General information regarding the French legal system
In any purchase of a property in France, consideration must be given at an early stage as there are a number of important issues to take into account such as who is going to purchase the property (you alone? or jointly with your spouse? or though a company? etc.), general and inheritance tax projections, the source of the funds, French inheritance laws, etc.
Furthermore, a common misconception is to assume that the French system is the same as the Anglo-Saxon conveyancing process. This is in fact a dangerous assumption as there are a number of marked differences. As such, general understanding of all the French conveyancing process is essential before getting involved in the purchase of your French property.
Role of the French estate Agent
First, care should be taken not to place undue reliance on the estate agent, who is not a legal adviser and may not always be able to explain the issues to you. As such, additional care and time will need to be taken at the beginning as the purchase of your French property represents a significant investment and you will need to put in place the necessary checks and controls in order to satisfy yourself that your investment is sound.
Also, estate agents are highly regulated in France. So, make sure that the estate agent you are dealing with is properly registered and is holding a “carte professionnelle” (professional card registered). This is especially important if you are required to pay the security deposit directly to him (and not through the escrow bank account of the notaire). Indeed, only a estate agent, properly registered and holding a “carte professionnelle” is allowed to cash a security deposit on behalf of the vendor, if he complies with all the requirements prescribed by the Law Hoguet and its decree of application (otherwise, your security deposit may not be safe). Please contact one of our French lawyer for assistance.
Role of the Notaire
At the outset, you should also understand the role of the Notaire in France, which cannot be compared to that of the Anglo-Saxon system (such as an English solicitor for example). The Notaire is a public official, nominated by the French state and his role is to ensure that the transfer of property is effected and the relevant tax are paid. As such, his primary role is not that of an advisor and to protect your interests.
Often one notaire deals with both parties to the transaction, but it is possible for the buyer to instruct his/her own notaire. In such a case, the professional fees are split between the two notaires, and therefore no extra cost will be incurred.
However, even in the event of both parties having their own notaire, broadly speaking, a notaire is not expressly instructed to protect the interests of either vendor or purchaser as, as mentioned, his primary role is to execute the property transfer.
Furthermore, please note that when the pre-contract (e.g. compromise de vente or promesse de vente) is prepared by the estate agent (and signed by both parties), the parties are already bound by the terms and conditions of the agreement before such a notaire is instructed.
As such, it is thus important to seek, at a very early stage (e.g. before the signature of the pre-contract) independent legal assistance, such as a bilingual French Avocat who will be conversant with the English system and will understand the problems that the French procedure may create to foreigners. Indeed, it is important to have guidance and advice on various issues of the French system particularly with regard to taxation and inheritance rights. Rectifying a wrong initial decision may prove to be extremely expensive and difficult.
The conveyancing process in France
As other countries, there are two stages in a French conveyance: pre-contract and completion. However, in France, the “exchange of contracts” is signed at an early stage because the general French rule in property transactions is that when purchaser and vendor are agreed on the price and on the thing to be purchased, as between them, this is deemed to be a sale at that point.
Furthermore, the sale becomes binding on third parties when it is registered at the "Bureau de Conservation des Hypothèques" (Land Charges Registry). Accordingly, many matters that would be dealt with in many other countries (like England) before exchanging contract (such as local authority and land charges registry searches, establishing good root of title and so forth) are dealt with in France by way of “conditions suspensives” (conditions precedent). In this way, a French pre-contract, will normally contain one or more conditions precedent which must be performed before the contract is perfected.
As such, care is needed before signing such contract and the purchaser is therefore advised to seek independent legal assistance in order to make sure that this agreement meets his/her requirements and contains all the conditions precedent which will allow him/her to back out of the deal in case of a problem. Otherwise, it will be very difficult and expensive to pull out of the sale as this pre-contact generally included a “clause pénale” (penalty clause) to be imposed by either the vendor or purchaser if the sale breaks down for any reason other than those listed in the “conditions suspensives”. Also, please note that, in such a case, even though you are ready to loose your security deposit, this does not prevent the vendor to force the sale in front of the French court.
As mentioned below, once there is a general agreement on the property to be purchased, the first step is the pre-contract. Several types are used in France (“compromise de vente", “promesse synallagmatique de vente", “promesse unilatérale de vente", etc.). However, the most common is the “compromis de vente”.
When this pre-contract is signed by both parties, it is normal for the purchaser to pay a deposit, usually 10%, which is paid either to the estate agent or to the notary, who will hold it in his/her escrow bank account. Then, this will be sent to the French notaire who will start to make the appropriate searches (as to the title, charges registered against the property, etc.) and prepare then the conveyancing process.
The formal deed of sale is called the “acte authentique de vente” (actually, the conveyance reiterates the terms of the pre-contract (compromis de vente). This is signed in front of the French Notaire. As such, both parties have to be present on the date of completion, unless one of the parties (or both) signs a proxy which give to a third party (usually the estate agent, a solicitor or the notaire) permission to sign the deed on his/her behalf.
The time frame between the two contracts is generally around 10 to 12 weeks.
Costs of the transaction
The Notaire's fees, disbursements and stamp duties amount to approximately 6.5% - 7% of the purchase price if the property is more than five years old.
For new build property, French VAT (TVA) at a rate of 19.6% is usually included in the purchase price and you would also be liable for notaire’s fees at a reduced rate of 2 to 3 % of the purchase price.
If you are financing the purchase with a French mortgage, additional Notaire’s fees will be payable, the amount of which will be known before completion depending on the charge the bank is taking on the property.
With regard to local taxes, there are two main annual local taxes known as taxe foncière and taxe d'habitation.
- The taxe foncière is a local land tax which is payable by the owner of the property. Please note that generally new build properties are exempt from this tax for the first two years commencing on 1st January following the date of their structural completion, provided the work undertaken has been declared within 90 days of its completion (forms have to be filled in and sent to the French tax office within a delay in order to benefit of this exemption – more information can be provided by contacting a French lawyer).
- The taxe d’habitation is a local residential tax and it is payable by the occupier of the property.
The vendor will be responsible for the taxe d’habitation as at the 1st January of the year and the taxe foncière will be calculated on a pro rata basis for the year. As purchaser, you will be asked to reimburse the Vendor the proportion of the taxe foncière from the day of completion up to the 31st of December.