The position of clients of construction projects – blog II

Financial disclosure obligation

The Civil Code was amended from 1 January 2024 such that the position of the principal in construction projects was strengthened. In our first blog in this series, we discussed the position of the principal in relation to post-completion liability.

In this second blog, we discuss the financial disclosure obligation of the contractor in private contracting introduced from 1 January 2024.

New construction of owner-occupied houses for private individuals is overwhelmingly (around 90%) built under a guarantee and warranty scheme of the Garantiewoning Foundation. Such a guarantee and deposit scheme offers protection to consumers against possible insolvency of the contractor during construction. If the contractor goes bankrupt, another contractor will still build the house. In addition, such a guarantee and warranty scheme offers a construction guarantee which means that if there are construction defects and the contractor is unwilling (or unable) to remedy them, they can still be repaired.

Nevertheless, around 10% of new construction houses are still built without such a guarantee and warranty scheme. This may be because a contractor does not wish to join such a guarantee scheme or because the construction (home) is uninsurable, for example because of a highly innovative technique being used. Business clients are expected to be able to be well informed about the risks involved. However, orders from private clients are subject to a specific information obligation that the contractor must comply with.

Additional protection applies when building a new home for private clients with effect from 1 January 2024. Article 7:765a of the Civil Code states:

1. Before the principal is bound by an agreement as referred to in Article 765 or by an offer to that effect, the contractor shall inform the principal unequivocally in writing whether and, if so, in what way the fulfilment of his obligations to perform the work and his liability for defects attributable to him are or will be covered by insurance or another financial security. This information shall be provided in a clear and comprehensible manner for the client and shall in any case include the scope of the insurance or financial security, the degree of cover, the term and the sum for which the insurance has been taken out or the financial security has been provided.
2. The information referred to in the first paragraph shall form an integral part of the agreement.

The contractor must therefore inform the private client in writing prior to the conclusion of the contract (to build a new home) and in a manner that is clear and understandable as to whether he has insurance or can provide some other form of financial security for his obligations under the contract to build. And if so, he should inform the client about some key elements of this insurance/security. It should be clear what the extent of the insurance or financial security is, what the coverage level is, how long the insurance or security is provided and up to what sum the insurance or security applies.

The legal provision, as indicated, is mandatory. It cannot be deviated from. Not even in general terms and conditions. The information provided by the contractor is considered an integral part of the agreement to build the new home.

The private client is thus given additional protection. After all, with the information provided, he can check whether the contractor is actually insured (or can provide security) and in what way. Note that the provision only applies when building a house, not for building other structures.

For its part, the contractor will want to be able to prove that it has complied with the information requirement, especially if it cannot provide any or sufficient security/insurance. With the insurance information having to be provided prior to the conclusion of the contract, it is advisable to ensure an acknowledgement/statement of receipt.

Indeed, a private client can dissolve the contract if the contractor has not fulfilled the obligation to provide information, because the contractor then fails to fulfil the contract. Depending on the situation, a claim for damages (Section 6:277 of the Civil Code) also follows such a dissolution. If the contract does remain in force (and is therefore not dissolved), there may also still be a claim for damages based on a failure to perform the contract because of a breach of the duty to provide information (Section 6:74 of the Civil Code). It is therefore important as a contractor to ensure that one can prove that one has complied with the obligation to provide information.

Finally – depending on the circumstances – the private client can invoke error (Article 6:228 of the Civil Code) or conflict with the law (Article 3:40(2) of the Civil Code) and annul the contract or bring a claim based on tort (Article 6:162 of the Civil Code).

Do you have any questions following this blog? Please contact Erwin den Hartog or Petra Lindhout from our office.