PURCHASING A PORPERTY IN FRANCE
Buying guide for our purchasers
Once you have chosen your community and found your house, we will assist you to do an offer and will advice you concerning the price you should propose. We usually ask our buyer to sign a letter of intent including the conditions (price, preceded conditions, delays etc) to underline his serious and to have a basis to negotiate the conditions with the vendor, who declares his agreement with the signature under the letter of intent – this is the best way to guarantee that every party is willing to contract to the proposed conditions, before preparing the preliminary contract (“compromis de vente”) at the notary. Every property in France has to be sold through a notary and their fees and taxes collected are unavoidable and not negotiable.
We offer bilingual sales agreements (French – English) in collaboration with a multi-lingual notary.
Surveys are not usually undertaken in France, although surveyors do exist. We can recommend bilingual surveyors in case you would like to check the technical details of the property.
Preliminary Contract (Compromis de vente)
Once the two parties have reached an agreement regarding the sale price, the terms and conditions of the sale are discussed with the notary who then prepares the preliminary contract or “compromis de vente”. By law the seller now has to supply current expert certification for things like lead, asbestos, termites (if in a designated area) and insulation efficiency. The seller is also legally obliged to make you aware of any defects or problems they should know about (such as drainage or flood zoning etc)
The “compromis de vente” is just as important as the final document transferring title as it must contain all the clauses and conditions precedent to the sale. These include clear title, easements, certificates stating whether the property conforms to current legislation on asbestos and other matters, and, most importantly, whether the purchase is subject to the condition of obtaining finance.
Once both parties have signed the preliminary contract, you have a seven-day cooling-off period. During this time, you can withdraw from the sale without incurring a penalty, but the vendor cannot. After the cooling –off period the contract becomes binding on both parties.
You now pay the deposit – usually about 10 per cent of the net purchase price. From this point on, if you withdraw from the sale, you could lose your deposit, unless it is for one of the reasons listed in his preceded conditions ‘clauses suspensives’.
Preceded Conditions – Clauses suspensives
“Clauses suspensives” permit you to withdraw from the purchase under certain circumstances.
Typical reasons might include:
- not being able to obtain finance
- having a request for outline planning permission refused.
The “clauses suspensives” need to be discussed very carefully with your agent at the time of making the offer.
Once the preliminary contract is signed and the deposit is paid, the searches on the property, including ownership, land boundaries and rights of way will be done by the notary.
The final signing – (acte authentique)
We arrange to view the property with you on the day of the signing. The final contract has a clause saying ‘sold as seen on signing date’, so you need to know that the property is exactly as you expect it to be, and not with floors, walls or windows missing!
You should be present for the signing of the completion document if at all possible. If you are not able to attend, you can arrange a power of attorney.
You need to transfer the balance of his payment to the notary’s account in plenty of time for the signing date. Missing the deadline CAN mean you lose both the house and the deposit.
You will get the ownership of the property in the legal second, when the final act will be signed.
Legal and tax advice
Things like wealth tax, inheritance laws, marriage contracts and other differences in the French system should be carefully gone into. These points often make the relatively small investment independent advice a very good idea. We advice our clients in general concerning those subjects and we recommend bilingual notaries, lawyers and tax consultants, who are familiar with the different taxand legal systems in different countries.
Using a SCI to purchase a property in France
A common way of buying a property in France is through the use of a company of civil law, )Société Civile Immobilière = SCI). The use of this method has benefits for French residents, as well as foreign residents.
What is an SCI?
An SCI is essentially a fully incorporated company with a registered office in France. This office can be the property itself.
The SCI then owns the property in question.
Being a company, the SCI is itself owned by shareholders, in most cases, family members.
The shareholders can be resident or non-resident in France.
Note: It is important to note at this point that the tax consequences of the purchase through an SCI should be analysed according to French law and the tax treaty between France and the home country before going ahead with any purchase.
Advantages of an SCI
1. In terms of inheritance, the use of an SCI overcomes some of the disadvantages that France‘s Napoleonic laws entail.
French law dictates that upon the death of the home’s owner, the property is divided up between the surviving spouse and any children.
The decision about what to do with a property which may now be too big for – for example – an elderly widow, is passed on to the widow and any children either from that marriage or previous. This can be potentially “uncomfortable” where stepchildren are involved.
However, using an SCI and its shareholder status means that the parents can appoint themselves as majority shareholders.
