So, we bought this nice apartment in Basel at a fixed price at the planning stage. They started building it in August 2020, after the pandemics started. The architects reported no delays due to the pandemics. The guidance was that the building would be finished 18-20 months after the start. The contract says that the architects should compensate 100 chf for each working day after 24 month period if our apartment is not ready to move in by then.
The deadline for choosing parquette and tiles was February 2021, however they did not give us the offer for the chosen finishes until February 2022. We insisted since summer 2021 that inflation is high and we need our offer ASAP. But they just ignored our mails and calls. In February 2022 they gave us the very good offer (implying no price increase since 2021) that we happily signed.
Now the bad part...on Friday they sent us a letter that due to force majeur circumstances, namely pandemics and war, the inflation on everything including raw materials is high and they warn us that they will pass it to us without any further details given (how much, which items etc). They also wrote they will not compensate any delays in the move in date.
I am enraged! Not only we were warning them for the whole year about the inflation, but also that they stated pandemics as a force majeure several month es after it has finished. I am very determined to go to court with this. I just wanted to ask if anyone has opinions and advise on our story?
If they declared a force majeure that must be something official? One cannot just say, I can’t fulfill my obligations because I missed deadlines so I declare force majeure after the events passed. Should have pandemic be a force majeur, the effect and the declaration should have been immediate. But the covid in china, where nothing gets shipped now might be a reason for the declaration of force majeur if they can’t find alternative supplier. In this case they probably have an insurance that jumps in?
What they wrote no point getting mad, understand your legal position & then deal with it as best as you can!
Annoying as it is people & business are maybe not so engaged in your life and what you want and need and hence carrying out due diligence beforehand and even insuring for it is a wise move.
Of course we read the contract and I already found a lawyer in Basel (thanks to this forum). I am going to contact him on Monday. However, hearing personal experiences will also be very useful for us.
Thank you for your reasonable opinion. This is what I think too. But they claimed inflation started picking up since autumn, so it is not just Chinese pandemics they are talking about. I know for a fact that inflation is not due to the pandemics but mostly due to money printing and this is definitely not a force majeur. None of our finishes come from China, parquette is Swiss, tiles is Italian. So I doubt they can claim China as a problem. I will contact the lawyer on Monday and arrange a consultation.
I have been involved in the financing of various construction projects in the past (large infrastructure, but not private property).
Force Majeure can be invoked for various reasons, like there is a war. Not very straightforward to challenge this. Insurance will not pay anything as this is a standard exclusion. You may get something out of their performance guarantee (have you asked them for one?). I know of one project here which was delayed by more than a few months because they came across some Roman artefacts in the ground. This is force majeure, and therefore no compensation was payable for the delay.
I assume that the contract to build was a fixed priced contract. Legally it sounds good for you as they cannot pass on additional costs to you.
On the other hand, the reality is that if they cannot cover their costs, they will go bust and then you are left with a property that is only half completed, you are out of pocket and you have no recourse (as I mentioned before, insurance will not pay, but a peformance guarantee could come in useful).
So I hear in the industry that many contractors are renegotiating their contracts even if they are fixed priced, because it is in everyone's interest to try to get the contractors to finish the job, even if it costs you more.
You can sue them all you want and have a legal victory, but you may prefer a solution that will get them across the line. Additionally, while not as important, there is also a warranty period of up to 5 years for your property. Who will fix a sinking wall if they are not around anymore? Check if they have bank guarantees for that.
I hope your lawyer can help you win, but at the same time, I have a feeling that it's going to cost you either way...
Thanks a lot for the information. I do not think that the war in eastern Ukraine can be considered a force majeur for a building project in Switzerland. In the last five years there was no single day at which there was no war somewhere in the world. None of Swiss neighbouring countries is involved in the war.
Regarding the point of architects possible bankruptcy, I do not think it is possible as the price increase happened when the building was fully completed and the only thing left are the internal and external finishes. In February we actually suggested them our own parquette supplier in case if prices by the Swiss one went up too high. They rejected our offer and said the prices were still valid.
The worst thing that might happen to them is the lower margin. My worry is the possible bill for our lawyer. I am sure that the truth is on our side, but not sure my nerves are strong enough for a full scale legal battle. I just defended my PhD and have a 3 year old and plan another baby in the nearest future. It is just all extremely depressing
Terrible story. You have my sympathies. But it's not the first example I've heard of and should be a warning to others considering this route. (And just from what I know, it is getting much harder to secure a mortgage where there is a demand for a large 'deposit' 'a long time' before handover)
Is this a standalone project or part of a collective build? If it's the latter then it would make more sense to try for a 'class action'.
