France Transaction Information

There is a basic distinction made between real property, which is immovable and personal property that is considered moveable. Real property according to French law is defined as property immovable by nature, as land and buildings or structures, immovable which include fixtures, animals, required for cultivation, and machines or installations indispensable for factories or commercial premises and types of interests traditionally classified as immovable, as usufruct, servitude, mortgage and certain privileges (liens).

France Land Rights

When several parties jointly own a specific tract, usually derived from succession or by gift, gains and losses of tenancy in common are shared in proportion to the share of tenancy in common held.

The concept of joint tenancy isn’t recognized by French law. The laws of joint tenancy changed as of December 31,1976. Joint tenancy agreements entered into prior to July 1,1977, continue to be governed by the old rules unless the parties agreed to apply the new rules. Under the old rules, each co-tenant may freely dispose of individual interest without consent of others. However, under the new rules, each co-tenant may dispose of his individual interest provided terms of sale and identity of buyer are notified to other co-tenants who may generally exercise preemptive rights. If the property is by nature indivisible, any co-tenant may demand its sale at auction, or demand to have their interests purchased by others. Commercial leases of less than two years take the form of a written convention between the owner and the lessee. The lease type is defined in the Code Civil in Article 1712. The procedure for this lease type is called Usine Relais. The lease is designed to help start up new enterprises and is attractive for new companies with good development prospects that need to move quickly as they expand. The downfall of this lease type, for companies is that they have no entitlement to a conventional renewal. The owner is able to choose another tenant company. There is also a risk for the municipality because the possibility that the company can’t pay the rent, but remains on the premises and prevents the acquisition of a new lessee while it remains. As a result the Usine Relais lease isn’t used as frequently as the simple lease which is the most common type of lease in France.

The simple lease or bail commercial is a written contract signed by the owner and the lessee for a minimum of nine years. This lease type has to follow the legal rules as defined by Decret no. 53-960, 30 Septembre 1953, on Baux commerciaux (Commercial leases). The decree applies to all commercial and industrial property used for handicraft uses. The manufacturer must be registered in the Registre de Commerce of the chamber of commerce and industry. The renewal of the simple lease is almost always automatic, unless the owner is giving compensation. The lessee has the right to terminate the lease every three years, without any allowance. The simple lease appeals to the lessee because it is a stable contract. The Tribunal de Commerce is able to deal with the legalities of the lease should any problems arise.

The credit bail type of lease is also used as a financing tool. The credit bail involves the lender who offers the lease of the property to the borrower, combined with a unilateral promise of selling (promesse unilaterale de vente), applied to the end of the financing period by a transfer of property from the owner to the borrower. This type of lease is described under article no.66-455 on credit-bail and ordinance no.67-837 on Societes Immobilieres Pour la Commerce et l’industrie. The length of the credit bail term runs between 15-20 years, unless the borrower wants the lease to end. In this case, the borrower must pay a termination indemnity.

There are special companies under the Societes Immobilieres Pour La Commerce et l’industrie or SICOMI. The SICOMI companies have an investment role in buying and letting the properties. There are a number of various forms of the credit bail as there are many SICOMI companies that are involved with these types of contracts. The differences include the interest rates, duration, residual value, indexation, and form of payment that can be either progressive or regressive.

The credit bail was an attractive form of leasing in France at the end of the 1980’s, when interest rates were low and the property was turned over at the end of the 15-20 year term. The benefit for the lessee lies in the fact that there is no initial investment because the financing covers 100% of the property costs. A problem may arise in the duration of the term as it is longer than a simple lease and less flexible. Due to this, there is a stipulation in the contract to allow for ways in which to reduce the contract duration. There are two possibilities: transfer to another user and the company buying the property.

Another advantage to the credit bail is that it can be used to sell a property using installments. The installment sale using the credit bail is an ordinary sale with immediate transfer of the property to the manufacturer with facilities for payment. This type of transaction is dangerous for the seller because there is no protection against the contract if the company collapses.

The bail emphyteotique lease is a long-term 99 year lease. It gives the user absolute rights to the property in exchange for a light indemnity. At the end of the lease the lessee becomes the owner. This type of lease is more common in the agriculture sector as opposed to the industrial sector. Because industrial activities are too varied for this sort of lease, it has been replaced by the construction lease or the bail a construction.

The construction lease has a 20 year minimum duration. This time period allows the lessee to build on the land of the owner, and have property rights to the building. The possibilities of selling and constructing on the property are given to the lessee. This type of lease defines the relationship between the lessor and the lessee. The construction lease follows the rules of law no. 64-1247 of December 16, 1964, and in the construction code under Articles L 251-1 to L 251-9.

