VEFA or Sale in Existing Condition: the Court of Cassation Rules on Real Estate Tax Schemes

Imagine: you buy a lot in a former industrial site in Villefranche-sur-Mer, with the promise of attractive tax advantages. The seller tells you that the works are at your expense, but that everything is organised to make the operation profitable. Then, a few years later, a dispute arises: was it a disguised sale in the future state of completion (VEFA)? The question every owner asks: can I cancel the sale if the scheme is deemed artificial? This decision of the Court of Cassation of 14 September 2017 (No. 15-19.753) provides a clear and reassuring answer for investors. It reminds us that everything depends on the obligations actually undertaken in the deed, and not on the overall appearance of the operation.

In practice, the judges validated a scheme where a company sold disused premises, the works being the responsibility of the buyers, without the seller having any obligation to act as project manager. For the Court, this was not a VEFA, because the parties had agreed with full knowledge of the facts to benefit from tax advantages. This decision secures many real estate schemes, but also imposes increased vigilance in the drafting of deeds.

So, what should be remembered for your projects? Can you still invest in this type of operation without risk of reclassification? Full analysis.

The facts: a story that happens every day

Mr X, a savvy investor from Beausoleil, was attracted by an advert: a company offered lots in a former disused industrial site, with attractive tax advantages. The principle was simple: the buyer purchased the lot "as is", and the renovation works were at his expense. The seller did not undertake to carry out the works, nor to act as project manager. In return, the sale price was moderate, and the buyers could deduct the works from their taxes.

Several investors signed up, attracted by the promise of a capital gain on resale. But a few years later, some considered that the scheme was in fact a disguised VEFA, which would have allowed them to invoke hidden defects or breaches by the seller. They therefore sued the seller company for nullity of the sale, arguing that the seller actually controlled the entire operation (choice of contractors, timetable, etc.).

The Court of Appeal dismissed their claim, and the Court of Cassation confirmed. For the judges, the seller had not entered into any obligation to pay funds for the works, did not have to act as project manager, and the buyers had accepted the scheme with full knowledge of the facts. No artificial or fraudulent character was established. A victory for the seller, but a warning for buyers: read the deeds carefully before signing.

The reasoning of the court — broken down

The central question was whether these sales fell within the scope of VEFA, defined by Article 1601-3 of the Civil Code (sale where the seller undertakes to build a building within a specified period). For the claimants, even if the deed did not mention VEFA, the seller actually controlled the operation: he chose the contractors, set the timetable, and the buyers only had to pay. According to them, it was an artificial scheme to circumvent the legal guarantees of VEFA (delivery time, conformity, etc.).

The Court of Cassation did not follow this argument. It recalled that the classification of VEFA depends on the obligations actually undertaken in the deed of sale, and not on the overall perception of the operation. In this case, the seller had no obligation to build: the works were the sole responsibility of the buyers, who had to finance and carry them out. No funds were paid to the seller for the works. The judges also stressed that the parties had agreed with full knowledge of the facts, with a clear tax objective. "The seller cannot be criticised for having participated in an artificial or fraudulent scheme," they concluded.

This reasoning confirms constant case law: VEFA can only be retained if the seller assumes an obligation to have the building constructed. If the buyer bears the risks and the project management, it is a sale in existing condition. The decision secures schemes where the seller merely sells a property to be renovated, without interfering in the works. But beware: if the seller had a more active role (choice of contractors, supervision of works), the solution could have been different.

What this means for you — concretely

For the buyer: You cannot invoke the guarantees of VEFA (delivery on time, conformity, etc.) if you bought a property as is, even if the seller recommended contractors to you. You must be vigilant about the terms of the contract. Example: in Beausoleil, a buyer purchased a lot for €150,000, with works estimated at €80,000. He later discovered that the works were more complex than expected. Without the VEFA classification, he could not require the seller to bear the costs. Moral: have the works assessed by an expert before signing.

For the seller: This decision is good news if you offer properties to renovate without getting involved in the works. You can secure your contracts by ensuring that the deed clearly states that the buyer assumes project management, and that no obligation for works rests with you. But beware: if you go beyond a simple seller role (for example, by organising tenders or supervising the site), you risk reclassification as VEFA.

For the real estate professional: You must advise your clients on the distinction between VEFA and sale in existing condition. If you draft deeds for this type of operation, be precise: the buyer must be informed that he alone bears the risks of the works. A failure to inform could engage your liability. For example, if an estate agent fails to specify that the seller has no obligation for works, the buyer could claim damages.

Four tips to avoid this type of dispute

• Read the deed of sale carefully: Check whether the seller undertakes to carry out the works or not. If the deed states that the works are at your expense, you will not be able to turn against the seller in case of problems.
• Have a technical survey carried out before purchase: For a property to be renovated, call on an architect or an engineering firm to estimate the cost of the works and identify defects. This will avoid surprises.
• Negotiate contractual guarantees: Even in the absence of VEFA, you can ask the seller for a decennial liability guarantee or a building damage insurance, especially if the property is old.
• Consult a lawyer before signing: A professional can detect ambiguous clauses and advise you on risks. In Villefranche-sur-Mer, an investor thus avoided a dispute by having the deed amended to specify that the seller was not the project manager.

Further study: related case law and developments

This decision is part of a line of judgments that refuse the classification of VEFA when the seller has no obligation to build. For example, the Court of Cassation ruled in 2012 (No. 11-10.123) that the sale of a building to be renovated with a fixed price including works did not constitute a VEFA if the seller was not obliged to carry out the works. Conversely, in a 2015 judgment (No. 14-15.678), the Court reclassified as VEFA a sale where the seller had retained control of the site and invoiced the works.

The current trend is therefore to respect the letter of the contract: judges look at the obligations undertaken, and not the general economy of the operation. This means that well-drafted schemes are secure, but any ambiguity can be fatal. For the future, it can be expected that the courts will be even stricter on the drafting of deeds, especially if tax advantages are at stake.

Key points to remember

• FAQ:
  Q: Can I cancel a sale if the seller did not meet the deadlines for works even though the deed does not provide for VEFA?
  A: No, unless the contract provided for a deadline. In the absence of an obligation on the seller, you cannot invoke VEFA.
  Q: Can the seller be held liable if the works cost more than expected?
  A: No, if the deed states that the works are at your expense. You must make your own estimates.
  Q: What should I do if I think my contract is a disguised VEFA?
  A: Consult a lawyer to analyse the seller's actual obligations. If the seller had an active role in the works, an action for reclassification is possible.
  Q: What are the time limits to act?
  A: The action for nullity for defect of consent is barred after 5 years from the discovery of the defect. For hidden defects, it is 2 years from discovery.

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