French law and the role of the notaire in a property
purchase
We always want to keep our brains active whilst we are on
holiday lying on a beach, cocktail in hand. So I thought, this
month, that I would provide a case study to improve your
knowledge of French law. The study also gives you an idea of the
work carried out by notaires and the reasons why there are
sometimes delays in completing transfers of property ownership.
Mr Relax and Miss Concern, unmarried, would like to purchase a
barn in Normandy to convert into a dwelling. They will continue to
spend most of the year in England. It is located on 10,000 square
metres of land that has an existing property and tennis court owned
by an old French widow called Mrs Facile.
The vendor is happy to sell 2,000 square metres of land with the
barn to be converted but unfortunately the division of the land
will not give any direct access to the main road for the barn.
Mr Relax and Miss Concern have already discussed the possibility
for the survivor to inherit the full property after the first
death. They will probably need a mortgage to partially finance the
price and would like to discuss with the vendor the possibility of
them using the tennis court.
It may not appear to be a complicated case, but a notaire
instructed to deal with the sale of the land will need to be
careful with several aspects of French law before completing and
transferring the property to the purchasers. I have chosen
four main areas on which to advise Mr Relax and Miss Concern before
they go ahead with their project - click on the links below for
more information:
structure of ownership
Mr Relax and Miss Concern are still young and their aim is to
provide the survivor of them with stability at the property
regardless of their personal situation.
The purchase in joint names (en indivision) is the first option
offered to them. It offers the flexibility for the co-owners to
still be able to sell the property or withdraw from the
co-ownership in accordance with Article 815 of the French Civil
Code. However, the disadvantage of this structure is that, after
the first death, the deceased's share will pass to his/her heirs if
no Will has been drawn up to protect the survivor of them. The
solution would be to draw up a French Will bequeathing their share
to each other providing that they do not have any children in the
future. It will automatically trigger a payment of Inheritance Tax
at a rate of 60% as they are both un-married. We could possibility
recommend that they enter into the French civil partnership
agreement called PACS, but this will have to be discussed with them
carefully so that they can assess the advantages and disadvantages
of this structure.
The other solution would be to ensure that their title deed
includes a clause which will enable the survivor to buy out the
deceased's share in accordance with Article 1873-13 of the Civil
Code.
The second structure would be the Clause Tontine. This clause,
which is well-known by our readers, has effect of transferring the
ownership of the property to the surviving co-owner and overcomes
the restrictive French inheritance law. If there are children the
property will pass automatically to the survivor without the
possibility of the children challenging this structure. Again, as a
non-married couple it will trigger a payment of 60% of tax.
Finally, we could possibly advise the client to set up a French
company (SCI). The memorandums and articles of the company could
suggest that the surviving shareholders will be able to buy out the
deceased's share to keep control of the company. There is also the
possibility for the shareholders to include a Clause Tontine
regarding the transfer of the shares or make an English Will to
bequeath the shares to each other bearing in mind that English law
will remain applicable on the transfer of shares of a French
company SCI.
In this case maybe the Clause Tontine or en indivision structure
will be recommended to our client. If they decide to choose the en
indivision structure it will be recommended to them to draw up a
French Will and, in either case, possibly have a life insurance
contract to cover any Inheritance Tax or stamp duty payable on the
share to be transferred.
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finance
The price will be partially paid with a mortgage that Mr Relax
and Miss Concern will need to take out. It is likely that they will
go through French banks. Since the credit crunch, banks have
reinforced their control on their clients' solvency and, providing
that monthly costs and charges do not exceed approximately 33% of
the client's monthly income, there is no reason why the bank should
refuse the mortgage. French banks will automatically take a charge
over the property to guarantee the repayment of the mortgage.
Providing that the amount borrowed does not exceed the price of the
property the charge is called "privilege de preteur de deniers"
this charge would be filed at the Land Registry at the same time as
the registration of the Title Deed and the purchaser will have to
be aware that an additional Notaire's fee will be charged to
register the guarantee on behalf of the bank.
We are assuming in our study case that Mr Relax and Miss Concern
will purchase jointly the barn and will agree to be
co-borrowers.
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planning
As far as the planning is concerned, it is indicated that the
original land will have to be split to create two separate
entities. In accordance with the decree dated 8 December 2005 the
division of land into separate entities may be subject to the
development legislation (lotissement). The question the Notaire
would need to resolve before signing any contract is to assess as
to whether or not the division will be covered by this legislation
which will trigger additional formalities and authorisation from
local authorities.
Since the law in 2007 came into force, the High Court has not
yet been requested to judge any conflict between the local
authorities and purchasers over the application or not of a
lotissment.
In a precedent case dated 1991 (under previous law) it was
decided by the High Court of Justice that the renovation of a barn
which has to be divided from larger land will not be subject to the
lotissment legislation.
Nevertheless it would be wise for the notaire to request a
planning certificate "pres operationel" to reassure the purchaser
that their project is viable.
We also need to remember that before the law dated 13 December
2000 (Loi sru) it was compulsory for the notaire to request a
planning certificate called "L111-5" of the Planning Act when land
has to be divided. This formality has been cancelled since.
Mr Relax and Miss Concern will also need advice regarding
planning permission. Even if they do not touch the external
structure of the barn it is more than likely that planning
permission will have to be granted for the transformation into a
dwelling. The purchasers will probably need to create an additional
floor, maybe restructure some internal walls and create open
windows. The purchasers will have to refer to Article R421-14 of
the planning code to verify if they will need to apply and obtain
planning permission before commencing any work.
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rights of way
The land to be purchased will not have any direct access to the
main road. The purchasers have the right in accordance with Article
682 of the Civil Code to demand that the vendor or any neighbours
provide a right of way on their land to give them access to the
road. It will be the notaire's responsibility to set up the right
of way and discuss with the purchasers and vendor the condition of
it. It is usually recommended for a notaire to have a plan of the
two properties and lay out the right of way and also the conditions
of use. Maybe the purchasers could also discuss with the notaire
and the vendor the possibility to give them the right to include in
this right of way a right to allow any pipes to connect to
services.
Finally the purchasers would like to have access to the tennis
court and it is not clear if they wish this condition to benefit
them only or for all future purchasers. In both cases an agreement
would have to be set up but it will be different depending on the
conditions of use of the tennis court. If they wish for the
agreement to allow them only to have access to the tennis court it
will be regulated by Article 625 of the French Civil Code. However,
if they wish to pass this right to their future purchasers in this
case another easement will need to be created in accordance with
Article 686 of the Civil Code.
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This article has been published in French Property
News, the most comprehensive guide UK guide to buying
property in France.
