Building materials are significantly more expensive and delivered late. How do you cope with it?

1. Contract price reviewed because of rising material costs

1.1 The "Breyne law" in case of a sale of housing on plan

In the event of the construction of housing on plan, the so-called "Breyne law" must be taken into account. This law is mandatory.

Under the "Breyne law", a review of the prices can 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.

Moreover, the price of the building can only be reviewed by 80%. This takes into account fluctuations in wages and related social charges on the one hand, and material costs on the other.

Wages may have an impact of no more than 50% of the price of the building for reviewing it.

Hence, as far as the cost of the materials is concerned, only 30% of the price of the building can be reviewed. At least 20% of the price of the building will therefore always be a fixed cost.  

In case of a sale of housing on plan, a real estate promoter can only review 30% of the price of the building based on 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 for price increases. Contracts are subject to this limitations.

1.2 Building contracts – not subject to the "Breyne law"

The parties of building contracts that do not fall within the scope of the "Breyne law", have more contractual freedom.  

Therefore, they have the possibility to freely stipulate in the contract whether the construction works will be at a fixed price or at a variable price.

Whether the increase in the price of materials can be passed on to the contractor, therefore depends on the contractual arrangements.

1.3 What else should you take into account?

1.3.1 Avoid unlawful terms, also in a B2B relationship

When you are dealing with a company as a contractor or building promoter, it is important to make sure that you do not include any unlawful clauses in your contract. This will ensure that you do not violate the current unlawful terms in B2B contracts, as provided for in the Economic Law Code.

For example, a clause by which the company grants itself the right to increase the price unilaterally, without objective criteria, is considered unlawful and therefore prohibited and null and void.

This is a recent insertion in the Economic Law Code. But, these rules are already in place since 1991, with regard to B2C contracts.

1.3.2 Hardship in the new contract law

A new contract law is expected to enter into force in a few months' time. This law will also include rules regarding hardship or "imprevision".

It sometimes happens that circumstances change after the conclusion of a contract to such an extent that unforeseeable and unaccountable circumstances arise which impede the continued performance of the existing contract excessively (hardship or imprevision doctrine).

In this, changing circumstances will more quickly be regarded as force majeure, allowing parties to require to renegotiate the contract. 

Today, under the current legislation, - one could assume in certain cases that abnormal price increases should also be regarded as force majeure. However, this will be subject to a factual assessment by the court. So, at this point in time, it is not at all certain that this argument will be upheld. 

It is therefore important to draft clearly substantiated agreements with regard to the price calculation and price review. Only then will it be clear to all parties from the outset what the impact of price fluctuations will be.

2. What to do if the material is delivered late?

In both normal building contracts and contracts that fall under the scope of the "Breyne law", parties can make contractual arrangements regarding the delivery period and/or define force majeure and the conditions to apply.

A delay in delivery of the building due to the late delivery of building materials as a result of scarcity on the market may either be contractually described as force majeure or may be excluded.

The final assessment of whether or not there is a force majeure situation will depend on the actual appreciation of the court, unless clear agreements have been made to this effect.

If there are contractual arrangements between the parties regarding force majeure, the court will have to take these into account.

But these clauses must be valid, as well. For example, a company cannot grant itself the right to unilaterally determine or change the delivery period, nor can a party qualify any situation as force majeure. Therefore, a force majeure clause should encompass situations which really can be qualified as force majeure.

It is therefore always important that the correct contractual clauses are included in the agreement.

3. Conclusion

As a contractor or building promoter, it is important to ensure that contracts  adequately cover against increasing material costs and problems with deadlines resulting from delays in the delivery of building materials. Therefore, we advise you to make  sure that your arrangements are sufficiently, legally and clearly defined in the contract.

Do not hesitate to contact the specialists at Seeds of Law to discuss with them how you, as a building company or promoter, can best provide for all these new circumstances in your contracts. You can reach us at info@seeds.law or +32 (0)747 40 07.