Real State Law in France (1)

These are the highlights if you want to know the essential of Real State Law in France.  This entry was drafted by Pech de Laclause, Bathmanabane & Partners  for”E-IURE COMPENDIUM” 2018. Link to e-IURE Network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case Pech de Laclause, Bathmanabane & Partners is an excellent option in France.

1.-Buying Real Estate in France

The purchase of real estate in France typically follows three steps:

• Negotiations

The discussion phase occurs prior to signing an undertaking. In theory, the parties are free to give or withhold consent to the proposed transaction. However, there is an obligation to negotiate in good faith and failure to comply with this obligation may result in damages for losses proven.

Once there is agreement on the price and the exact property, a binding contract may be deemed to be formed. It is important, therefore, that parties are cautious not to exchange documents that might give rise to a binding agreement prior to the preliminary contracts intended for this purpose.

• Preliminary Contracts

There are two types of preliminary contracts: the “promesse unilatérale de vente” (purchase option), and the “promesse synallagmatique de vente” (bilateral undertaking to sell and purchase). Both types are subject to conditions precedent such as the exercise (or waiver) by the local authorities of a right of preemption within a two-month period, the buyer being granted a loan to finance the acquisition, obtaining building permit, or other conditions required by the specific operation.

The preliminary contract must provide the agreed sale price or the precise calculation method. A description of the land and building must also be included. In addition, the conditions precedents are determined, and a guarantee payment is usually provided in the amount from 5 to 10% of the purchase price, in order to protect the seller from frivolous purchasers.

• Deed of Sale

The deed of sale is the document whereby ownership is transferred from the seller to the buyer. The deed of sale contains the terms and conditions provided in the preliminary contract.

The transfer in title is only enforceable against third parties as from its registration at the office of the land registrar, although it may be enforceable between the parties as of the date of signature.

In order to be registered with the land registrar, the legal instrument must be drafted by and signed before and with a French notary (“notaire”). In France, the notary is the holder of an office conferred by a public authority.

The notary has a duty to advise and warn both parties of their respective obligations, and a duty to the French government for collecting all taxes arising out of the sale of the real estate property.

2.-Commercial Leases

Leases for buildings used for commercial and industrial purposes are covered by the French Commercial Code.

Commercial leases offer significant protection to tenants. A June 2014 statute reinforced the protection of commercial tenants by aligning the rules of commercial leases with rules applicable to residential leases: rent control indexation, inventory of the premises, and preemption right for the benefit of the tenant in the case of sale of the premises.

In addition to those commercial leases, parties are allowed to enter into short-term leases under special circumstances (convention d’occupation précaire) or for a duration up to three years (bail dérogatoire) avoiding commercial lease rules.

• Term of the Lease

Commercial leases must be at least 9 years in duration. The tenant may terminate the lease at the end of any three year period, by giving six months prior notice. The individual tenant may also terminate when officially taking retirement under the French social security system.

• Rent amount

The parties have complete discretion in determining the rent, which reflects market conditions and may for example, be determined in part or in whole by reference to a percentage of the turnover generated by the tenant in the leased premises.

The lessee typically will pay a guarantee deposit and may be required to provide a bank guarantee to secure payment of rent.

The lease may provide for an indexation clause for the rent. Other formulas are possible, such as a review with specific parameters every three years, or even a share in the profits generated by the tenant (the latter being very rare nowadays).

If the parties cannot agree on the rent value at renewal or rent review (in the absence of a contractual clause), the law refers to certain elements, such as the characteristics of the premises, its permitted use, the respective obligations of the parties, and prices commonly used in the geographic area.

• Termination of the Lease

The landlord’s ability to terminate the lease is restricted. The tenant has, in principle, the right to obtain either the renewal of the lease at the end of the term, or “fair compensation” corresponding to the loss suffered as a result of not being able to renew must be paid, except where the tenant has committed a material breach of contract. Such indemnity is in theory the value of the ongoing business (“fonds de commerce”) conducted on the premises plus moving and other relevant costs.

The notices of termination followed a very formal process which requires the intervention of a bailiff (huissier). Recent legislation added the possibility of giving notice with a registered letter with return receipt.

• Renewal of the Lease

If notice has not been duly served at the end of a lease term, the lease is deemed to be tacitly renewed for the same term and under the same conditions.

However, if the tenant serves a request for renewal (at least six months prior to the end of the term) the landlord has three months within which to decide to accept the offer to renew.

If the landlord does not reply within this three months period, the lease is renewed. In such case, or if the landlord accepts the request, the lease is renewed according to the terms and conditions of the expired lease, with only the amount of rent subject to modification.

3.-Zoning and building permits

Any new construction, from private residences to urban development projects, requires a prior permit issued by the local administration, which is subject to zoning rules and regulations, building codes and local ordinances. The permit is delivered by the city where the land concerned by the construction is located.

In addition, changes to existing buildings that increase habitable surface, alter the outside appearance or the structure of a building require a building permit.

However, light work that does not affect the outside appearance of the building may not require a building permit but rather a notification to the city hall. Moreover, if the purpose for which the building is intended to change (for ex: housing, business, handcraft business, industry, industry, storehouse…), a notification of such change of purpose must be given to the city administration.

After construction, the builder or promoter must officially confirm that the construction is consistent with the building permit application and the permit as issued, and request from the city administration a certificate of compliance that confirms the lack of objections to the construction from the town administration