What the vendor leaves behind....

A recurring problem between vendors and purchasers is reaching an agreement on what is or is not included in the sale of a property - in terms of furniture, fixtures and fittings that are not strictly part of the building fabric.

Over the years, vendors have been accustomed to removing virtually anything that could be unscrwed - from light fittings to door furniture - to the surprise and chagrin of the buyer when he took over the property. As a result, some  notaires are now insisting that an explicit list of contents is drawn up and agreed by all parties, at the time of signing the compromis de vente (pre-sale contract). Sometimes in the case of a house that is sold empty and uninhabited, the notaire will include an 'indicative' list of what must not be removed by the vendors, without explicit consent of the buyer, between the signature of the compromis de vente and the acte finale.

It is advisable for buyers to re-visit the property shortly before completion in order to verify that the property has remained in the 'state it was at the time of signing the compromis de vente' as in signing the acte finale the buyer agres to accept the property 'as is' and has no further recourse against the vendor.

These general rules also cover issues like make alterations or changing the decor between signature of the initial and final sales contracts.

Trying to avoid paying agency commission

The rules governing the payment of commission to an agency responsible for selling your French property are strict and offer considerable legal protection to the agent. Confusion sometimes arises where the vendor reserves the right to sell privately (in this case signing a 'mandat simple' with the agency) and is approached by a potential buyer who has been previously introduced by the agent - with the objective of concluding a private deal and avoiding paying the agency commission.

Sales mandates - the document agreed between vendor and agency authorising the latter to market and sell the property - can have an active life of two years. This means that if a potential purchaser, originally introduced by the agency, approaches the vendor and attempts to conclude a private deal, the agency can claim its commission on the sale, according to the terms of the mandate, if this happens within two years of signing the original sales mandate.

In order to protect themselves and avoid any confusion, French estate agents ask potential buyers to sign a form known as a 'bon de visite' to prove that it was they who first introduced to them to the property offered for sale. 

If a potential buyer finds him/herself visiting the property a second time, through a second agency,  they should immediately inform both agencies, to avoid confusion. For their part, vendors should be aware of the legal consequences of trying to avoid paying an agency's commission. French courts invariably enforce the agent's rights in such cases.

Curious side effects of new CGT rules....

Following the French government's recent announcements (see below) on the changes in CGT applied to second homes, the estate agency group Century21 has stated that it received 500 cancellations of compromis de vente (pre-sale contract) and 1,500 cancellations of sales mandates (instructions to sell) from their clients within hours of the original announcement. The figures represent some 5% of their usual 75,000 annual property transactions.

Overall, sales of second homes represent just 7% of the French property market, although in most coastal/tourist areas - where the percentage of second homes can be as high as 80% of the local housing stock - the figure can be much higher. Nationally sales of second homes account for around 56,000 transactions annually our of a total 700,000 to 800,000 changes of property ownership.

CGT rules - final amendments

Further to my earlier post below, the French government has announced a final (hopefully) revised version of the proposed changes to the rules on Capital Gaisn Tax (CGT) applied on the sale of a second home in France, that is not classed as 'your main and principal residence' for tax purposes. The new proposals are as follows:

- 2% abatement of CGT for each year if the property is sold between 5 and 15 years since first purchased
- 3% abatement  each year during years 15 to 25
- 10% abatement each year during years 25 to 30

This replaces the former 10% per year applicable after five years of ownership, in years 6 to 15 inclusive, making the property free of CGT after 15 years of ownership. This is now effctively after 30 years of ownership.

The rate of tax (and a special social charge) is 32.5% of the capital gain - the difference between what you paid for the property and the price at which you sell it.

The new rules will apply for all notarised transactions after 01 February 2012 (and not earlier as announced).

If you are tax resident in France (for example, file an annual French tax return) and your property is classed as your main or principal residence, no tax is paid on the 'profit' (capital gain) when you come to sell.

Source: LeParisien, 07 September 2011.

Vendors - give your agent a chance!

A recent post on one of the French property forums prompted this note. A British vendor had set very strict rules relating to visits, on the grounds that he owned two large dogs who were albeit friendly somewhat intrustive, and likely to distract potential buyers. He insisted that viewings were by appointment at a fixed time - when the owners would then leave the property with the dogs - and after the visit, the agent was to telephone them with an 'all clear' at which point the owners would return. The system had broken down within days, the vendor complained. In my reply I tried to point out that while his intentions were undoubtedly laudable, arranging property viewings is not always straightforward for the following reasons:

- Almost all buyers leave too little time for viewings, sometimes unaware of the distances involved, and want to rush off to another appointment (with a rival agent!) instead of completing a series of pre-arranged visits.

- Buyers can turn up late without warning, arrive unannounced and without an appointment, and still expect to be taken immediately on a series of visits.

