Whether you’re intending to sell a property now or perhaps in the future, it pays to understand the obligations of the seller, says Matthew Cameron
Selling up? What are your obligations and rights?
French property exhibitions are always an interesting opportunity for us as lawyers to meet new potential clients and discuss matters that may be a concern. The recent exhibition at Olympia was no exception. There were several recurring themes, such as how to deal with French inheritance law and tax matters, how to go about the purchase, or whether there is any benefit in instructing solicitors.
However, one point stood out, which highlighted to me the fact that most of the articles we write in relation to French property matters address the purchasing aspect; we tend not to cover the same process from a seller’s point of view as frequently.
The question related to when an agreement for a sale becomes binding upon a seller, and it came from a somewhat surprised couple who had been led to understand that seller and buyer would not be bound into a contract at the same point. This could not possibly be the case, they asked. Surely both parties to a property sale are engaged in the contract at the same point? And what about the concept of ‘subject to contract’? Does that not apply in France?
On this latter question the answer is clear: a French property transaction does not recognise the same ‘subject to contract’ period as in English and Welsh law*, before contracts are exchanged, where either party is free to withdraw without penalty. It is therefore the case that a contract can become binding at a point that British sellers may not expect.
Capital gains tax Even if you are not currently considering selling your house in France, there are steps that can be taken into account now that may be relevant if and when you come to sell your house in the future.
Take, for example, the potential to be charged capital gains tax – a second home being sold at an increase could give rise to a tax liability (and potentially in the UK as well for those who remain resident there). One way of reducing the tax burden is by offsetting the cost of qualifying construction works carried out to the property.
This requires that all paperwork relating to the works is retained, including written estimates, receipted invoices and proof of payment. In addition, the work has to be carried out by Frenchregistered artisans. If you fail to comply with these simple points you’re likely to find those works are not taken into account against the eventual gain.
Agency commission The sale process itself can throw up points that can catch the unwary. First of all, when instructing an agent, it is important to understand if the commission is to be included in the asking price or not as it can make a substantial difference.
Be sure to read the terms of the mandate for sale in detail (specialist French law solicitors will be able to review this for you). Does it authorise the agent to confirm an agreement with a proposed buyer if the full asking price is offered? Does it allow for the same amount of commission to be paid even if the sellers agree to a reduction in the asking price? What are the formalities relating to termination of the retainer?
It’s unusual for the mandate for sale to be terminated, but it does happen occasionally. Indeed, it was with this in mind that the couple I mentioned earlier asked the specific question of us. Due to a change in circumstances, they wanted to understand if it would be possible to withdraw. In the initial discussion, therefore, we considered how the French Civil Code defines a contract, which leads on to answer the point about when it will be binding between the parties.
Cooling-off period As mentioned above, a contract can be achieved at an earlier point in France than in the UK. In fact, the French Civil Code contains a clause stating that a contract is completed as soon as the ‘thing’ and the ‘price’ are agreed.
It doesn’t matter if nothing is in writing: if there is agreement, the contract is perfected. In theory, this is somewhat similar to the position in England and Wales; however, the fact that all negotiations and correspondence prior to exchange of contracts in England and Wales are stated to be ‘subject to contract’ means that nothing is binding at that point – either party is perfectly free to withdraw, should they so choose.
Thus, in France both parties are bound to the contract at a very early stage: in practice as soon as the price is set.
This is not the whole picture though: the buyer is still able to withdraw without penalty at this point. A non-corporate (i.e. residential) buyer has the right to cancel any property purchase contract (except a purchase of undeveloped land) even after a purchase contract has been signed by both parties, by virtue of the 10-day cooling-off period available to the buyer.
This may impose a certain imbalance between the parties: the buyers being free to change their minds while the seller is not. It is perhaps prudent, therefore, for a seller to be certain they intend to proceed with the sale before confirming to the agent that they are happy with the price offered.
Presuming the seller does intend to progress, the next stage is for the various pre-contract diagnostic inspection reports to be prepared.
It is often said that the buyer pays all of the costs on a French property transaction, although this is not quite correct.
The buyer does indeed pay the notaire’s fees – whether there is only one notaire overseeing the entire transaction or whether each party has their own – however, the seller does have to pay for the diagnostic reports.
In general, these costs will not be substantial; they often amount to around €500-€800, although it is a payment that can occasionally come as a surprise to sellers who may not have anticipated having to bear any of the costs of sale.
Guarantees The importance of a detailed understanding of a contract on the part of a buyer is often stressed, yet it is just as important that a seller will be able to consider and approve the terms of a draft contract before it is signed by either party.
There may well be a number of declarations, warranties and other guarantees that a seller will be extending to a buyer in the sale, the full consequences of which should be fully appreciated.
As an example, if you have recently carried out any works to the property, not only will you need to be aware of the capital gains tax position, you will also have to bear in mind that you may be conferring on your buyer certain structural guarantees, that could remain in place for up to 10 years.
* Transactions in Scotland and Northern Ireland may be treated differently and readers should seek advice locally on such matters Matthew Cameron is a Partner and Head of French legal services at Ashtons Legal Tel: 0330 404 5960 Ashtonslegal.co.uk