SCCV or property development contract: which structure to carry a project

Setting up a housing or office scheme requires a first decision that is often taken too quickly: carry the project in a société civile de construction vente (SCCV, a French build-to-sell property company) formed with co-investors, or buy a turnkey service from a developer under a property development contract (contrat de promotion immobilière). The choice is not cosmetic. In the first case, the investor keeps control of the margin, tax transparency and the management of the works, but its partners answer for the company's liabilities out of their own assets. In the second, it buys a price, a deadline and a completion guarantee, at the cost of a developer's fee and a loss of operational control. This guide sets out both regimes, their breaking points if the works go off track or a partner defaults, and the clauses to lock down before signing the deed of acquisition of the land.

Two legal objects that do not sit on the same level

The comparison between the SCCV and the property development contract has become a market reflex, but it sets two heterogeneous categories against each other. The société civile de construction vente is a holding vehicle: a legal entity that acquires the land, carries the financing, becomes project owner (maître d'ouvrage) and sells the units. The property development contract is a delivery scheme: a contract by which a project owner, which may well be an SCCV, entrusts a professional with running the scheme for an agreed price.

The real question is therefore not « SCCV or CPI », but a twofold question: which vehicle carries the asset and the financing, and who bears the construction risk. An investor can perfectly well form an SCCV with a land partner and entrust the execution to a developer under a CPI. It may also decide to act as project owner itself, contracting directly with the project manager (maître d'œuvre) and the contractors, trade by trade, under the works contract regime. The choice turns on the allocation of risk, not on a preference for form.

Three configurations dominate in practice. The investor carries the project alone or with co-investors through an SCCV and bears the technical risk. The investor carries the land and buys a guarantee of result under a CPI. The investor only comes in at the end of the chain and acquires the building as a whole off-plan (vente en l'état futur d'achèvement, VEFA), leaving the developer to bear the entire construction and marketing risk. Each has a distinct cost, return profile and litigation exposure.

The SCCV: tax transparency and flexible articles, in return for unlimited exposure

A specific statutory regime, under Articles L. 211-1 et seq. of the French Construction and Housing Code

The société civile de construction vente is governed by Articles L. 211-1 to L. 211-4 of the French Construction and Housing Code (CCH), which supplement the general law on civil companies in Articles 1832 et seq. of the French Civil Code. Its purpose is constrained: to build, or have built, one or more buildings with a view to their sale. This purpose must appear in the articles of association and be complied with in fact, failing which the company may be reclassified for tax purposes.

The SCCV is not subject to corporation tax by operation of Article 239 ter of the French General Tax Code, on the twofold condition that its purpose is indeed the construction of buildings with a view to their sale and that its articles provide for the unlimited liability of the partners for the company's debts. The profit is taxed in the hands of the partners under their own tax regime: corporation tax for a partner that is a company, and the income tax scale in the category of industrial and commercial profits for an individual. The benefit is twofold: no double taxation of the development margin, and the share of profit can be set against the partner's other results, which makes it possible to absorb a loss on a project within a group.

The price of this transparency is written into the text itself. The exemption from corporation tax is conditional on the unlimited liability of the partners. There is no such thing as a limited liability SCCV.

Liability of the partners: unlimited, proportionate, subsidiary

Article 1857 of the French Civil Code lays down the principle that partners in a civil company contribute to the company's debts in proportion to their share in the capital, and Article 1858 makes proceedings conditional on prior proceedings against the legal entity having been unsuccessful. The CCH increases the exposure for the SCCV.

The partners are liable for the company's debts out of all their assets in proportion to their rights in the company. However, proceedings may only be brought against a partner after formal notice addressed to the company has remained unsuccessful (Article L. 211-2 of the French Construction and Housing Code, unofficial translation).

