Skip to main content

Eversheds Global Estate Management

France

Real Estate Guide

Principles of ownership

Principles of ownership

Freehold/Ownership - freehold ownership (‘pleine propriété’) is a continuous right to occupy, use and dispose of a property. Freehold land can be sold vacant or subject to one or more leases.

Leasehold - leasehold ownership has a fixed period of time. Commercial leases are subject to certain rights which cannot be amended or excluded. These include, among other things, the tenant’s right (when certain conditions are met) to renew the lease with compensation being paid if this is refused, as well as a system which controls the level of rent. There are also other types of lease in commercial real estate transactions, such as construction leases (‘bail à construction’), financial leases (‘crédit bail immobilier’) and long term leases (‘bail emphytéotique’) for which specific legal systems apply.

Common hold/Usufruct - see below "Condominium ownership".

Condominium ownership - this is a special type of ownership whereby the property belongs to several owners. It is commonly used for buildings having several users such as offices and flats for example. The property is divided into private and common parts. All the owners belong to a management committee which is headed by a managing agent (syndicate) who can deal with third parties vis-à-vis the condominium. Owners each own a private part of the property (eg a flat) and have a share in the common parts (eg stairs).

Utilisation right - not applicable.

Joint/Co-ownership - see "Condominium ownership" above.

Registration - see "Title to Real Estate".

 

Restrictions on foreign ownership

Restrictions on foreign ownership

Generally, there is no restriction on foreign individuals or companies buying, holding or selling French property. However, it is essential to consider the tax implications on any real estate transaction as well as the financing implications, considering the policy of combating money laundering. Notification to the French Treasury shall, however, be considered in certain circumstances.

 

Title to real estate

Title to real estate

Investigation of title - title is investigated by notaries but lawyers can also do this. Notaries are required by law in a sale transaction to carry out compulsory searches, obtain and review reports, in particular relating to termites, asbestos, energetic performance and other documents required by law from time to time. Land Registry searches in relation to a property reveal, in particular, whether charges and mortgages are registered and can take around two weeks (sometimes longer) to obtain it being said that unfortunately, there is no way to fast track this process. Notaries should be impartial as they are state representatives. However, it is common for each party to appoint their own notary because conflicting interests often arise between the parties. In practice, clients will set up teams composed of both lawyers and notaries, since their role is different. Notaries will generally focus on ‘title aspects’ whereas the client’s lawyers will be more involved in the letting, the negotiation of the sale contracts and any other aspects which are not reviewed by the Notary.

Transfer of title - see "Registration".

Registration - registration of land/property transfer is compulsory (see also below for leases of more than 12 years). Registering the deed of sale is carried out by a notary who has one month from the date of signing the deed of sale to present a specific form at the relevant Land Registry. There are around 350 Land Registry offices in France.

Information on the register - the Register is open to the public. The register contains information regarding the properties for example successive owners and charges on the property. Online facilities are not currently available, but are planned for the near future.

Commercial leases - see "Usual Commercial Lease terms".

 

Structure of a real estate transaction

Structure of a real estate transaction

Negotiation of terms/Agreement - the commercial terms of the transaction can be negotiated by the parties themselves or through an estate agent but, for commercial transactions, the parties negotiate the terms of their letter of interests through their lawyers.

Heads of terms – not applicable.

Investigation of title - title is investigated by notaries but lawyers can also do this. Notaries are required by law in a sale transaction to carry out compulsory searches, obtain and review reports, in particular relating to termites, asbestos, energetic performance and other documents required by law from time to time. Land Registry searches in relation to a property reveal, in particular, whether charges and mortgages are registered and can take around two weeks (sometimes longer) to obtain it being said that unfortunately, there is no way to fast track this process. Notaries should be impartial as they are state representatives. However, it is common for each party to appoint their own notary because conflicting interests often arise between the parties. In practice, clients will set up teams composed of both lawyers and notaries, since their role is different. Notaries will generally focus on ‘title aspects’ whereas the client’s lawyers will be more involved in the letting, the negotiation of the sale contracts and any other aspects which are not reviewed by the Notary.

Purchase deed - see "Contracts" and "Structures of Real Estate transaction".

Contracts - the transaction procedure is slightly different to that in the UK. The parties generally enter into a contract prior to preparing the deed of sale. This is called the 'compromis de vente' (option agreement). It can take many forms but must specify the key terms of the sale. The main types are call option, put option or bilateral sale agreements. The contract states that the buyer and seller will complete subject to certain conditions being met. The contract is binding for both parties once signed, subject however to the conditions precedent it may contain. A pre-sale contract is entered into mainly because either the Town Hall will have a pre-emption right over the property, or the property and/or the buyer requires the fulfilment of one or several conditions (such as obtaining finance, planning permission or the required authorisation for listed facilities etc) prior to the transfer of ownership. The English concept of 'subject to contract' does not exist under French law.

Completion/closing - completion takes place when the parties (or the notaries on behalf of their client(s)) have signed and executed the deed of sale and generally (depending on the type of sale) the funds are transferred from the buyer to the seller (via their respective notaries’ bank accounts) and the ownership is also transferred. Land Registry tax, Land Registrar fee, stamp duties and notary fees are paid on completion. Stamp duty is not due if VAT is due on the sale.

Post completion - the notary will send the deed of sale to the Land Registry so that it can be published along with any security taken by a lender. Registration formalities have been merged with the publication formalities so that both requested applications have to be submitted to the Land Registry by the Notary and completed within a period of one month from the date of signing the deed of sale.

Leases - see "Leaseholds" and "Usual Commercial Lease terms".

