Law

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

French Property News - - Fpn Contents -

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.

Di­ag­nos­tic re­ports

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

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