by Sue Busby, France Legal
- Preliminary advice
- Your Contract
- The Notaire
- From Contract to Completion
- Buying New Property
- Buying an Apartment (en copropriété)
- French Estate Planning
1 PRELIMINARY ADVICE – WHAT TO DO AND WHAT NOT TO DO
1.1 Do not sign a contract until an independent legal adviser has checked it
To buyers from the UK who are used to lawyers preparing contracts of sale, it may come as a surprise to be presented with a contract by an estate agent. Many agents prepare contracts and the quality is highly variable. Even though they may provide a translation, do not rely on this. In the event of a dispute, only the French version will count. You should also be aware that it is often what is left out of the contract which causes problems rather than what is in it. This contract is a legally binding agreement and your only opportunity to protect your interests by having additional clauses inserted. You should have the contract carefully checked by someone who is experienced and competent in French legal matters and who is acting on your behalf.
1.2 Obtain as much information as you can about the property while you are in France
Ask the agent to provide a copy of a plan cadastral (official plan) showing the parcel/s of land you want to buy. If possible, obtain a copy of the title deed. Go to the local mairie and consult the zoning plan for the area. It will give you planning information and you may be able to find out about projects that may affect your property.
Check where the boundaries of the property lie. If there is any doubt about this, you may wish to use a boundary surveyor to have them properly defined.
1.3 Termites, lead, asbestos, electricity, gas, major risks etc
A vendor is obliged to provide various reports , mostly with the initial contract. You should be aware before proceeding if the property contains lead in paintwork or asbestos and whether there is any risk from these. You should be aware of the situation regarding termites and other wood-boring insects. You are also entitled to know if the property may be affected by major risks such as avalanches, land movement or flooding. The vendor must also provide information on the electrical and gas installations, if these are more than 15 years old. An energy performance report must also be provided. If the property is not on mains drainage, a drainage report should be provided.
1.4 Structure and surveys
Look for obvious structural defects. Most French people do not have structural surveys carried out and some vendors may be reluctant to agree to this. However, it is better to risk losing the property than to buy a property that is not worth the purchase price because of hidden defects. It is best to mention at an early stage that you intend to have a survey carried out.
1.5 Understand the costs involved
The costs associated with a French purchase can be alarmingly high. The notaire’s fee (which includes stamp duty) will be in the region of 6-8% of the purchase price. The agent’s fee will be 5-10% of the purchase price. To this you should add the cost of legal advice in this country.
1.6 What is included in the sale price
Agree which contents are to be included in the sale. Some items that an English buyer would consider to be fixtures, such as kitchen units, may be taken away by the vendor.
If your purchase is dependent on a loan, you must have an appropriate clause included in the contract. You will then be obliged to take all necessary steps to obtain the loan and inform the vendor/notaire when you receive an offer. If you do not manage to obtain your loan, you will not be able to withdraw from the purchase unless the right clause is in the contract.
1.8 Sale of UK property
If your purchase in France depends on the sale of another property, you must have a clause in the contract that enables you to withdraw if your sale falls through. Once you have signed your French contract and your 10-day cooling off period has expired, you are bound to proceed with the purchase and can only withdraw if certain suspensive conditions are not fulfilled. Many French vendors will not accept this type of clause so it is best to sell your English property first.
1.9 Ownership structure
Once you have decided to buy, you should consider, with your legal adviser, which ownership structure is suitable for you. This can be decided on between contract and completion but you will need a suitable clause in the contract in case the names that eventually go on the final conveyance deed are different to those on the contract.
Careful thought at this stage can save you an enormous amount in French income/inheritance tax later on. Each family situation is different. Your specialist lawyer can help you make the best decision.
1.10 Completion dates
There will usually be a planned completion date in the contract but this is not set in stone. You should not rely on this date or make any reservations based on it until you have been notified in writing by the notaire of the final completion arrangements. Having said that, if the notaire is ready, you will have no right to cause unnecessary delays and may be required to complete at fairly short notice. Arrangements can usually be made so that you do not have to travel to France for this. However, it is sensible to view the property again just prior to completion.
