Purchasing a French Apartment or Summer Home

Legal pitfalls: contractual, tax, inheritance and other relevant issues.

Relatively well-off people (often husband and wife) residing in North America, Asia and the U.K. may wish to purchase a Paris apartment or other  “pied à terre” in Paris or elsewhere in France.

When such an undertaking is envisioned, it may be important to seek counsel with respect to a number of threshold issues, some of which do not relate to either the purchase price or the location of the apartment, house or villa in France.

Among the issues which merit consideration are the following:

  • finding the right apartment, house or villa.
  • the 10% customary “refundable” buyer’s deposit
  • financing the purchase 
  • important role of the buyer’s notaire
  • rights and obligations of coop owners,
  • real property taxes (taxe foncière)
  • renting-out the property
  • avoiding certain French default judgments
  • French rights of surviving spouse and children which contravene the owner(s)’ last will and testament

Here is an initial check list which is certainly not exhaustive:

Finding the right apartment

Paris and many other real estate agents do not generally use the multiple listing system common in the U.S. Thus, one normally needs to meet with multiple real estate agents in the neighborhood in question, as each will have a different inventory.

The 10% customary “refundable” deposit”

Normally, when the buyer contractually agrees to purchase French real property, the buyer immediately deposits with a fiduciary (generally a “notaire“) a security deposit equal to 10% of the purchase price. Such deposit which will be forfeited under certain conditions, if the buyer does not go forward with the closing some months hence. But, under other conditions, the 10% will be reimbursed. As a practical matter, the return of the funds is achievable if the obligation to close is conditioned upon the buyer’s obtaining a loan and the buyer diligently files an application with a bank within a prescribed time frame (generally one month) and the loan is refused. (This issue is further discussed below under the caption “Importance role of the buyer’s notaire

Financing the purchase

If the buyer intends to finance part of the purchase price with the a loan from a French bank, it is important to set up appointments to meet with the loan officer at one or more French banks before even identifying the property to be purchased so as to determine the maximum amount of credit that might be granted and the percentage of leverage. The loan officer will need to determine the buyer’s capacity to pay the loan. this can become somewhat time consuming and difficult if the buyer/borrower does not have a French income tax return. It should be noted that 90% financing is probably not achievable.

Importance role of the buyer’s notaire

Both the seller and the buyer should have his/her own notaire to review the draft Promise of Purchase and Sale, as it is dangerous to have a shared notaire (a quaint French tradition). Normally, the extra cost of such review in minimal, as certain professional fees of the notaire are fix and shared by the two notaires, if there are two and not one..

As noted above, the buyer will normally pay a 10% deposit when the Promise of Purchase and Sale, a very important agreement, is signed some 3 months prior to the closing.

If matters are handled in a professional manner, the buyer’s 10% deposit can be recovered, if the bank financing does not come through.

However, the right to obtain the return of the 10% deposit, can be lost if:

  • the buyer does not file with a bank a loan application in a timely manner, usually within one month of the signature of the Promise of Purchase and Sale, or
  • such right is waived by contract in the Promise of Purchase and Sale or a less formal document, a trap for the unwary. (See Articles French Consumer Code: Law 312-15 to 312-17.)

Certain real estate agents will seek to pressure the buyer to immediately sign a Promise Purchase and Sale or a less formal document possibly drafted by the real estate agent. Signing such a document is dangerous and can and should be avoided. As noted above, the Buyer should have his/her own notaire review the draft document, whether it has been drafted by the real estate agent or the seller’s notaire. Thus, a preliminary contact with an appropriate notaire before starting the apartment search is recommended so the notaire‘s English speaking assistant (“clerc”) is available and prepared to review the draft document on very short notice.)
If the buyer uses a good notaire, the notaire often suggests important, appropriate and acceptable changes to the draft document
However, in the absence of an agreement providing that the notaire is to receive a professional fee above the statutory amount fixed by law, the notaire‘s assistant (“clerc”) tends to identify and discuss with the client only the most obvious standard issues. In light that fact, buyers who are not familiar with the relevant French law often retain a French lawyer (“avocat”) to supervise the process and to raise issues and to propose solutions in a timely manner. Naturally, such services  involve additional professional fees.)

Rights and obligations of coop owners

Most French apartments are subject to a coop arrangement with the other apartment owners within the same building. This unavoidable and useful arrangement creates rights, obligations and a need to be more than a passive player. This area of law is discussed in a separate article (click here).

French real property taxes (taxe foncière)

If one owns a French apartment of individual house, there will be an annual real property tax to pay in a timely manner. This area of law will be discussed in a separate article.

Avoiding certain French default judgments

If a formal document emanating from a private person or the tax authorities is delivered by registered mail or by a bailiff, the addressee usually has only 30 days to reply before adverse consequences can result. If the apartment is not permanently occupied by the owner, it is important to put in place certain palliative measures so that the formal communication quickly become available to the owner, his French accountant, his French attorney or other responsible professional.

Renting-out the property

Renting-out the property to a third party involves tax and legal consequences. For example, if the tenant does not pay the rent, he may be able to “squat” for at least two years before the owner can have the tenant removed. This is a complex area and individual counseling is generally appropriate.

French rights of surviving spouse and children which contravene the owner(s)’ last will and testament

In the event of death of one of the buyers after the closing, are the buyers prepared to accept that French law being applied to the rights of inheritance? (French law does not permit parents to disinherit their children and may not permit a special allocation of assets to one child at the expense of another child. This legal impediment may lead to litigation among heirs, a costly, unhealthy and often unnecessary result.)

If the non-continental European buyer wish to have an opportunity to avoid such an eventuality of forced inheritance and retain the right of testamentary disposition, the buyers be prepared to have direct ownership (title) held in the name of a French corporation the share of which he would own? (Such corporate form is called an “S.C.I.” and is often used for that express purpose). 

If a S.C.I. corporate vehicle is to be established, how should the annual meeting and tax accounting be assured in a cost-effective manner?

The above questions  are cross-disciplinary. To assure cost-effective solutions, several advisors/implementers may be needed. They are usually: 

  • A French notary* (“un notaire“), 
  • An attorney (“un avocat”), and 
  • A French accountant (“un expert-comptable”).
  • * A French notary’s duties and powers should not be confused with the limited powers of an American notary.

    The French notary (“le notaire“) has a legal monopoly to effect the transfers of French real property and to  probate estates in France. They are trained in the law in such areas and also know the French tax law relating to such fields of specialization.

    However, many French notaries are often not as swift on there feet as business lawyers and business accountants. With respect to their monopoly functions, the fees of French notaries are set by law. With respect to setting-up  and operating an S.C.I.

    or rendering tax structuring advice, they are free to charge an extra freely negotiated fees. These are areas where certain French and non-French clients deem that  business lawyers and/or  business accountants render quicker and cost effective advice.