Preparing your property for sale

Once again the French property programme on M6 Maison à vendre offered some useful advice for sellers, based on two case studies - a village house just outside Lille, and a fairly nondescript pavillon near Paris.

It was clear from the outset that the owners of the first property had an exaggerated idea of its worth - even in its deplorable state before the makeover team moved in. Talking originally of a sale price of 400,000 euros, which had apparently been confirmed by an 'expert', by the end of the programme they were looking at offers of just 250,000 euros, with no certainty of a buyer. Among the efforts needed to make the house presentable for sale was the removal of a veritable menagerie of animals, including rabbits, chinchillas, several geese, chickens, cats, a goat and two lively dogs, and repairing the damage they had caused over the years to furnishings and paintwork.

In contrast, the standard concrete bungalow attracted four offers, including one accepted at the full asking price, after minimal decoration and refurbishment - on the first day of being offered for sale.

French Property News - February, March 2011

In February's issue of French Property News I offer some suggestions on how to present your French house or apartment ready for sale, including some room by room recommendations about what improvements will add value and those that do not. Essentially, the property should be impeccably clean and tidy, and generally de-cluttered. Owners should attend to all those minor repairs and renewals they have kept putting-off and which are a certain deterrent for would-be purchasers.

Going back to basics, in the March issue just out, I offer some suggestions on how to hold onto your French second home, if you are tempted to cash-in your property asset in time of crisis. Surprisingly, the majority of French second homes are sold by their owners within 10 years of purchase, despite the disadvantages of capital gains taxes and sometimes the inability to recoup the high transaction costs (agenncy commissions on buying and selling, Notaire fees, land registration costs and taxes).

Instead I suggest ways to hold onto your property, through letting long or short-term, or if it is your main home and the situation is serious, returning to the UK to work for a while, and renting out your French property for a year or more. Harsh decisions may have to be made but selling-up is often not the best or only option.

French Property News is available in newsagents or see http://www.french-property-news.com/

(Picture shows lovely holiday studio at Argelès-Port recently sold by its owners within a few weeks of going onto the market).

DPE - Certificate of energy efficiency

Since January 2011, all French properties offered for sale or rental must include a certificate of energy efficiency (DPE) in the property description, whether offered privately or through an estate agency. This is in addition to the technical reports (diagnostiques) already required covering lead, asbestos, termites, state of the electrical installation etc, with the added requirement that the DPE must be included in the property description as soon as it is advertised for sale or to let. Traditionally, the technical survey - which has to be commissioned and paid for by the vendor - was not done until a buyer had signed a pre-contract (compromis de vente) and was committed to purchase the property.

The new DPE uses a an efficiency scale from A (energy efficient) through to G (low energy efficiency) and the full report offers indications of what can be done to improve eneergy efficient, with estimates and costs and potential savings.

In practive energy savings may be quite small and can outweigh the cost of suggested improvements. While many properties in the Mediterranean south may be rated as energy inefficient, the low rating is unlikely to deter potential buyers looking for a second home, occupied largely during the warmer summer months. However, as more holiday properties become permanent homes and occupied all year round, would be purchasers should be aware that winters on the Mediterranean can be chilly for a few weeks either side of Christmas, though temperatures rarely drop below 1 degree C.

Managing your French bank account

Buyers of French property, whether a second home or for permanent living, need to open a French bank account as soon as possible, preferably before completing the purchase transaction. Normally up to four weeks are needed between your initial application of the bank of your choice and the arrival of your cheque book and debit/credit cards. These are essential to enable you to pay for local purchases and to settle the bills that will almost immediately arrive from utitilites (water, gas, electricity etc) as the accounts are transfered from the vendor into the name of the new owner.

Th French government has recently turned its attention towards the operation of its High Street banks, and introduced a number of reforms in response to complaints by consumers and lobbying by magazines such as Que Choisir?, a sort of French version of Which?. French banks are now required to publish clear and up-to-date information about their basic services, including tariffs and charges. Since November 2009 they are also obliged to help customers in the process of transfering their account to another bank, without charge and within 10 days of asking. The new bank should open an account within 5 days of the transfer.

In line with a European directive of 11 March 2009 - in response to the world banking crisis - the French government now guarantees all banks accounts up to a level of 100,000 euros (decree of 1 October 2010) per account, per branch. The timescale for reimbursing the client, in the case of bank failure, has been reduced from two months to just 20 days. Banks have also been obliged to guarantee greater security in the use of debit and credit cards, an important measure in view of the proposed phasing-out of cheques.

Note that cheques are still widely used in France, as cash payments are forbidden above certain levels, and it is an offense to write a cheque without adequate provision. If you overdraw on your account without authorisation, you will be penalised by the bank and possibly obliged to close your account.

Choosing your bank can be tricky and it is best to sound out friends and acquaintances about their personal experiences, as the efficiency of local branch staff can vary widely. Online banking is routinely available, provided you are satisfied with the level of internet security, although online payments currently represent over half of all banking fraud for just 7% of transactions!

Source - Maison Magazine January/February 2011

Buying a business in France - 'murs et fonds' explained

As part of their search for a new lifestyle, some property buyers in France are also interested in buying and taking over an existing French business - perhaps as an alternative to starting a business of your own. The idea has its attractions as well as being a potential minefield of problems, as the new owner will inherit not only the business, but also its premises, equipment, stock, leasehold or freehold premises, existing staff, suppliers, customers and good will, plus any ongoing contracts and possibly outstanding debts and loans.

