Buying property in a foreign land can, at the same time, be an excitement and a worry. The formalities in France are quite different from those elsewhere in Europe or America, but once understood, can be simple to follow.
After choosing one’s dream house, be it a Château, farm or restoration project, negotiations begin with the vendor.
The purchaser should decide how much the property in question is worth to him, and should make an offer. Once the price has been agreed, the next step is to consult a notary and Bank References may be asked for.
In many cases both purchaser and vendor can instruct the same notary which can result in greater efficiency. It should be remembered that the role or status of the Notary is that he represents the State, to give authenticity to a transaction and to interpret the intentions of both parties correctly in drafting the relevant deeds. Hence there is theoretically no conflict of interest, and it is not precisely as if the purchaser was relying on the vendor’s notary. It is not unusual, however, for each party to have their own notary, as in the case of a solicitor who has looked after a family for many years. This may be because: there are real differences to be resolved due to the importance of the transaction; there are problems within the seller’s family; or a foreign buyer, unused to transactions in France, wishes for added protection and reassurance, particularly due to language barriers. If two notaries are involved, no extra cost falls on the purchaser, as the notary fees he/she pays are fixed and shared.
The first step then is for the notary to draw up a ‘Compromis de Vente’ or contract of sale which is in one of two forms: a) a ‘Promesse Unilaterale de Vente’ i.e. in fact an option, whereby the vendor sells at a given price if the purchaser so requests before a certain date, in return for a down-payment of 10% of the price. The buyer is not obliged to proceed, but loses the 10% if he does not; or, b) a ‘Vente Ferme’, which is advantageous in that both parties are obliged to proceed but, on the other hand, also forces the vendor to sue the purchaser if he/she fails to pay within the given time and prevents the vendor from selling the property in the meantime. For this reason most notary prefer the ‘Promesse de Vente’.
Nevertheless, from the moment of this signature, the vendor is already contracted to sell, the property is taken off the market, and he cannot be tempted to accept higher offers he/she might receive from other interested parties (‘Gazumping’ in spoken English).
After the ‘Promesse’ is signed, a time lapse of anything from a few weeks to two or three months ensues while various legal formalities are undertaken. Firstly, a ‘Certificat d’Urbanisme’ has to be obtained, a local Government document setting out the planning position, zoning regulations, etc. Secondly, an unencumbered title certificate has to be obtained from the ‘Conservation des Hypothèques’ (equivalent to the Land Registry in England). Thirdly, there are often statutory ‘rights of pre-emption’ in favour of the SAFER, an agricultural body which controls or surveys the ownership of agricultural land in France, which must be waived before completion can take place, although they are rarely exercised in the case of historical and listed properties or Châteaux.
Recent legislation (2005 – 2007) has imposed a myriad of new obligations on Vendors, some or all of the following being relevant according to the region or nature of the property : a “cooling off” period of seven days (loi “SRU”) ; Certificates as to the presence or absence of lead paintwork, asbestos or termites and a further one for “Energy”. In Paris, one has to obtain a Certificate showing the exact number of square metres in an apartment, maisonette or flat (loi “Carrez”) although fortunately this is not yet obligatory in the country. The ‘Controls’ (lead, termite energy and asbestos reports) and the ‘Loi Carrez’ measurements are the responsibility of the Vendors and have to be paid by them, and need to be executed in advance of any signature of the “Promesse de Vente”.
On the purchaser’s side, the delay between the two signatures enables the buyer to arrange his financing, loans, currency transactions, etc. In France, there is little chance of persuading the Vendor to make a loan to the buyer as often happens in the United States for example. In the case of non-residents, up to 50% financing is possible and is sometimes given for loans up to 80% of the purchase price, depending on the financial standing of the purchaser. When the “Promesse de Vente” has been signed and the purchaser has secured his loan, the Bank or other lending body offers the loan, and the borrower (purchaser) has to wait ten days to run before accepting the loan offer. This is to prevent irresponsible borrowers finding themselves in difficult situations they cannot overcome (No prior government approval is required for purchases by foreigners, unless made for business purposes).
There are no Building Societies as such in France ; loans are customarily obtained from Banks, some of which specialise in medium to long term loans from five to twenty years. Current rates of interest (both fixed and variable) are around 5 – 6 %, although these can be somewhat lower for special purpose loans, for example, for principal residences, or for improvement, renovation and modernisation work. Naturally such loans must usually be secured on ‘First Mortgage’ which would be prepared by the notary and signed simultaneously with the purchase deed or ‘Acte de Vente’.
Four other points are to be remembered when buying property in France: Firstly the Inheritance Laws are quite different from those in Anglo-Saxon countries, and it would be wise to find out how they would affect you and your family. Secondly, there is a ‘Wealth Tax’ applicable to the net French assets of non-residents above 720,000 Euro. Thirdly, it is also advisable to come from one of the countries with which France has Reciprocal Tax Arrangements, e.g. Common Market countries, Switzerland, U.S.A. and the Arab States, as one could find that there are other yearly taxes on the property if, for instance, you are domiciled in Costa Rica! Fourthly, it is still preferable to purchase in your own name (en ‘Nom Propre’) rather than in that of a company, off-shore or not, as one can never be sure what future legislation will hold for company owned property. PHILIP HAWKES and your Notary can help you on most of these points, although for Tax matters, it may be preferable to take specialist professional advice.
Returning to the purchase transaction, when all the legal formalities have been completed, the ‘Acte de Vente’ is signed before the notary – or notaries. The balance of the purchase price and the acquisition costs, (the ‘Droits d’Enregistrement’ and notary fees), are then paid by the purchaser, the total expense amounting to about 6%.
The Commission is also paid at this point, normally by the vendor, (although a Purchaser can nowadays pay the commission which means he does not have to pay the Registration Tax on it). It is comparatively high in France, but that is because the agency takes on the entire financing and costs of the marketing campaign – advertising, brochure, photography, etc. which can be a hefty investment and which often leads to a negative return.
It is also important to arrange the change over for electricity, telephone and other contracts, and in particular to continue, or take out a new insurance policy on the property.
Thereafter, the purchaser takes full possession of the property and, hopefully, enjoys it to the full.
In conclusion, it is clear that one can fully rely on his/her notary, in whom a foreign buyer can normally have complete confidence, and also on your agent whose experience will save the purchaser from falling into any unseen traps. As language can often be a stumbling block, it would be advisable therefore to choose an estate agent who is totally bilingual, as well as keeping up to speed with the French market and the relevant legal aspects.
Information courtesy of Phillip Hawkes