France is understandably popular with investment buyers. However, says Jeremy Licence of Furley Page Solicitors, it pays to do your homework before even considering a purchase
Spring is a popular time for people to decide to purchase property in France. Some are just back from the ski slopes, having enjoyed a relaxing break are thinking how nice it would be to own a property close to the slopes; others are planning their summer holiday and are unpleasantly surprised by the high rental rates for holiday gites in popular areas. So it is natural to start thinking about owning their own cottage instead.
More British people are buying off-plan than ever before – that is, purchasing apartments and houses which have not yet been built. In France, as opposed to Spain for example, the majority of these are in the mountains close to resorts which have year-round appeal.
An off-plan purchase – or en l’etat future achèvement – are an almost entirely different from purchases of rural or existing properties. One characteristic of such purchases is that in most cases people only seek independent advice once a reservation contract has already been signed and the deposit handed over.
The legal impact of reservation contracts should not be underestimated: the English translation is somewhat of a misnomer since it can give the impression that a reservation does not give rise to a legally binding contract and that the purchaser can walk away without penalty.
Much of the law surrounding off-plan purchases is contained in the French building code and such transactions should therefore follow a defined process. There are variations but generally speaking the process is as follows:
1. Once the purchaser has seen a property specification he likes, he may sign a reservation contract and pay a deposit to the developer, typically five per cent. In fact, the law prescribes that this initial deposit cannot exceed five per cent.
2.Signing the reservation contract may take place at any stage in the build – it could even be before the developer owns the land or has put a spade in the ground. At some stage after paying a deposit, however, the developer’s notaire will send a draft transfer deed to the purchaser, who then has only 30 days in which to decide whether or not to proceed with a purchase. The transfer deed must be signed within 40 days. Failing this, in most cases, the seller is entitled to resell the property.
3. One aspect frequently misunderstood is that the price for the property stated in the initial reservation contract is subject to variation (which almost exclusively means increase) in line with increases in the National Cost of Building Index. This means that if significant time elapses between signing the reservation contract and completing the purchase, the price can increase materially.
4. Thereafter, the remainder of the purchase price is paid as each stage of the build is completed and the developer will send payment demands to the purchaser supported by architect certificates.
5. It is important to remember that the purchaser will be the owner of the land and the works as they are completed, from the date of the legal transfer – even though at the point of legal completion there may only be a hole in the ground.
6. The final stage is the remise des clefs (release of keys). This is the point at which the building is signed off as being completed and the purchaser takes possession on payment of the balance of five per cent of the price.
Probably the most important document in the whole process is the original building contract or building specification. Unless this has been clearly agreed in the first place, the question of whether or not a property has been completed is open to debate. The consequence of this is that if the property has been completed and the purchaser fails to pay over the final payment, then the seller can refuse to hand over the keys.
Having the building contract translated into English is highly recommended for obvious reasons, but some people do not even bother. Such is the desire to own a home in the first place that many buyers sign the reservation contract without much regard for the legality of the arrangement or the prospect of future disagreements about aspects of construction.
A purchaser who pays the final balance before having the property looked over by his own surveyor does so at his peril, since the scope for bringing any claims for defective works after the handover is very limited.
It is not all bad news, however. Unlike in England, French law imposes certain guarantees for the benefit of the buyer of any newly developed property; these are automatic in every case.
It should just be mentioned that slightly different rules and processes apply if plans for the building are supplied by the purchaser.
The importance of obtaining reliable legal advice from an English solicitor or at least an independent English-speaking notaire cannot be overstated. Even when these transactions are at the lower end of the price range (for example, for studios or small apartments) the process described above is a minefield for the uninitiated and can lead to misunderstandings and unnecessary disputes.
If you are planning a purchase off-plan this summer, remember that there are reputable firms of English lawyers who can provide assistance and that, if at all possible, their advice should be sought before the reservation contract is signed.
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