Have you discovered defects or deficiencies in a new-build property after the developer has gone bankrupt? Many people assume that their case is then completely lost, but this is not necessarily the case.
Even if the developer has gone bankrupt, you may still have a claim against the guarantor under the Norwegian Bustadoppføringslova (the Norwegian Housing Construction Act). In some cases, it may also be possible to bring a claim against members of the company’s management if the legally required guarantee was never provided.
Here, we explain what rights you have in such circumstances, which time limits apply, and why it is important to act quickly.
Bankruptcy does not mean that you lose your rights
When a developer or contractor goes bankrupt, there is often little or nothing to recover from the bankruptcy estate. This does not, however, necessarily mean that you are left without any rights.
If the developer has provided a guarantee pursuant to Section 12 of the Bustadoppføringslova, you will generally be able to make a claim directly against the guarantor, which will normally be a bank or an insurance company. The guarantee is intended to ensure that you are compensated for claims arising from defects in the property, even if the contractor is unable to fulfil its obligations.
What does the guarantee cover?
The guarantee under the Bustadoppføringslova may, among other things, cover:
- the costs of remedying defects
- a reduction in the purchase price
- claims for damages
- other claims you may have under the Bustadoppføringslova
The guarantee normally remains in force for five years after completion and handover of the property. As a general rule, the amount guaranteed is five per cent of the purchase price after the property has been handed over.
Be aware of the limitation period for claims against the guarantor
Many people assume that if they have taken legal action against the contractor, or if the contractor has acknowledged the defect and promised to remedy it, the claim under the guarantee is also protected against becoming time-barred. This is not necessarily the case.
A claim against the guarantor has an independent limitation period. This means that the limitation period must be interrupted separately in relation to the guarantor. Interrupting the limitation period against the contractor is not sufficient.
This can be particularly important where the contractor becomes bankrupt after a lengthy period of dialogue concerning the remedying of defects. In such circumstances, the claim against the contractor may still be valid, while the claim against the guarantor may have become time-barred if the limitation period was not interrupted in time. The Norwegian Ministry of Justice and Public Security has expressly stated that guarantees under Section 12 of the Bustadoppføringslova are subject to an independent limitation period, in the same way as other guarantees where the guarantor is directly liable for the underlying obligation.
How do you Interrupt the limitation period?
If there is a risk that the claim will become time-barred, you should ensure that the limitation period is also interrupted in relation to the guarantor. How this should be done depends on the circumstances of the case, but it may, among other things, be done by taking legal action in accordance with the rules of the Norwegian Limitation Act.
If you are unsure whether the limitation period is approaching, you should seek legal advice as early as possible.
What if no guarantee was ever provided?
It sometimes happens that a contractor never provides the guarantee required by law. This can have serious consequences if the company subsequently goes bankrupt.
Failure to provide the required guarantee constitutes a breach of the Bustadoppføringslova, and in some cases there may be grounds for holding board members or the managing director personally liable.
Personal liability on the part of the company’s management is not an automatic remedy. It requires a specific assessment of, among other things, whether the management acted negligently and whether the failure to provide the guarantee caused the homebuyer to suffer an economic loss.
Such cases can be challenging, but the courts have, in certain circumstances, found that board members or the managing director may be held personally liable where statutory obligations have been disregarded.
Make a claim even If the contractor is bankrupt
If you discover a defect, you should still submit a written notice of the defect. Document the defects with:
- photographs
- video
- a report from a surveyor or other expert
- copies of the contract and the handover protocol
If a guarantee exists, the guarantor should be notified as early as possible.
What can you claim?
If the defect is covered by the guarantee, you may, among other things, be entitled to:
- have the defect remedied
- a reduction in the purchase price
- compensation for financial loss
Which remedy is available will depend on the nature of the defect and whether it is still possible to remedy it.
When should you contact a lawyer?
Cases where the contractor has gone bankrupt are often more complicated than ordinary defect and warranty claims. It may be advisable to seek legal assistance if:
- the contractor has gone bankrupt
- you are unsure whether a guarantee was provided
- the guarantor rejects your claim
- limitation periods are approaching
- no guarantee was provided and you are considering bringing a claim against the company’s management
Obtaining legal assistance at an early stage can be crucial to ensuring that your claims are not lost.
