conditions suspensives – inserting conditions in the
contract before completing on the sale/purchase of French
property
When we deal with buying or selling properties, we may wish to
insert conditions in the contract before completing.
Sellers do not often use conditions, because they only need to
find a happy buyer. But as far as buyers are concerned, the
situation is different; they are more cautious and will want
further clauses to be put in the contract before contracting with
the other party.
Such conditions are called conditions suspensives and
will be discussed at the stage of signing the compromis de
vente.
French law provides standard legal conditions
suspensives to the purchaser, but special clauses can be added
to the contract if they are agreed between the parties.
Conditions suspensives will stop the contract from
being perfect and will postpone completion until each condition is
fulfilled. If a condition cannot be fulfilled, the party will
generally be free to withdraw from the contract and will not be
bound by any obligation or indemnity.
This article does not cover all the conditions suspensives that
exist, but will analyse the following three:
- obtaining a mortgage
- the sale of a property by a buyer before buying
- the legal condition in the contract (grouped as one
condition).
1. obtaining a mortgage
The law dated 13 July 1979 provides some protection for a
purchaser who wants to raise a mortgage in order to purchase the
property. The rules are set out in the Consumers Act, which sets
out that the buyer will be able to withdraw from the contract if
the bank refuses to finance the transaction.
The buyer is allowed to pull out and recover any deposit
paid.
To prevent any seller being in a weak position, full details of
the mortgage sought should be indicated in the clause with the
amount to be borrowed, the names of the banks to be contacted, the
interest rate excluding or including insurance and the duration of
the mortgage.
If the buyer obtains a mortgage corresponding to the conditions
set out in the contract, then it will be considered that the
condition is fulfilled and completion will be able to take place
(Court Case 9 December 1992).
However, I have two questions regarding the obtaining of the
mortgage. What happens if the insurance company that should
guarantee the repayment refuses to insure the borrower? Can a
seller claim the deposit as an indemnity if the condition to obtain
a mortgage is not fulfilled by the purchaser's default?
As far as the insurance is concerned, it is not compulsory for a
buyer/borrower to have it but we know in practice that banks will
not release any funds if the mortgage is not covered by
insurance.
Before the law dated 1 July 2010, bank customers were obliged to
take out insurance with their affiliated insurance company but
since then the buyer has been able to provide different insurance
from any company providing that it covers the same risk.
Suppose the bank has agreed a mortgage with the borrower but the
insurance company will not agree to cover the borrower for whatever
reason. In that case shall we consider that the condition is still
fulfilled and that the purchaser has an obligation to complete or
will he be able to withdraw because the insurance has not been
accepted?
From the seller's point of view, he may consider that the
contract stipulated the obtaining of a mortgage that has been
agreed by a bank and therefore he will probably wish to compel the
purchaser to complete whether or not he has the funds. As far as
the buyer is concerned, he will consider that the condition is not
fulfilled because the bank will not release the funds and the
mortgage cannot be fully granted to him.
To avoid this difficulty, my view is that a clause in the
contract should also be inserted to protect the buyer in case no
insurance company will agree to guarantee the repayment of the
mortgage.
As far as the buyer's fault is concerned, the condition about
obtaining a mortgage in the contract will always stipulate that the
buyer should lodge an application within a fixed period and that
the mortgage should be approved by the bank within 30 – 60 days.
Then the buyer should inform the Notaire of the failure or
acceptance of the mortgage within a fixed period which could be
between three and eight days.
The question will be whether or not the seller will be able to
request the payment of the penalty clause if the buyer has not been
able to provide him with confirmation granting the mortgage within
the timescale stipulated by the contract.
Again a recent court case has indicated that the seller should
ask the buyer in writing by registered post whether or not his
mortgage application has been accepted. Without this formality it
was decided by the court that the seller will not be able to claim
a payment of the penalty clause as an indemnity.
2. condition
potestative
'Potestative' is a word rarely heard in any
article or book as it is not often used in this context in a
contract. The condition potestative is a condition that will rely
on an event or act that should be carried out by the buyer such as
the sale of his property before buying another one.
The condition can be purement or simplemenent potestative. The
condition purement potestative allows the buyer to decide whether
or not to do the things that will satisfy the condition such as
selling his existing property. The condition simplemenent
potestative, on the other hand, will also depend on an external
fact that will have to be fulfilled before, in the event of a
dispute this is what the court would usually say applies.
A basic example is the sale of a property by a buyer before
completing the purchase of another one. It is not rare in practice
that a buyer will need to raise funds to purchase a property from
the sale of an existing property that he has. Sellers are always
reluctant to put such a clause in the contract because they could
face an indefinite delay. If the clause regarding the sale of the
property by the purchaser is not clearly set out there could be a
delay of several months and the seller will have to wait for the
sale of the other property.
It is for this reason that, to be valid in the contract, the
condition should stipulate a deadline for selling the property with
the description of it. The buyer should also show goodwill by
putting the property on the market.
If a potential buyer mentions to an estate agent his wish to
sell an existing property to finance the purchase of the property
on which he has made an offer, the estate agent has an obligation
to advise his clients the possible insertion of this clause in the
contract. It was decided by the court in 1999 that an estate agent
failed to advise his client about this and had to pay damages to
the purchaser who was obliged to complete the sale.
3. legal conditions suspensives
The final condition will regroup three main conditions that are
always inserted in a binding contract. They are the legal
conditions suspensives. The first condition will be the
non-existence of any charge or debt that could be revealed before
completion. For instance if the seller fails to reveal existing
debts he has and that the creditors took a charge over the
property, the Notaire who will complete the transaction will obtain
from the Land Registry, and probably the local authorities,
notification of the outstanding amount owed to them. Should the
debt exceed the selling price, the purchaser can withdraw from the
contract otherwise he could become involved with a special
procedure with the creditor.
The second legal condition will be the non pre-emption from the
local authorities. In France the mayor of a commune or the
agricultural administration (SAFER) can decide to purchase a
property from the seller and evict the buyer if the property is
situated in a rural area. It will be the Notaire's responsibility
to send a notification to the Mairie or the SAFER that will then
have a period of two months to reply and say whether or not they
wish to pre-empt.
Finally the third condition relates to the property itself.
During the local searches by the Notaire the result will have to
show any constraint, private or legal easement that may affect
directly the use of the property. Again it will be the notaire's
responsibility to request a town planning certificate, which will
reveal if there is any restriction, constraint or easement that may
alter the direct use of the property.
It is important to remember that selling or purchasing a
property can be subject to some conditions suspensives but some of
them will have to be agreed between the parties and each side will
have to assess the risk of inserting such conditions in the
contract.