It is essential to have appropriate insurance in place in time for completion. Fire and third party liability cover is a minimum legal requirement in France. It is usually possible to continue the vendor’s policy but you may find it easier to deal with an English broker in the event of a claim.
1.12 Transferring funds
You will usually be asked to pay a 10% deposit. Never pay this direct to a vendor. It should go into a bank account set up for the purpose by an agent or notaire. Currency dealers can usually get you a better exchange rate than your bank. It is also possible to buy currency in advance so that you do not have to worry about exchange rate differences.
The balance of the purchase price must be in the notaire’s account in good time for completion. You should allow at least a few days for the transfer of funds and allow for bank charges. If the funds are not in the notaire’s account, the transfer of property cannot be finalised.
2 Your Contract
2.1 The binding nature of the contract
When buying a property in England and Wales it is possible to withdraw from the purchase at the very last moment. The situation is quite different in France. It is tempting to sign the contract for fear of losing your dream French home. You are strongly advised not to sign the contract or any other document until it has been fully explained to you and any necessary conditions have been added. Although you do have a 10-day cooling off period after signature, this time soon disappears when you have to travel back to the UK and send a copy to your lawyer. It is also difficult to make changes to the contract once it has been signed by the vendor.
2.2 The conditions in the contract
Contracts vary enormously. Invariably extra clauses are needed to ensure maximum protection for the buyer.
2.2.1 Conditions Générales
These are the sort of conditions you are likely to find in any contract. For example:
- that the Purchaser must take the property as he finds it on the date of entry
- that the Purchaser must take responsibility for all taxes and utility contracts relating to the property from the date of signing the conveyance deed
- that the Vendor must not sell the property to anyone else between contract and completion
2.2.2 Conditions Particulières (special conditions)
These are conditions that the parties have requested to be put into the contract and they are under the control of those parties. For example there might be a condition stipulating that repairs are carried out or that tools are cleared from the garden.
2.2.3 Conditions suspensives
A condition suspensive is one which, if not fulfilled, allows the purchaser to withdraw from the contract. This type of condition is extremely useful in protecting the interests of the buyer. For example if you wanted to have a survey carried out on the property, you could have a condition suspensive written into the contract so that if anything untoward was revealed by the survey that you could withdraw from the contract. You might have another stating that if any rights of way are discovered in the title deeds that will adversely affect your use or enjoyment of the property then again you can withdraw. Some conditions suspensives are absolutely essential. For example if the purchase of your French property is dependent on the sale of another property then you must have a condition which allows you to withdraw if you are unable to sell the first property. Another is where a loan or mortgage is necessary for the purchase. You can stipulate the amount, duration and interest rate of the loan you require. If you are unable to obtain the loan, with the appropriate condition suspensive, you may withdraw from the contract.
In theory there is no limit to the number of conditions suspensives that could be inserted in a contract provided the vendor accepts them. However, these have to be carefully drafted and they must concern something that is beyond the will of the parties to be valid.
The examples of conditions suspensives given above are very often not included in a contract, which is why you should not sign it until it has been checked and amended if necessary.
2.3 Signing the contract
A law that came into force in June 2001 states that a purchaser of property must receive a copy of the contract, which has been signed by both parties. Once this signed copy has been received, the purchaser then has a 10-day cooling off period. This begins on the day following the first attempt to deliver it to you, even if you are not there to receive it. During this time, you may withdraw from the contract if you wish but must do so by recorded delivery letter to the vendor or his agent/notaire or by another equally secure method.
After the cooling off period has passed you have entered into a binding contract and you can only withdraw if one of the conditions suspensives is not realised.
3 The notaire
The Notaire’s role is not the same as that of an English solicitor and you cannot expect the same sort of service or advice. He carries out the transfer of property and makes sure that the state is paid any taxes due, such as stamp duty. Although he is under a duty to advise clients this is very much more limited than you would expect when compared to an English lawyer. The purchaser is entitled to choose the Notaire, who should be impartial. The vendor may appoint his own notaire, in which case the notaires share the fee. It really depends on the circumstances whether a second notaire is necessary but it can often slow down the process.