They can make provision that upon the death of one or the other that his or her shares are passed onto the surviving spouse, therefore ensuring that the controlling share remains in the hands of the parent, and any decision regarding the property belongs to the partner of the deceased.
2. Where succession remains the issue, shares in a company are easier to distribute than immovable property, and so managing inheritance, and transferring the property, is simplified.
3. The shareholder structure means that it is easier to divide up shares, rather than splitting the ownership of a property.
In turn, this makes it easier for individuals with small budgets to pool their funds and buy a property that they would not be able to buy individually.
It is also easier to dispose of the shares without the aid of a notary, thereby making the SCI more flexible than direct ownership.
4. When using an SCI to buy a property, the net worth of the property can be reduced for tax purposes by way of debt. This can minimise French wealth tax (ISF) and inheritance tax liability.
5. Where foreign residents are concerned, the use of an SCI can be a great advantage for people whose home inheritance laws are more flexible than French laws, outlined above.
Upon death, the applicable law is normally the one of the country where the property is located. However, if the property is owned through an SCI, then the applicable law will be the one of the last country of residence of the deceased.
Owning a home in France via an SCI means that the French property becomes part of the estate of their country, as opposed to direct ownership of immovable property, which is subject to estate law in France. This is important to bear in mind in terms of inheritance.
6. The terms of an SCI can be changed at any moment.
Disadvantages of an SCI
While there are numerous advantages of owning a property in France through an SCI, there are also a handful of drawbacks which should be considered.
Using an SCI to purchase a property will incur additional expenses.
No matter what property is purchased, the future purchaser will have to pay purchaser’s fees to the notary. On choosing to set up an SCI, one should equally make provision for the registration expenses as well as its running costs. The latter for example being the company’s annual accounts.
As with any major financial transaction, it is always best to get the advice of professionals, in this case property law professionals. Each case is different and requires individual, and where possible, an independent study into its necessity and feasibility. Obtaining the assistance of a locally-based professional will ensure that you are receiving the most relevant and current information regarding legislation.
If you have chosen to purchase a home in France via the Société Civile Immobilier ( SCI) and because the SCI is effectively a company, you will need to:
establish and register your SCI and keep annual accounts.
These are some pointers on how to take care of the paperwork involved in running your SCI.
A French SCI is obliged to maintain its accounting in French, based on the French Tax Code. This means following the French accounting plan.
Note: The average SCI holds family property and does not have much bookkeeping.
It would, under these circumstances, be quite hard to maintain normal English (or other) accounting records and it would involve some training to be able to learn how to keep your books on the French basis. It is often easier to use an accountant who works within the French system, the cost of which is probably justified.
The accounting of an SCI is not regulated as it is not normally used for commercial purposes. You can obviously control your own accounts but this does not avoid the French accounting issues.
For an SCI to exist as a real company it must:
- keep regular records,
- prepare annual accounts
- hold an annual general meeting of the members to approve the accounts
- maintain statutory records in a legal register.
If this is not carried out, the company can, under the civil code, be considered to be non-existent with the resultant tax consequences. It is important to understand that an SCI is a “moral person” and by not filing annual tax returns one can be assessed for a 3% tax on the market value of the property annually.
How to manage income received on a SCI
When furnished property owned by an SCI is rented out, it is considered a “location meublée”. The French tax authorities see this as a business activity (as it is owned by a company, the SCI) and the relevant corporation taxes are imposed.
This becomes complicated when the owner of the SCI wishes to cease the rental activity. This is viewed as a change in activity and thus generates an automatic capital gain taxation to which the relative corporate taxes are imposed.
However this problem can be avoided with correct planning, little inconvenience and can save the owners taxation and money. It is therefore best to seek the advice of a trusted tax lawyer or accountant in order to set up the correct structure to minimize your tax liability. It is also essential to seek professional advice when planning to set up an SCI.
Wealth tax is due on the net value of the shares of the SCI; that means the value of the property, less debt. This even applies to non-residents. Assets are cumulated for wealth tax purposes. (This is not always clearly explained to foreigners) French case law emphasizes that it is vitally important that records be maintained.
(provided by Anthony & Cie Sophia Antipolis, France)
As eventual debts are minimising the wealth tax, it might be interesting to take a mortgage – We are working together with International banks in this matter and we would accompany you to their professional multilingual advisers.