The first question asked was whether the Ministers deemed that a completion guarantee (garantie d’achèvement) issued by an insurance company offered purchasers the same degree of protection as a guarantee issued by a bank.
The Ministers quite rightly replied that the degree of protection offered depends above all on the content and terms intrinsic to the guarantee issued, and not essentially on the quality of the guarantor.
Indeed, for an equivalent degree of solvency between the bank guarantor and the insurance guarantor, it is necessary to look at the text of said guarantees and the conditions set out therein to determine which is de facto the most protective.
In this context, a guarantee issued by an insurance company may even be more protective than one issued by a bank if its conditions are more favorable to the beneficiaries. The reverse may also be true, and it should be remembered that guarantees issued by different banks may also provide for different conditions. Only a case-by-case comparison can ultimately determine which of the guarantees on the market is the most protective.
Although the current legislation, albeit relatively silent on this issue, stipulates that the guarantees issued must comply with certain conditions, there is nothing to prevent a developer from seeking more protective guarantees than those provided by law.
As a reminder, whether the completion guarantee is issued by a bank or an insurance company, the contract on the basis of which it is issued is in principle entered into solely between the developer and the guarantor, with the purchasers not being party to said contracts, but only third-party beneficiaries of the guarantees ultimately issued.
In this context, it is thus vital that developers pay close attention to the terms and conditions of the guarantees they intend to offer their purchasers, and that they enter into the appropriate contracts.
Similarly, purchasers should inform themselves in advance of an acquisition of the terms and content of the guarantee they are to be given.
Finally, as part of the notary's duty to advise, he or she must also consider the terms and conditions of the guarantee offered.
The second question consisted of asking the Ministers whether the emission of completion guarantees by insurance companies is in compliance with Bill 1967 on sales of buildings under construction and the obligation to guarantee against construction defects.
The aim of this bill is to protect purchasers of buildings to be constructed.
Once again, the Ministers' response was as follows: as long as the completion guarantee issued by an insurance company meets the conditions of Articles 2 through 5 of the Grand-Ducal regulation of 1977, it must be considered that the protection of purchasers referred to in the law is assured.
In our opinion, it would be far more legitimate to question a contrario the conformity with the Constitution of Article 1 of the aforementioned regulation, the text of which unjustifiably reserves the issuance of completion guarantees to banking and savings institutions.
Both the version of the Constitution in force previously and the revised version that came into force on 1 July 2023 guarantee freedom of trade and industry, which can only be derogated from by law if the limits imposed are rationally justified, appropriate and proportionate to their purpose.
Article 1 of the aforementioned regulation seems to be in clear contradiction with this.
Thirdly and finally, the Ministers were asked whether they intend to legislatively block the possibility of transforming a completion guarantee into a repayment guarantee (garantie de remboursement).
In this respect, it must be emphasized first of all that such a transformation, which is provided under the Civil Code and the Grand-Ducal regulation of 1977, is in no way reserved to insurance companies, but is an option also available to banks, the only ones mentioned in the regulation.
That being specified, the Ministers did not comment on the substance of the issue; they merely announced that they would be analyzing the issue in conjunction with the various actors involved, and that the legislation would be adjusted "where necessary".
In any case, transformation currently remains possible, and it is difficult to conceive of totally excluding it, when in the various situations described in the context of an earlier article, in practice completion is simply impossible or unreasonable.
It is to be hoped that the forthcoming analysis will go beyond this single issue and highlight the difficulties arising from the current legislation.