France Real Estate Info Summary

Title & Contracts in France:

The selling and buying of property is done through a deed between an owner and a taker. The deed is subject to numerous laws and taxation rules. The owner and taker sign a sales promise (promesse de vente) which clearly defines the terms and clauses of property transfer. This allows for the administrative requirements to be fulfilled, which can take a long time. The most common type of sales promise is a unilateral promise of selling. This type states that the seller is selling the property for a defined price to a defined person or company.

Real property can be acquired by accession, succession, prescription, or contract.

Accession is the increase of land by an act of nature i.e., alluvial lands. Succession is the passage of title by direct descent to heirs, by universal legacy or specific devise. Change of title must be registered upon Register of Real Estate Mortgages.

Prescription involves the acquisition of title by adverse possession that must be continuous, public, unequivocal and peaceful. The normal statute of limitations is 30 years but it is reduced to 10 or 20 years, depending on the location of the property and that the adverse possessor acts in good faith and under title of color. Successive periods of adverse possession may be cumulative. The period of prescription is interrupted by failure to exercise possessory acts of more than one year.

Acquisition by contract states that every creation or transfer of real property must be registered by a notary upon Register of Real Estate Mortgages. This includes deeds of sale, deeds of gift, contracts creating rights or usufruct or servitudes, long term leases, attachment liens, contracts creating or dissolving tenancy in common and condominiums.

There are a number of public registers created by special laws either to make certain basic information relating to a person or to an enterprise as a matter of public record, or to confer a priority or presumption of title in some property interests in favor of the party making the registration.

Real estate must be registered at the Register of Real Estate Mortgages (Bureau de la Conservation des Hypotheques). This register records all events affecting title. This includes deeds of sale, mortgages, transfers by testate or interstate succession, tenancies in common, long term leases and contractual servitudes. A Register office is located in every commune and arrondissement with separate dossier for each tract.

The priority of deeds and mortgages is determined by date of registration and not by date of transaction. Mortgages must be renewed every 10 years to preserve priority. The failure to register the mortgage means that the right to possession is lost but the personal liability of the mortgagor remains. The seller has two months to register his lien for unpaid purchase price and only thereafter does it become subordinate to mortgages previously registered. Failure to register deed of sale means that title may be lost to a bona fide purchaser. The first claimant that registers acquires good title regardless of the date of contract.

The contract of sale may be made by notarial deed or in the form of a private agreement. All sales contracts may be provided by these documents. The ownership of a property passes to the buyer the moment there is an agreement between price object and price. The salesprice must be reasonably related to the value of the object and not merely symbolic.

The promise to sell or buy real estate is void if not contained in a notarized or private act registered at the tax registry office within ten days after acceptance by the buyer. In the case of real property, sales where the consideration received is less than seven twelve’s of the real value, the buyer has the choice to return the property and receive back price paid or keeping it and receiving the balance of fair value subject to a reduction of one tenth of the total value. The buyer has no right of recession on ground of inadequacy of consideration. Action must be brought within two years of the date of sale.

Property Taxes:

Legal entities that maintain their principle office outside of France, whether organized in France or abroad, hat own real property in France or rights to such property must pay a 3% tax on the property’s value. It is however, possible to be exempt from this tax if the proper documentation is provided.

The owner, whether an individual or a company, of a developed parcel of land is subject to real estate taxes. On January 1 of every year an official annual value is determined and, 50% of the determined value is taxed at the applicable rate.

Foreign investors are subject to the Tax on Real Property, in addition to the Real Estate Tax.

Any individual who is inhabiting a furnished dwelling is subject to the residence tax, whether or not the occupant either owns or rents the property. The tax is calculated by applying the local rate to the annual rental value as indicated in the land records. Usually the tax amount is between 5% and 15% of the actual rental value.

Any individual who is the owner and occupant of an apartment is liable for both the real estate tax and the residence tax.

France Mortgages & Financing

There are three types of mortgages in France: legal such as belonging by law to minor property of his guardian., judicial, arising from judgment against the debtor, and contractual, formally executed in front of a notary and two witnesses or two notaries.

Mortgages have priority according to their date of registration with the Register of Real Estate Mortgages. Maximum period for a mortgage is 35 years. Registration must be renewed prior to its expiration date to retain priority of mortgage. Personal obligation of mortgagor remains if the mortgage is not duly registered, but the mortgagee loses all protection against all bona fide purchasers. A mortgage can only be canceled by a notary or by judgment.

If mortgagor defaults on the mortgage while still owning property then the property may be sold in order to satisfy the mortgage debt. If the proceeds from the sale are not sufficient then the creditor may proceed against the debtor on his personal obligation.

Certain liens in France have a priority over the mortgage. Treasury, social security, seller of real estate for unpaid purchase price or that of architect or contractor for expense of construction or repairs, all take priority over the mortgage. These liens must be registered with the Register of Real Estate Mortgages with priority based on date of registration. However, the seller has two months in which to register without loosing priority in that time.

In French law there is the Antichresis, which allows the creditor the right to collect revenue of real estate and apply it against the interest and principal of debt.