Three features must be noted. Liability is unlimited: it is not capped at the amount of the contribution, and the partner is liable out of all its assets. It is joint and not several: each partner is only liable up to its share, which protects the minority partner against a claim for the whole, but leaves it exposed if its co-partner is insolvent, since no contribution claim will enable it to recover the other's share. It is subsidiary: the creditor must first serve formal notice on the company, a less demanding formality than the prior unsuccessful proceedings of Article 1858 of the French Civil Code, which considerably speeds up recourse against the partners.

The scope of this liability of SCCV partners is measured when things go wrong. If the company cannot meet its commitments, construction creditors, the lending bank, the tax authorities in respect of VAT on the project or a buyer holding a damages claim may turn to the partners. If the SCCV is placed in judicial liquidation, the courts allow the liquidator to bring the action for payment of the company's debts against the partners with unlimited liability, which turns a construction problem into an immediate cash call on the co-investors' balance sheets.

The safeguard is well known and must be decided on at incorporation: interpose, between the ultimate investor and the SCCV, a dedicated simplified joint-stock company (société par actions simplifiée), whose liability is limited to the contributions. The SCCV then keeps partners with unlimited liability, as required by Article 239 ter of the CGI, but the exposure is confined to the perimeter of the interposed SPV. This interposition has a cost, since it partly breaks the direct upstreaming of tax results to the ultimate investor, and it does not withstand an independent guarantee given by the parent company to the lender. The question must therefore be dealt with alongside the financing plan, not afterwards.

SCCV cash calls and the sanction against a defaulting partner

The SCCV does not operate on significant share capital. The model relies on equity and quasi-equity contributed in tranches, through shareholder current accounts, in step with disbursements: acquisition of the land, immobilisation indemnity, studies, start of works, payment requests from the general contractor. The SCCV cash call is therefore the real financing mechanism of the project, and a partner's failure to meet a call is the first operational risk to anticipate.

The CCH provides a specific sanction. Article L. 211-3 allows, where the amounts called are not paid and after formal notice has remained unsuccessful, the sale of the defaulting partner's shares, under terms set by regulation and by the articles of association. This route is effective on paper but cumbersome in practice: it requires properly drafted articles, a timescale incompatible with the urgency of a contractor's payment request, and a valuation of shares in a company in the middle of a project, which is a hazardous exercise.

Contractual treatment is therefore preferable, in the articles of association and in the shareholders' agreement of the SPV. The usual levers are late-payment interest on the amount called, bridge financing by the non-defaulting partner with remuneration paid in priority out of the margin, dilution of the defaulting partner by capitalising the bridge financing, suspension of voting and distribution rights, and a promise of forced transfer of the shares at a discounted value. The combination of these clauses, and their sequencing over time, is one of the hard points of the agreement, dealt with as an extension of our analysis of the shareholders' agreement of an SPV.

The effects of transparency on cash flow

Two technical points are regularly underestimated. First, VAT: the SCCV is liable for VAT on sales of new buildings under Article 257 of the CGI, and recovers the VAT charged on the land and the works. The time lag between recovery and collection shapes the project's working capital requirement, and any error of regime, in particular on an acquisition of building land, results in a cash shortfall that the partners will have to cover through an additional call.

Second, dissolution. The temptation is strong to wind up the SCCV as soon as the last unit is delivered in order to upstream the margin. However, the statutory guarantees on the works survive the project: the one-year completion guarantee, the two-year guarantee of proper functioning, the ten-year guarantee under Articles 1792 et seq. of the French Civil Code, and above all the status of seller, which exposes the company to claims by buyers. Dissolving prematurely does not make the liabilities disappear, since the partners answer for them without limit, and it deprives the file of a party able to conduct a court-ordered expert assessment under Article 145 of the French Code of Civil Procedure. The timing of the winding-up must be decided in light of the risk of construction litigation, not solely the aim of upstreaming cash.

The property development contract: a mandate of common interest coupled with a guarantee of result

What the developer guarantees, and what it does not

The property development contract is defined in Article 1831-1 of the French Civil Code.

