Tuesday, May 20, 2014

New law adds to cost of apartment sales

A new law, introduced in March as an extension of the loi Dufflot concerning apartments owned within a condominium ('co-propiété'), adds considerably to the costs to be borne by the owner anticipating a sale.

Peomoted ostensibly as an additional measure designed to protect incoming tenants or buyers, the new loi ALUR requires vendors to provide additional information about the management of the building, what works have been undertaken or are planned, details of charges and a three year history of 'the state of the building fabric' - information than can only be obtained from the professional syndic (building managers) who are charging - heavily - for providing this information from their files.

It should be noted that these new requirements are in addition to the expert survey ("expertises") that already have to be provided covering lead, asbestos, termites, electrical safety etc; and the recently added 'energy efficiency certificate'. The new law also requires this package of documents to be assembled and made available to the potential buyer before the pre-contract ("compromis de vente") is signed - and before any cash deposit is handed over, as a sign of the buyer's good faith.

Coupled with the delays being quoted of four to six weeks, this now means that vendors now enter a lengthy period of uncertainty even before the buyer has the right to invoke the traditional seven-day cooling-off period (which can in turn be extended to another six weeks or so if the buyer is seeking to secure bank financing for the purchase). The fact that these new procedures will dramatically slow down the transaction process, in a property market that it already stagnant, appears not to have occurred to the leglislators.

For vendors trying to sell their property and possibly move elsewhere, the additional costs are a serious deterrent and will result in price increases. It is difficult to estimate at the time of writing how much the professional syndics intend to charge for providing the additional information required. But I spoke to two agencies one of whom had been told 'about €400', while another was quoted 'between €600 and 1000' - by the same office of the same syndic (Foncia)! Toether with the expert reports and energy certificate, costs to vendors to present their property for signature of the 'compromis de vente' could be in the order of €2000 - a pre-contract that the would-be buyer may or may not be prepared to sign.

A further question to which I have had no satisfactory reply is, in the event that the buyer decides not to proceed with the purchase, who is responsible for paying the costs incurred to date - bearing in mind that no deposit has been taken, and buyer may not even have entered the cooling-off period at this stage. In addition he/she may have exercised their legitimate right to view and express their interest in one or more other properties, without commitment of any kind, meanwhile encouraging further owner(s) to prepare the document bundle in the reasonable expectation of a sale.

Note that the new laws concern only co-ownership properties such as apartments within a "résidence" or complex managed by a syndic. The costs are inevitably going to hit hardest those living in and trying to sell the most property - particularly as the documentation relating to the building complex is much the same when you are selling a 20m² studio or a five-roomed penthouse.  And it is not unimaginable to assume that the larger and poorer the building complex, the more voluminous (and costly) the building reports.

Comments by property professionals have been critical of the unpreparedness of the syndics to furnish this information. My own view is that what set out to provide additional protection for potential renters and buyers has become a nightmare for vendors, many of them desperate to sell and move on. The legislation in my view is sloppily conceived and drafted with little appreciation of its practical effects on the property market and on individuals trying to survive in a continuing depressed French economy.