- Many vendors prefer visits by appointment, with adequate notice, and may refuse to receive visits during meal times, evenings, weekends etc.

- Visits may take longer than anticipated, resulting in a series of delays and sometimes the need to re-schedule appointments en route. 

- Vendors sometimes "forget" they have arranged an appointment and are not at home when the agent arrives with his potential client.

- Keys are not always where they should be! Some vendors insist on giving out only set of keys to be shared among a number of different offices or even different agencies. If a negotiator has arranged a series of visits he may be holding several sets of keys which will not be available until he returns to the office - perhaps some hours later.

These are just a few of the hazards drawn from my time as a negotiator inside a busy agency, with four offices, and eight or ten negotiators. The rule was that keys would be held at the office nearest to the property and returned as soon as possible after a viewing. Human nature being what it is, this did not always happen.

Vendors should try to understand the practical difficulties involved in arranging property viewings and be as flexible as possible in what is still a very competitive property market;

New CGT rules on sale of second home in France

As part of its austerity measures, the French government has announced new rules for the calculation of capital gains tax (CGT) on the sale of second homes - and certain other types of property, see below - with effect from today.

The principal measure is the abolution of the automatic abatement of 10% per per year of ownership, from years six to sixfteen, which had the effect of reducing the CGT to zero after 15 years. This will be replaced by a new calculation based on the rate of inflation during the period from initial purchase to sale. Details yet to be published on how this will be calculated.

In addition to second homes, the new rules will also apply to "empty properties, rental properties and land for building" (last three definitions also awaiting clarification) but will not affect main or principal residences, which are not subject to CGT on sale. To establish that your French property is your main or principal home requires proof of your resident status in France, for example a history of submitting French tax returns and being within the French healthcare system.

The new measures are expected to generate 180 million euros in 2011 and 2.2 billion euros in 2012.

Source: LeParisien 25 August 2011

Paris threatens short-term rental apartments

The mairie of Paris has issued a warning notice about the growth in the number of small apartments and studios designed to be let to short-stay visitors, as an alternative to using a traditional hotel. The mairie estimates that there are a minimum 20,000 (and possibly up to 40,000) such properties, often located in prime central tourist areas, and their use as rental properties is exacerbating the shortgage of suitable long term accommoation available to Paris residents. Complaints have also been voiced by hoteliers concerned about the possible threat to their livelihood.

A trawl through the many websites addressed primarily to American, English and European visitors shows that even a small two-room apartment in a good location can be rented for 1000 to 1500 euros per week, or up to 6000 euros per month - with an average 60 to 100 euros per night not uncommon. Investors in rental property are not unnaturally attracted by these potential gains, which are far greater than the income that can be earned through traditional long-term renting (which in theory should be for a minimum of one year furnished and three years unfurnished).

Where there is a mix of occupants within a building, long term owners and renters compain that their lives are disrupted by the constant coming and going of short-stay visitors.

Seasonal renting is in theory controlled under article 631-7 of the Construction Code and requires an application for a change of use, and in a recent case an English owner has been fined 25,000 euros for not complying with the law. Most owners apparently claim they are unaware of the regulations.

In light of these revelations, the Paris housing authority has announced that it is currently studying the problem, and clearly any solution will have to offer a delicate balance between the undoubted popularity of short-term rentals, as an alternative to hotels (many of which have failed to keep pace in terms of modernisation and standards of comfort); the importance of nurturing the French tourist market; and finding a solution to the perennial shortage of long-term rental properties in the French capital.

Outside Paris, in the popular Mediterranean coastal areas, many studios and apartments are purchased as 'second homes' by owners with a view to securing their retirement, and rented to holidaymakers during the summer season. As a result entire buildings of fifty or more apartments can remain empty and unused during nine months of the year. The few fulltime residents (owners or renters) who choose to live there all year round and for whom it is their principal home are obliged to suffer the July/August invasion by large numbers of seasonal visitors, with the attendant disruption to their daily lives and the inevitable increased wear and tear on the building.

However, apartment owners have not had it all their own way, with an average 30% drop in seasonal rentals recorded for 2010 in Languedoc-Roussillon, and the signs are that numbers are currently down in 2011. Among the reasons cited for the decline are the unsuitability of many smaller apartments (often dating from the 1960s) for seasonal use - for example those without a balcony or terrace or not set in grounds that include facilities such as a swimming pool; the high prices demanded by owners; and the reluctance of the latter to invest in modernising and refurbishing their property. There is also increasing competition from holiday camps, many of them equivalent to small villages with a range of free attractions, supermarkets, sports areas etc, and the availability of ultra-modern self-contained chalets and villas at affordable prices.

The bad weather during July and the downturn in the French economy have also contributed to the decline in numbers - and their spending power, according to the shopkeepers and restaurateurs I have interviewed.