The property development contract is a mandate of common interest by which a person known as a « property developer » undertakes to the owner of a work to have carried out, for an agreed price, by means of works contracts, a construction programme of one or more buildings, and to carry out itself or have carried out, for an agreed remuneration, all or part of the legal, administrative and financial operations contributing to the same purpose. This developer guarantees the performance of the obligations imposed on the persons with whom it has dealt in the name of the owner of the work. It is, in particular, bound by the obligations arising from Articles 1792, 1792-1, 1792-2 and 1792-3 of this code (Article 1831-1 of the French Civil Code, unofficial translation).

Three major consequences follow. The developer is an agent, so the works contracts are concluded in the name and on behalf of the project owner, which remains owner of the land and of the works and carries the financing. The developer guarantees the performance of the obligations of the contractors with which it has dealt, which makes it a guarantor of technical completion, and not a mere intermediary. It is bound by the statutory liabilities of builders, including the ten-year guarantee, which gives the project owner an additional debtor, solvent and insured, in the event of defects.

The mandate is regulated. Article 1831-2 of the French Civil Code vests the developer with the powers necessary to carry out its task, but it may not sell, encumber the building with rights in rem or enter into a settlement without a special mandate. Article 1831-3 provides that the contract only ends upon full performance of the developer's undertakings, in particular delivery and proof of payment of the expenses, which prevents the developer from leaving the file early after acceptance of the works. Article 1831-4 requires an account to be rendered.

The scope of the guarantee must be read strictly: the developer guarantees the construction, not the marketing. Unless a marketing mandate with performance undertakings is expressly agreed, the sales risk and the market risk remain entirely borne by the investor as project owner. This is precisely the reverse of the off-plan block sale.

Protected sector: a public policy contract and a mandatory completion guarantee

Where the scheme concerns buildings for residential use, or for mixed professional and residential use, the contract falls under the protective regime of Articles L. 221-1 et seq. and L. 222-1 et seq. of the CCH. The contract must then be recorded in writing before any start of performance and contain mandatory particulars relating in particular to the location and description of the building, the specifications and technical conditions, the agreed price, the terms of payment and the completion deadline. Above all, the developer must provide a completion guarantee (garantie de bonne fin), which enables the project owner to obtain completion of the works despite the developer's default. These provisions are matters of public policy: contractual arrangements unfavourable to the project owner in the protected sector are ineffective.

Outside the protected sector, that is to say for office, business premises or retail schemes, the CPI falls under the French Civil Code alone. The completion guarantee is not required by law, which makes it a central point of negotiation. A commercial CPI without an external completion guarantee transfers less risk than it seems: if the developer is liquidated, the project owner is left alone facing works contracts concluded in its name, which it must take over urgently.

Not to be confused: CPI, delegated project management and off-plan block sale

Delegated project management (maîtrise d'ouvrage déléguée) is an ordinary mandate. The delegate manages, coordinates and represents the project owner, but neither guarantees the performance of the contractors nor is bound by the price and the deadline. Its fee is lower than a developer's, and so is the value of its risk cover. Many contracts presented as CPIs are, by their content, delegated project management contracts (MOD): only the actual characterisation, drawn from the undertaking on an agreed price and the guarantee of the contractors' performance, determines the regime.

The off-plan block sale reverses the structure: the investor is not project owner, it buys a building to be constructed. The construction, cost and time risk rests on the seller. In the protected sector, the buyer benefits from the financial completion guarantee (garantie financière d'achèvement) of Article L. 261-10-1 of the CCH, whose intrinsic form was abolished for projects in respect of which the building permit application was filed on or after 1 January 2015, only the external guarantee issued by a financial institution remaining. In return, the investor captures no development margin and buys at market price. The operation of the financial completion guarantee in off-plan sales is set out in our article dedicated to this security.

Decision grid for the investor

Six criteria structure the decision.

