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Consequences of the cancellation of a sale on completion on the property loan agreement

25/08/2017

The consequences of the invalidation of a sale agreement are detailed by the Cour de cassation’s third civil chamber in a decision dated 1 June 2017. In the said case, the buyers had acquired, from a specialized company, two co-ownership plots within a building that was to be rehabilitated.  It was considered that, because of the size of the transaction, it was to be governed by the rules applicable to the sale on completion of the areas protected under the VEFA rules.

As the works had not been completed, the buyers sued the seller company and sought the cancellation of the deed of sale and sued the lending institution in order to seek the cancellation of the loan agreement. The sale was cancelled, as well as the incidental loan agreement, thus inflicting a loss on the bank.

This decision defines the rules to be applied as regards the indemnification of the lender following the invalidation of a loan agreement incidental to a sale agreement: the bank has grounds for seeking the refund of the accrued interest and for claiming the indemnification of the loss of a chance of receiving the interest to accrue, but may also be indemnified as regards the reimbursement of the loan fees. This decision also confirms the solution adopted by the appellate court according to which the seller and the notary are jointly and severally liable, because the notary had failed to ensure that the instrument was legally effective, as the sale agreement did not contain any of the statutory indications mandated in case of sale upon completion.

Cass. 3rd Civ., 1 June 2017, No.16-14.428

Authors

Jean-Luc Tixier