This is a well-known problem on the construction site. Not only have the prices of construction materials increased dramatically, but many of these materials are also not arriving on time, resulting in a considerable delay in the delivery of construction works.
How can you, as an entrepreneur or property developer, deal with it?
1. Revised contract price due to rising material costs
1.1 The “Breyne law” in the event of the sale of off-plan housing
In the event of off-plan housing construction, the so-called “Breyne law” must be taken into account. This law is mandatory.
Within the framework of the “Breyne law”, a price revision may be stipulated in the contract. But this is only possible under certain conditions.
First of all, only the price of the building can be reviewed, not the price of the land.
In addition, the price of the building can only be revised at 80%. This takes into account fluctuations in wages and related social charges on the one hand, and material costs on the other.
Wages can have an impact not exceeding 50% of the price of the building for the examination of it.
Thus, with regard to the cost of materials, only 30% of the price of the building is subject to revision. At least 20% of the price of the building will therefore always be a fixed cost.
In the event of the sale of a dwelling off plan, a real estate developer can only review 30% of the price of the building according to an increase in the cost of building materials. The condition is that such a price revision clause is included in the sales contract.
The royal decree implementing the “Breyne law” provides for a maximum limitation of price increases. Contracts are subject to these limitations.
1.2 Construction contracts – not subject to the “Breyne law”
Parties to construction contracts that do not fall within the scope of the “Breyne law” have greater contractual freedom.
Therefore, they have the option to freely stipulate in the contract whether the construction works will be fixed price or variable price.
The possibility of passing on the increase in the price of materials to the contractor therefore depends on the contractual provisions.
1.3 What else should you consider?
1.3.1 Avoid illegal terms, also in a B2B relationship
When dealing with a company as a contractor or property developer, it is important to ensure that you do not include illegal clauses in your contract. This will ensure that you do not violate illegal clauses in force in B2B contracts, as provided for in the Code of Economic Law.
For example, a clause by which the company grants itself the right to increase the price unilaterally, without objective criteria, is considered illegal and therefore prohibited and null and void.
This is a recent insertion in the Code of Economic Law. But, these rules have already been in place since 1991, with regard to B2C contracts.
1.3.2 Hardship in the new contract law
A new law on contracts should come into force in a few months. This law will also include rules regarding hardship or “hardship”.
Sometimes circumstances change after the conclusion of a contract to such an extent that unforeseeable and inexplicable circumstances arise which unduly interfere with the continued performance of the existing contract (doctrine of difficulty or unforeseeability).
In this, changing circumstances will more quickly be considered as a case of force majeure, allowing the parties to demand that the contract be renegotiated.
Today, under current legislation, – one could assume in some cases that abnormal price increases should also be considered as force majeure. However, this will be subject to a factual assessment by the court. So, at this stage, it is not at all certain that this argument will be accepted.
It is therefore important to draw up clearly reasoned agreements regarding the calculation and revision of prices. Only then will all parties know from the outset what the impact of price fluctuations will be.
2. What if the material is delivered late?
In normal construction contracts as in contracts falling under the “Breyne law”, the parties can contractually agree on the delivery time and/or define the force majeure and the conditions to be applied.
A delay in delivery of the building due to the late delivery of building materials due to scarcity on the market can either be contractually qualified as force majeure or excluded.
The final assessment of whether or not a force majeure situation exists will depend on the actual assessment of the court, unless clear agreements have been made to this effect.
If there are contractual agreements between the parties regarding force majeure, the court will have to take them into account.
But these clauses must also be valid. For example, a company cannot grant itself the right to unilaterally determine or modify the delivery time, nor a party to qualify a situation of force majeure. Therefore, a force majeure clause should encompass situations that can actually be qualified as force majeure.
It is therefore always important that the correct contractual clauses are included in the agreement.
As a construction contractor or developer, it is important to ensure that contracts adequately cover rising material costs and timing issues resulting from delays in the delivery of construction materials. Therefore, we advise you to ensure that your provisions are sufficiently, legally and clearly defined in the contract.