• Capturing the margin: the SCCV makes it possible to keep the development margin, the CPI turns it into fees paid to the developer, and the off-plan block sale gives it up entirely.
• Exposure to liabilities: unlimited and proportionate in an SCCV, limited to the agreed price and to overruns contractually borne under a CPI, limited to the purchase price in an off-plan sale.
• In-house capability: an SCCV without a CPI requires a real capacity to act as project owner, that is to say the ability to manage a project manager, decide on variations and deal with a contractor's default.
• Bank financing: the lender generally requires a completion guarantee, a CPI with an external guarantee, or failing that reinforced equity and security over the shares and the asset.
• Tax: the transparency of Article 239 ter of the CGI is the main attraction of the SCCV, to be weighed against the cost of interposing a limited liability SPV.
• Exit: a transfer of SCCV shares during the project is legally simple but commercially delicate, since the buyer takes on unlimited liability; it requires an audit of the company's liabilities and a registration duty regime to be checked under Article 726 of the CGI.

The hard points to lock down before signing

In the articles of the SCCV and the shareholders' agreement

The articles of association of a société civile de construction vente deserve better than a template. They must contain a purpose strictly in line with Article 239 ter of the CGI, an express statement of the unlimited liability required by that text, and above all a detailed cash call mechanism: form of the call, payment period, late-payment interest, formal notice procedure, and interaction with the sale of shares provided for by the CCH.

The agreement takes over on governance and crisis. The clauses to be discussed are the list of decisions subject to a qualified majority or unanimity (project budget, overrun threshold triggering a new agreement, signature of the main contracts, minimum sale price, borrowing, granting of security), the fate of the defaulting partner, removal of the manager, the allocation key for the margin and any cost overruns, forced exit and deadlock management. Without a quantified overrun threshold triggering a vote, a minority partner mechanically finances the decisions of a manager it does not control.

In the property development contract

Six provisions account for most of the value of the contract. First, the characterisation of the price: a global lump sum including contingencies, or controlled expenses plus fees, with in the latter case an exhaustive definition of the revisable items and a mechanism for sharing savings and overruns. Next, the completion guarantee, external and issued by a bank, including outside the protected sector where it is not mandatory. Then the completion deadline and its penalty regime, with a precise definition of the legitimate grounds for suspension, an area where the developer's standard contracts are systematically drafted in its favour.

Added to these are the exact scope of the mandate, in particular the prohibition in principle on settling or encumbering the building without a special mandate, the terms of the rendering of accounts and the project owner's audit rights during the works, and finally the insurance arrangements: ten-year liability insurance certificates of all parties checked before the works start, taking out the building damage insurance (dommages-ouvrage) policy of Article L. 242-1 of the French Insurance Code, and where appropriate a supplementary policy for the non-executing builder. A property development contract that does not specify who takes out the building damage insurance and who bears its excess exposes the project owner to financing the repair alone pending the outcome of an expert assessment. On how this insurance is triggered after a loss, see our analysis of the time limits of the building damage guarantee and the sanction for the insurer's silence.

Combining the two: the SCCV as project owner under a property development contract

The most common scheme in co-investment projects combines both instruments. An SCCV is formed between the investor and a partner, often the provider of the land, each holding its interest through a limited liability structure. This SCCV, as project owner, enters into a property development contract with a professional developer, which may be affiliated with one of the partners.

This configuration combines tax transparency and the guarantee of result, but it creates a structural conflict of interest where the developer is linked to a partner: it receives fees whose level reduces the shared margin. This must be dealt with contractually and in advance, through a cap on fees, a related-party agreement procedure, a documented tender for the main works contracts, a right of review for the unrelated partner over variations above a threshold, and an incentive mechanism linking the developer to the final margin rather than to the volume of expenditure.

Timeline: when the decision closes

The decision timetable is constrained. The structure must be settled before signing the promise to acquire the land, since it is the vehicle that acts as buyer, or that is substituted for the beneficiary of the promise. The delivery scheme, CPI or direct contracts, must be settled before the building permit application is filed, since the applicant and the structure determine the bank commitments. The completion guarantee is negotiated with the financing agreement, not after the works have started. Finally, the shareholders' agreement must be signed at the same time as the articles: an agreement negotiated after the first cash call is negotiated from a position of weakness.

