The Breyne Act explained
The Act of 9 July 1971 governing the construction and sale of dwellings, commonly referred to as the Breyne Act (Loi Breyne/Wet Breyne), is a Belgian statute that applies where a private individual purchases a home or flat off-plan or under construction, or commissions a contractor to build a home or flat. The Act aims to protect private buyers or clients against risks arising during the construction process, such as defective performance of the works, delays, financial difficulties on the part of the contractor or developer, or insolvency preventing completion of the property.
Taking into account that buyers often already pay considerable amounts before the works have been completed, the Breyne Act provides for a number of mandatory protection mechanisms, such as:
- a comprehensive duty to inform on the part of the seller-contractor;
- a gradual payment system according to the progress of the works;
- a cap on the advance payment that may be required from the buyer;
- a mandatory financial guarantee in favour of the buyer.
This financial guarantee is the object of the proceedings before the Court of Justice.
Since buyers often pay for the works before they have been completed, the legislator intended to protect them against the risk that the contractor might fail to meet its obligations, or becomes insolvent. Therefore, the contractor is required to deposit a guarantee with the Deposit and Consignment Office to ensure the proper performance of the works.
The amount of the guarantee depends on whether the contractor is recognised:
- Recognised contractors (i.e. contractors meeting the recognition conditions laid down in the Act of 20 March 1991) are required to deposit a guarantee of only 5% of the value of the works.
- Non-recognised contractors and developers, by contrast, must deposit a completion guarantee amounting to 100% of the value of the works.
According to the legislator, recognised contractors offer sufficient professional reliability and financial capacity. Therefore, a more limited guarantee is considered sufficient.
Proceedings before the European Court of Justice
In February 2023, the European Commission brought proceedings against Belgium before the European Court of Justice. According to the Commission, the Breyne Act, which imposes different guarantee requirements depending on whether the contractor is recognised, infringes the EU Services Directive, which seeks to ensure the free provision of services within the European Union.
The EU Services Directive prohibits Member States from discriminating against service providers based on their nationality or place of establishment, and guarantees free access to and performance of service activities within the EU. Member States can only impose conditions on foreign service providers if these are non-discriminatory, justified and proportional. According to the Commission, the distinction in the guarantee to be provided between recognised and non-recognised contractors, with the latter being required to deposit a 100% guarantee, constitutes a significant obstacle for foreign contractors and promoters that want to be active on the Belgian market.
Judgement of the European Court of Justice
The European Court of Justice followed the reasoning of the European Commission and determined that there is indirect discrimination between Belgian service providers and service providers from other Member States, given that
- non-recognised contractors and promoters have to provide a 100% completion guarantee, and
- recognition is only possible for contractors. As a result, foreign property developers (who do not perform contracting activities) cannot benefit from the more favourable guarantee regime and often have to rely on collaboration with a Belgian recognised contractor.
Belgium failed to demonstrate that the distinction between recognised and non-recognised contractors is justified by overriding reasons of public interest, such as the protection of buyers, or that it is necessary and proportionate to the objective pursued.
Consequences for practice
The conclusion is clear: the current guarantee provisions in the Breyne Act are incompatible with EU law. The Belgian legislator will therefore have to revise the Act.
With the reform of the Civil Code, and in particular the introduction of Book 7 on “Special Contracts”, the legislator has already created scope for the revision and integration of the Breyne Act. The judgment therefore provides an excellent opportunity to modernise the legislation and better align it with the EU principles governing the freedom to provide services.
Pending legislative amendment, the current Act remains applicable.