As mentioned, you don't benefit if the developers go bust but on the other hand, we are all part of a risk/benefit economy. Nobody is going to compensate me if I lose money investing in the stock market. The developers should be made to face the consequences of their decisions.
On the bright side, your property will already be worth more than the 2020 contract price. Also, these additional costs will be applying to all new builds and will be reflected in the value of all such apartments...
It is a collective build, 15 apartments. We will try to contact other buyers (all apartments were sold out in like 2 month since the advertisement) and try class action. I am pretty sure we are not the only ones being unhappy regarding this. One thing which makes me optimistic is that the building is there, with all electricity and windows installed. It is not much left to do, just finishes I believe. In that case I know where to buy our tiles and parquette at prices cheaper than even pre inflated items. And the architects cannot claim they cannot control price increases since they can buy all from other suppliers. We even suggested our help at organization of this process in February, but they reassured us there would be no problems (thanks God we did everything in writing so we have the proofs!).
You are right, the property price has definitely increased. But our cash did not, so we will need to go in debt, while I planned that we will live debt free very soon. Paper profit is pleasant of course, but not when it is shifted by the increase in debt
We have a legal insurance. My husband will clarify on Monday if it covers this type of disputes. I read somewhere on this forum usually it does not cover anything regarding property and renovations.
Inflation in Switzerland over the past 12 months is 2.4%, and if the builders were concerned about raw material costs rising, they should have incorporated an inflation adjustment into their contract. We incorporate this sort of language routinely into our contracts, particularly in markets where there is a serious inflationary risk. If they try to go to court with a 'force majeure' argument over 2.4% inflation, they'll get laughed out of the room.
However, they could potentially have a force majeure argument about the penalty clauses for late delivery -- it is true that there were COVID-related delays that could not have been reasonably anticipated when the contract was signed. But that's different than asking you to contribute more money.
Unlike others on here who suggest that you simply accept this as a cost of doing business, I would strongly suggest that you challenge this legally. There is a reason that we have contracts, and it is the obligation of the builder to fulfill their end of the contract. There is always risk in providing a fixed price, but they knew this going in, and presumably should have built in a risk premium in the price to cover that risk.
On the face of it, you have a strong case and a black-and-white contract. Don't let this go without a fight.
What else? Make a interest free loan to the poor contractors? I don't think so.
First, they have professional liability insurance precisely aimed at professional mistakes and missed deadlines. A budget mistake is a professional mistake.
On the other hand, if they don't go bust, incompetent people keeps posing as responsible constructors. If they go bust, the system is working properly.
@pm335: I'm not a lawyer. However, ask your lawyer about the architect's professional liability insurance. It seems they made a mistake while doing the budget. This is similar to making a mistake while calculating the reinforcement steel on a concrete slab and then the slab bends too much after being built. It's a professional mistake and might covered by architect's insurance.
Switzerland is a low inflation country, I don't have local experience here, but in Germany and other low inflation countries, this "index" clause is routinely missing. This is exactly why I am seeing a lot of contractors trying to renegotiate the contracts in other countries.
I am not suggesting that you don't fight, in fact you should fight like hell as you are in a very strong position, but you also need to ask yourself what victory means. Pay nothing but have no livable property? Pay a little bit but able to move in? The OP has since reported that the property is almost completed which makes things easier - if they threaten to fold, then if there is a performance bond, that will cover the cost of getting another contractor to come in and finish the job. But I have to ask again, did OP get a performance bond when purchasing the property?
Claiming force majeur can facilitate the contractor getting an extension of time. It often doesn't cover additional costs.
Regarding inflation in the building industry in Switzerland - this is a massive issue right now. Switzerland might not be directly involved in the war but the supply chain for raw materials is hugely affected which is impacting prices.
It would be useful for you to attain in writing what items have increased in price and by how much and since when etc.... but bear in mind the advice from the earlier poster....if you win the case but the contractor goes out of business, it would be a costly win.
As mentionned before, we are having a new roof done late Summer. Our roofer has been in touch to say prices will go up a lot for tiles from 1st of May- and that to garantee price he would have to order before and that he required a part payment before that date.
Yes, prices are going up hugely, partly due to the war. Same for zinc and copper going through ... the roof!
It's not just CH. I have first-hand feedback from Italy, where the government one year ago launched a special programme of incentives: you could deduct from the taxes the 110% of the renovation amounts, based on an official list of generous prices.
Houseowners got crazy and it looked like there was margin for everybody... now companies are refusing work because the prices are outdated and even the extra 10% does not completely cover the costs.
Moreover, house owners pay when the work is done, but construction companies must pay suppliers at delivery, so constructors have a huge loss during works with the perspective of a net loss at the end as well.
And if you get the solar panel but you don't get the inverter you just keep paying and waiting and you can't send your invoice...