Conclusion

The decision comes down to a simple question: is the investor, in fact, capable of acting as project owner. If it has a technical team and accepts the construction risk, the société civile de construction vente remains the most efficient vehicle, provided that unlimited liability is ring-fenced by an interposed structure and that a cash call mechanism with real sanctions is drafted. If it invests capital without construction capability, the property development contract is not an extra cost but the purchase of a guarantee, and it loses most of its value if it is not backed by an external completion guarantee and a genuinely fixed price.

Two reflexes are essential before any commitment. Have the draft contract submitted to you legally characterised: many documents entitled property development contract are delegated project management mandates with no guarantee of the contractors' performance. And have the personal exposure of each partner to the SCCV's liabilities audited, including the scenario of a judicial liquidation of the company and an action by the liquidator, before the articles are signed and not at the first difficulty on site.

Frequently asked questions

Are the partners of an SCCV jointly and severally liable for the company's debts?

No. Article L. 211-2 of the French Construction and Housing Code provides for unlimited but proportionate liability according to rights in the company: each partner is only liable up to its share, and not for the whole. This protection is relative, since the insolvency of a co-partner is not borne by the creditor but simply leaves that share unpaid, without the solvent partner being able to recover it. Proceedings do, however, require prior formal notice to the company that has remained unsuccessful.

Can an SCCV be formed with limited liability?

No, and this follows from the tax regime itself. Article 239 ter of the French General Tax Code makes exclusion from corporation tax conditional on articles providing for the unlimited liability of the partners for the company's debts. The only ring-fencing technique is to have the SCCV shares held by a dedicated limited liability company, SAS or SARL, which will itself have unlimited liability at SCCV level, the ultimate investor's exposure then being limited to the contributions made to that interposed structure.

What can be done if a partner does not meet a cash call?

The CCH allows, after formal notice has remained unsuccessful, the sale of the defaulting partner's shares. This route is slow and requires suitable articles. In practice, contractual arrangements are more effective: late-payment interest, bridge financing by the non-defaulting partner remunerated in priority out of the margin, dilution by capitalising the bridge financing, suspension of voting rights and a promise of transfer at a discounted value. These clauses must appear in the agreement signed at the same time as the articles.

Is the completion guarantee mandatory in a property development contract for offices?

No. The obligation to provide a completion guarantee belongs to the protected sector regime, applicable to buildings for residential use or for mixed professional and residential use, governed by Articles L. 222-1 et seq. of the CCH. For a commercial scheme, it is purely contractual and must be negotiated, preferably in external form with a financial institution. Without it, the developer's default leaves the project owner alone facing the works contracts concluded in its name.

What is the difference between a property development contract and delegated project management?

The CPI is defined in Article 1831-1 of the French Civil Code as a mandate of common interest in which the developer commits to an agreed price and becomes guarantor of the performance of the obligations of the contractors with which it has dealt, while being bound by the liabilities of Articles 1792 et seq. of the French Civil Code. The delegated project management contract is an ordinary management mandate, with no price undertaking and no guarantee of the contractors' performance. The characterisation follows from the actual content of the contract, not from its title.

When should the SCCV be dissolved after delivery of the scheme?

Not immediately. The company retains the status of seller and remains exposed to claims by buyers, in particular for repair of defects, within the periods of the completion, proper functioning and ten-year guarantees. Premature dissolution does not make these liabilities disappear, since the partners answer for them without limit, and it deprives the project of a party able to defend its interests in a court-ordered expert assessment under Article 145 of the French Code of Civil Procedure. The timing of the winding-up must take into account the map of construction risks of the scheme.

Can SCCV shares be transferred during the project?

Yes, subject to the approval provided for in the articles and to the pre-emption clauses of the agreement. The difficulty is economic: the transferee takes on unlimited liability for the company's debts and must therefore audit the state of progress, the contracts in progress, contractors' claims and the company's tax position. The registration duty treatment must be checked under Article 726 of the French General Tax Code, since classification as a company with predominantly real estate assets calls for an analysis specific to buildings held as stock.