All of the above are included in term 'fonds de commerce', to which might be added 'les murs' (literally the walls), meaning that the purchase would include a freehold property, as well as fixtures, fittings, stock and goodwill ('les fonds'). Arriving at a valuation of 'les fonds' can be difficult and will depend to a large extent on the accuracy - and honesty - of the owner's financial records. Businesses receiving a high percentage of payments in cash, such as bars, restaurants, retail shops etc, are routinely suspected of concealing part of the takings, in order to reduce tax and other liabilities.

In order to arrive at a correct valuation of 'les fonds' the would-be purchaser will have to rely on his/her own expereicne of running a similar business, the opinion of an expert valuer and personal observation - for example, is the café or restuarant you are thinking of buying really full on Saturday evenings?  What would be the total takings if you added up the number of customers multiplied by the price of an average meal from the menu?

Goodwill may be difficult to establish, relying as it does on customer loyalty. If for example the current owners of the restaurant you have your eye on are going to re-open another one just a few streets away or even in the next town, a lot of their existing customers may follow them. If you are contemplating buying a rundown business or considering making a radical change, the value of the existing customer base may be very little - say, you are turning a traditional French café into a brash English pub!

Businesses located in holiday resorts and existing on seasonal trade rely on an annual influx of mainly new customers, with very little repeat business year on year. The exceptions may be some hotels, gites or camp sites, but the percentage of holidaymakers returning every year to the same resort is very low. Consequently there is little goodwill that can be assigned a monetary value, although turnover from previous years can give an indication of what might be exprected in succeeding years.

In conducting your search for a business reliant on passing trade, you enquiries should include any future plans for the neighbourhood that might affect the location - for better or worse. New road schemes can affect traffic flows or the prospect of a new lycée oppostive your premises may be good or bad news depending on your trade.

Business owners tend to exaggerate the value of goodwill, including location, but careful observation can help establish what this aspect of a business - largely unpredictable and totally intangible - is really worth to you. You might in the end decide to acquire you own premises and start your business from nothing. It may be the cheaper option in the long run.

French Property News - January 2011

In this month's issue I look at ways in which buyers of homes in France can hang on to their property, during a time of recession and when many owners contemplate selling-up and returning home. This is often not the best solution, particularly at a time when the market is depressed and there may be a glut of secondhand properties for sale. Even heavily discounting the selling price may not be sufficient incentive to off-load a property quickly if other factors are present which prevent a quick sale - poor location, state of repair, size and disposition of rooms etc.

Instead I suggest ways of reducing costs, and looking at the possibility of letting a second home long-term or for the summer season. There is still a good rental market for the right type of property in the right location - larger family homes close to public transport and conurbations where people travel to work, studios and smaller apartments in university towns, and holiday rentals on the Mediterranean and Atlantic coasts. Property seekers and workers on temporary assignment are also potential users of furnished rented accommodation over the short and medium term.

Downsizing is not always a cost-effective option, due to high transaction costs in France. If you are thinking of selling one property and buying another, you need to facor in two sets of agency fees (5 - 10 per cent of the sale/purchase price) and the Notaire's fees and other costs (around 7% of the purchase price). You may find that you are spending 20,000 euros or more - money that is not recoverable or reflectded in tangible assets such as a home extension or a new kitchen! - just to make the move, when it might be wiser to stay put and wait for the market to improve.

Source http://www.french-property-news.com/

Self-employed with limited liability

From 01 January 2011, those running a small business in France can opt for the new statute - an individual enterprise with limited liability (EIRL). Those who are already self-employed or auto-entrepreneurs as well as new business creators can choose this format.

This new business model is designed to protect the entrepreneur's personal assets (such as his home) in the case of business failure, by separating personal from business assets. In the event of a business failure leading to legal action by creditors, only those assets previously declared for use exclusively in the business - known as the patrimoine d'affectation -  could potentially be seized in order to repay creditors. Typical business assets would include business premises, the value of a lease, machinery and equipment.

In registering the new enterprise at the local centre de formation d'entreprise (CFE), a list of business assets is drawn up and items with a value exceeding 30,000 euros require professional valuation. Forms are available from local CFEs and registration is effected by chambers of commerce, chambers of trade etc as appropriate according to the nature of the business or occupation. Registration costs are expected to be around 55 euros.

The newly constitued EIRL is required to open a separate business bank account and to maintain proper accounts. There is also an obligation to file annual accounts and statements of affairs, details of which have yet to be published.

The owner of the EIRL can choose to be taxed individually on his revenue from the business, or the EIRL can choose to be taxed under the corporation tax régime (IS or impot sur les sociétés). The latter option offers a number of advantages if the EIRL wishes to retain funds (reserves) in the business. It is not however open to auto-entrepreneurs.

Although slightly more complicated to set up and run, the EIRL offers considerable protection to the business owner, which is similar to the position of directors of limited iability companies such as the French SARL, and guarantees protection of his personal assets such as his home.

Further information can be found on http://www.eirl.fr/ and a declaration can be made online at http://www.guichet-entreprise.fr/ or by visiting your local CFE.

Source: APCE (Agence Pour la Création d'Enreprises), January 2011.