court of Cassation upholds the court of appeal's decision in 2009.

The Court's Reasoning — Explained

The Court of Cassation based its decision on Article 1382 of the Civil Code (old), now Article 1240 since the 2016 reform, which states that 'any act of a person which causes damage to another obliges the person by whose fault it occurred to make reparation.' In short, to hold the bank liable, it must be shown that it committed a fault, that damage resulted, and that there is a causal link between the two.

However, the Court considered that the bank did not commit a fault. Why? Because the suspensive conditions relating to building works insurance and the delivery guarantee are conditions specific to the construction contract, not to the loan contract. The bank, when issuing its loan offer, does not have to check whether these conditions are fulfilled: its obligation is to lend the funds, not to monitor the performance of the construction contract. In other words, the bank is not the guarantor of the builder.

The Court also noted that the loan contract did not mention these suspensive conditions as conditions of the loan offer. They appeared only in the construction contract. Consequently, the bank did not have to ensure they were met. However, note: if the loan contract itself had provided that the offer was conditional upon taking out these insurances, the bank would have had to check. But that was not the case here.

What few people know is that this decision is part of a consistent line of case law: the bank is only required to check the suspensive conditions that appear in its own loan contract. External conditions, such as insurances related to the construction contract, are not within its control. This may seem harsh for the owner, but it is logical: the bank is not a construction expert, and its role is limited to financing the project.

In this case, Mr. X's arguments did not convince the Court. He argued that the bank had a duty to advise and should have informed him of the risks. But the Court held that this duty of advice does not go so far as to oblige the bank to check the fulfilment of suspensive conditions external to the loan.

What This Changes for You — In Practice

For an owner building a house, this decision means that you are solely responsible for checking that the suspensive conditions in your construction contract are fulfilled before signing the loan offer. The bank will not do it for you. If you do not take out building works insurance and the delivery guarantee before the loan is released, you risk being left without protection if the builder defaults.

Let's take a concrete example: you are an owner in Dax and you sign a CCMI for a house costing €250,000. The contract includes a suspensive condition for obtaining building works insurance. You obtain your loan, but you forget to take out the building works insurance. The builder goes bankrupt, and you have to pay €150,000 to complete the work. You will not be able to claim against the bank for compensation, because it did not have to check this condition. It is up to you to ensure everything is in order.

For a property professional, such as a developer or estate agent, this decision highlights the importance of drafting contracts carefully. If you want the bank to be required to check certain conditions, you must expressly include them in the loan offer. Otherwise, the bank will have no obligation to check.

If you are in this situation, you must act before signing the loan offer. Check that all the suspensive conditions in the CCMI are fulfilled: building works insurance, delivery guarantee, planning permission, etc. Do not hesitate to ask your insurer for a certificate of cover and provide it to the bank, but do not rely on the bank to do it.

undefined, I have come across cases where owners lost substantial sums because they thought the bank would check everything. Unfortunately, that is not the case. The only solution is to be vigilant and to be assisted by a legal professional from the moment the contract is signed.

Four Tips to Avoid This Type of Dispute

• 1. List all the suspensive conditions of the CCMI: before signing the loan offer, make an inventory of the conditions that must be fulfilled (building works insurance, delivery guarantee, planning permission, etc.). Check each one and keep the supporting documents.
• 2. Ask to include the conditions in the loan offer: negotiate with your bank to have the main suspensive conditions of the CCMI included in the loan offer. This way, the bank will be required to check them before releasing the funds.
• 3. Keep all documents: insurance certificates, guarantee certificates, correspondence with the builder. In the event of a dispute, this evidence will be crucial to show that you have complied with your obligations.
• 4. Have the contract reviewed by a lawyer: a legal professional specialising in property law can identify ambiguous clauses or missing conditions. This can save you years of litigation.

Further Reading: Related Case Law and Developments

This decision of the Court of Cassation is part of a consistent line of case law. For example, in a judgment of 13 March 2007 (No. 05-21.852), the Court had already held that the bank does not have to check the validity of the construction contract, unless it has knowledge of apparent defects. In other words, the bank is not a technical inspector.

More recently, the Alur Law of 2014 strengthened builders' obligations regarding building works insurance, but did not change the obligations of banks. The trend of the courts therefore remains favourable to banks: they are not required to check suspensive conditions external to the loan.

In the future, the legislature may intervene to better protect owners, but as it stands, vigilance remains essential. The courts consider the owner to be an informed professional when signing a CCMI, even if they are not in reality. Hence the importance of being assisted.

Key Points to Remember

• The bank does not have to check the suspensive conditions of the construction contract: it only checks those that appear in the loan offer.
• The owner is solely responsible for ensuring that the building works insurance and delivery guarantee are taken out before signing the loan.
• To be protected, have the conditions included in the loan offer: this way, the bank will have an obligation to check.
• When in doubt, consult a lawyer: a simple check can save you from significant financial losses.

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