4 Between contract and completion
Things will seem to go quiet for a while. The notaire will assemble documents and obtain information from the land registry and local authority and send the information to your lawyer shortly before completion.
4.1 The right of pre-emption (droit de pre-emption)
In most cases the local authority or the agricultural authority will have the right to buy the property in your place if they wish. They usually have two months in which to exercise this right and therefore completion is very unlikely to take place before a two month period has expired.
The Notaire will apply for information from the local authority on planning provisions, which affect the property you are buying. Although he might send it to you he will not usually translate it or advise you on it. However, your lawyer in England can do this and make sure you are fully aware of anything that is detrimental to your enjoyment of the property.
4.3 Hypothèques (mortgages/charges)
The notaire will also obtain information on mortgages and charges on the property and we will report on this to you and let you know whether all mortgages have been cleared on the property or will be cleared at the point of completion. Otherwise there is a risk that you could take on somebody else’s debt.
4.4 Title deeds
To ensure that you have undisputed ownership of the property, it is usually advisable to have a 30 year origin of title in your final conveyance deed to make sure that no one has any prior claim on the property. Very often the history of ownership only goes back in a few years and the notaire inserts a clause of absolving himself of any responsibility. Your lawyer should make sure that a complete history of ownership is obtained. The significance of the 30 year period is that no one can make any claims going back further than this.
These documents will also give information on easements, such as rights of way, affecting your property. You may not find out until a fairly late stage about these points. Therefore, as a precaution, a clause should be included in your contract stating that if any inconvenient easements are discovered in these documents, you will have the right to withdraw.
If you have any doubts about the soundness of the property you are buying it would be a wise precaution to have a survey done. The cost of surveys ranges from £600 to £1200 depending on the type of survey required. Your lawyer should be able to recommend a suitable surveyor.
It is a legal requirement in France to have fire and public liability insurance cover for your French property. Usually it will be possible to continue the Vendor’s insurance policy. The normal rule is that unless told otherwise the insurer will continue the policy automatically for 90 days in your favour. The Acte de Vente (final conveyance deed) will state what the arrangements are for this. Usually it is the purchaser’s responsibility to either cancel or continue this policy. If you decide to cancel it you must make sure that you have suitable insurance in place by the date of completion.
Although you may employ a surveyor to look at the building itself this is not the person to help where there are uncertainties over boundaries. If you are not absolutely sure where the boundary to your property lies then it may be worth employing a géomètre expert to determine this for you. Once he has established the boundaries he will obtain the agreement of neighbours’, who cannot then later dispute the boundaries.
4.8 Estate planning
As soon as you have signed the contract, or in some cases before, it is recommended that you consider estate planning issues so that when completion takes place, you have taken all the necessary steps to protect yourself and your family. In this way, hefty inheritance tax bills can be avoided and you can protect those closest to you. (See Estate Planning article below for an introduction to this subject).
Approximately three months after the signing of the contract the Notaire will draw up the final conveyance deed known as the Acte de Vente. Normally all parties are present for the signing. However in most cases it is possible to obtain a power of attorney, which can be signed in the UK and sent to France. There is a small cost involved in this, as the document must usually be dealt with by a notary public.
The Acte de Vente itself is largely a reiteration of the initial contract but with additional information that has been obtained about the property. It comes with various supporting documents. Your lawyer will ensure that you understand the contents of these documents and that statements made therein are supported by documentary evidence where necessary.
6 Buying new property
The law protects the purchaser of new property quite well. Your lawyer should check that these laws have been complied with and that:
- the property has proper planning permission.
- the property will be completed even if the builder becomes insolvent
- there is a 10 guarantee against structural defects
- there is a 2 year guarantee against defects in the equipment in the property
- there is a guarantee that sound insulation will be adequate
You will sign a reservation contract initially. The word reservation does not mean reservation in the English sense. It is a binding contract so it should contains all the necessary elements before you sign. As with a contract for an older property, you can sign in the UK and send it back to France for the vendor to sign later.
Developers can be fairly vague about completion dates but if they take a 5% deposit from you (as is usual) then completion of the sale must take place within a year. The actual completion date is often only tied down to a quarter or even a half-year period (eg second half of 2017). You may insist on a more specific date in the contract if you wish. The dates in the contract must be adhered to unless there is a very good reason why not such as very bad weather or strike.
You will become the owner of the property before the building works are complete and make various stage payments up until the time it is handed over to you.
As with an older property, it is best not to depend too much on stated completion dates. Wait until you have definite confirmation before making your travel arrangements.
7 Buying an apartment (en copropriété)
When buying an apartment in France, you are not only buying the apartment itself but a share in the apartment block. Thus the owners between them own the whole apartment block – like a kind of co-operative. This arrangement is known as ‘en copropriété’. The management of the building is undertaken by a management committee headed by a Syndic (manager). All the owners have the right to attend and vote at meetings. The apportionment of votes is roughly in proportion to the number of parts owned. The number of parts will depend on the size of the apartment. Each owner will have parts that are privately owned (the apartment itself) and common parts (a share in the rest of the building) e.g. stairs, lifts, walkways, etc.
The rules and regulations of the co-ownership are contained in a document known as the règlement de copropriété. This is usually a very lengthy document with lots of regulations and rules not all of which makes exciting reading. This document also contains the état descriptif de division, which gives useful information about the way the apartment block is divided up. The rules are generally common sense ones, involving being considerate towards the other owners and maintaining the value of the property e.g. by not painting your shutters bright orange or making too much noise.
When you sign the final conveyance deed to purchase the apartment you are deemed to have read and agreed to the règlement de copropriété. Unfortunately it sometimes difficult to get agents and notaires to part with this hefty document until the point of completion. Although it is desirable to have read it, it is not usually a disaster if you are unable to do so.
It is important to obtain copies of the minutes of the last 3 meetings which may reveal any issues such as litigation or disputes.
When buying an apartment it is important to obtain a site plan (plan de masse) to compare with your contract to be sure from the position of the apartment on the plan that you are buying the right one.
You are entitled to an accurate measurement of the habitable surface area. If the actual measurement is more than 5% less than stated, you would be entitled to a proportional reimbursement of the purchase price, providing this is claimed within a year.
Certain areas in France have been designated as suitable for promoting tourism. These areas are eligible for the leaseback scheme. You buy a new property, usually an apartment and immediately lease it back to the developers in return for a guaranteed rent which is usually in the region of 4-5% of the purchase price per annum. The VAT on these purchases is refundable. This represents a considerable saving.
The leasehold contract must be for a minimum of 9 years, after which the developer is usually willing to hand the property back.
If you use a loan for your purchase (most of which can be covered by the rental income), you may make a large capital gain for a relatively small investment. Where is the catch? The developers have the right to renew the lease if they wish, a right which they cannot waive before the sale. If you do not wish to renew the lease, you may have to pay an indemnity to the lessee. There have also been cases where the lessee has not been able to pay the guaranteed rent. Proceed with caution.
9 French estate planning
There are a few simple steps you can take before you become the owner of French property and sometimes afterwards, to ensure that your French estate is dealt with in the way you wish during your lifetime and after death. French succession law is somewhat different to English succession law and its provisions may come as a surprise to English buyers who are used to the idea of testamentary freedom. Family situations are often complex these days, with second marriages, stepchildren and so on and provisions usually need to be made at the time of purchase to avoid difficult circumstances later on.
En Indivision and En Tontine
The first point to be aware of is what is meant by joint ownership. The usual method in France is that of indivision. This means that each purchaser owns a certain portion of the property as specified in the acte de vente, which is similar to the tenants-in-common situation in England. If a married couple want to buy a property together, they usually want the survivor to have ownership of the property after the first death. This will not automatically happen as the French are very protective of children in their legal provisions and will use the indivision method in preference to any other. Therefore, joint ownership en indivision means that when the first spouse dies, at least half their French estate must go to their children. The remaining spouse therefore does not have freedom to do with the property as he or she wishes. If the children are those of the deceased from a previous marriage, then the survivor may be in the uncomfortable position of being in joint ownership with stepchildren.
These situations can be avoided by having a tontine clause inserted in the final conveyance deed (acte de vente). Ownership en tontine roughly equates with joint tenancy in English law and will mean that when the first spouse dies, the survivor will be considered as having owned the property from the start and thus the rights of the deceased’s heirs can be avoided.
Another important aspect to consider is that of inheritance tax. The tax-free allowances in France are not nearly so generous as in England. Even with a tontine clause, inheritance tax will still be payable on half the value of the property at the time of the first death, if the joint owners are not a married couple or in a civil partnership. Consideration must therefore be given to the value of the property in relation to current inheritance tax rates and allowances to see if further precautions are necessary.
A French Marriage Régime
When the French get married, they often sign a marriage contract which determines how their property is dealt with on death. The régime of communauté universelle de biens ensures that on the first death, all the property of the marriage is owned by the survivor. British buyers can adopt a French marriage regime just in respect of their French property.
Those who decide to go and live in France permanently will find that their worldwide assets are then subject to French succession law and tax, as opposed to just the French real property. In these circumstances, it may be worth adopting an appropriate marriage regime. However, where there are children from a previous marriage, many French notaires would not be happy to deal with the kind of marriage regime which could have the effect of disinheriting children and would be surprised that anyone might want to do this. Even though such a marriage regime is perfectly legal and valid, according to the French civil code, it will be set aside if the children take action to enforce their succession rights. Mr X and Mrs X have moved to France and want to leave all their property to each other and then to Mr X’s two children from his first marriage. They adopt the regime of communauté universelle. If Mr X dies first, then the children can take action so that the regime is ignored as far as two thirds of their father’s estate is concerned, as this is their legal reserve. However, if the children were willing to renounce their right to take action at this point, then the property would pass under the regime as intended with no inheritance tax. A law that came into effect in January 2007 allows the children to renounce their rights before the death of their parent and then exercise them after the death of their step-parent. This may be a very useful solution for ‘recomposed families’ as the French call them.
The SCI – A French Property Owning Company
Another useful solution to some purchasing situations is to set up an SCI. An SCI is a company set up for the management and letting of property. If the property is bought by the SCI, the members of the company own shares rather than property. As shares are considered to be personal property, not real property, then English succession law applies and the shares can be left in accordance with the deceased’s wishes. The SCI also gives the members a lot of flexibility as they can transfer shares freely between themselves and to others (usually with the agreement of all members only). This means, for example, that parents can gift shares to their children during their lifetime thereby avoiding inheritance tax liability for them. However, the gift must be given at least 15 years before death. The company must keep accounts and hold an annual general meeting. As a means of avoiding succession law, this structure only works if the owners remain resident in the UK.
Do you need a French will? When an owner of French property dies, the succession must be dealt with in France. If there is no will for the French property, the English will must be applied as long as it does not contravene French succession law. A translation must be provided which satisfies the notaire dealing with the succession. This will have to be dealt with by an appropriately accredited translator causing difficulties and expense to the heirs. If a husband has willed his property to his wife and has not left the required amount to his children, this provision will be ignored. It is usually advisable to have a French will for the French estate.
A European regulation came into force in August 2015 which allows those owning property in another European country the right to apply either the law of their habitual residence or the law of their nationality to their estate. Therefore British owners of French property can apply English law to their French estate. However, it does not change the situation with respect to the French inheritance tax which would still be payable. Therefore, you should take advice on your own particular circumstances before proceeding.
Owning property in France can be a pleasurable experience for the owners and their family but it is worth taking advice to ensure that your particular circumstances and wishes are taken into account and your objectives achieved as far as possible.
© France Legal – updated December 2016