Transfer of ownership of leased property (alienation) - see "Assignment and sub/under letting".

Language requirement – not applicable.

Governance of lease signature/administration – not applicable.

 

Usual commercial lease terms

Usual commercial lease terms

Summary of available lease types - see the sub categories in "Usual commercial lease terms", "Increasing covenant" and "Security of tenure".

Alterations/modifications - usually only possible with the prior consent of the landlord and under the supervision of the architect of the landlord.

Assignment and sub/under letting - the tenant can usually only assign the lease of the premises to a purchaser of its business undertaking and subject to certain conditions, such as the absence of exercise of the pre-emption right held by the Town Hall over the business undertaking, if relevant. This pre-emption right applies in certain municipalities and, when applicable, also covers the assignment of the lease alone, as detailed below. Assignment of leases alone will generally only be allowed with the prior consent of the landlord. Landlords will also very likely benefit from a first refusal right (or other pre-emption right) for assignment of leases in commercial centres. Subletting by tenants is not allowed without the prior express written consent of the landlord.

Destruction/reinstatement - it is common for tenants to be required to reinstate any alterations and leave the premises at least in a good state of repair at the end of the term of the lease, or, for the landlord, to be able to become the owner of the works and improvements considered as immovable fixtures, without indemnity. Tenants will be liable for the costs of any repairs deemed necessary, subject however, to agreements otherwise made between the parties.

Duration of lease - the statutory minimum duration for a commercial lease is nine years (see however the break clauses' paragraph below). If the duration is more than 12 years it must be registered at the Land Registry. However, in certain circumstances, commercial statutes allow for commercial leases with a maximum duration of two years.

Forfeiture/irritancy - not specifically treated in this summary.

Insurance - landlords will usually require tenants to take out insurance to cover their own liability and their own contents. In practice, tenants will also be asked to reimburse the premium on the insurance policies taken out by landlords.

Rent review - by law, rent is reviewed every three years in accordance with either the INSEE Cost of Construction index or the INSEE Commercial Renting variations or the INSEE index of the rents of the tertiary activities. If certain criteria are met, the rent resulting from a triennial revision can be fixed at the market rate. However, parties can also provide for a yearly indexation of the rent based on the INSEE Cost of Construction Index or the INSEE Commercial Renting variations or the INSEE index of the rents of the tertiary activities. This indexation is standard practice in France.

Repair/decoration/furnishing - generally, landlords must deliver property in good condition and ready for the use of the tenant. However, landlords may include a clause stating that the property is to be taken 'as is' and that no repairs will be carried out by the landlord for the duration of the lease. It is usually the tenant who is responsible for the repairs and upkeep of the property. However, this issue is always a point of negotiation between the parties (ie which party is responsible for what repairs, etc).

Service Charges - service charges are to be paid by tenants and usually cover all property maintenance costs. This is frequently an issue for negotiation.

Tenant’s duties - see the sub categories of "Usual commercial lease terms".

Termination/break clauses - landlord: landlords can terminate commercial leases every three years but only for specific reasons, for example such as constructing, reconstructing and increasing the height of the building. Notice must be served by a bailiff at least six months in advance. In addition, landlords can terminate a lease at any time after prior notice of one month, if tenants are defaulting under their lease. However, regarding this last case, a specific legal procedure shall be fulfilled depending also on the drafting of the lease, and also in the event where the tenant is under a receivership procedure or in an insolvency situation. Tenant: tenants may negotiate amicable and early terminations with their landlord. In addition, tenants can terminate their lease at the end of every three year period by serving (by a bailiff) notice at least six months in advance (and without the need to justify a reason), unless there are provisions to the contrary clearly set out in their lease.

 

Increasing covenant strength

Increasing covenant strength

Lease deposit - generally, tenants will pay rent for three months (which corresponds to one term of rent) and rarely more than this. This is in order to avoid interest payments by the lessor if the rent is payable in advance (which is usually the case). There is no legal timeframe for reimbursement of deposits in a commercial lease but in practice such reimbursement can take some time if no specific clauses have been set out.

Surety - not common in commercial transactions but used occasionally.

Warranty - Not applicable.

Rent deposit/bank guarantee - bank guarantees are quite common in commercial transactions, either as a substitute for, or together with, rent deposits. Their form can vary from a joint and several bank guarantee to a first demand bank guarantee.

 

Taxes

Taxes

On sale/acquisition of real estate - based on the draft Finance bill for 2013 the sale of property by individuals or partnerships gives rise to capital gains tax of 34.5% (or a maximum of 45% if the sale is made in the context of a real estate professional activity) plus a maximum of 6% if the amount of the sale exceeded €260.000. The capital gains arising from the sale benefits from a special tax allowance of 20% for any real estate sale performed in 2013 (save for a sale in the context of a real estate activity. The sale by an individual of a property owned for more than 30 years is exempt from CGT. Again, double taxation treaties will need to be checked depending on where the landlord is resident. The sale of property by commercial companies or partnerships is subject to corporate income tax and gives rise to CGT at the rate of 33.3%. Immovable property tax - not specifically treated in this summary as situations and exposure vary depending in particular on locations.

Income tax - in France, income tax is payable on rental income for corporations at the rate of 33.3% which may be increased up to 34.43%. However, double taxation treaties will need to be checked depending on where the landlord is resident.

Land tax - not specifically treated in this summary as situations and exposure vary depending in particular on locations.

Lease tax - not specifically treated in this summary as situations and exposure vary depending in particular on locations.

Local tax - not specifically treated in this summary as situations and exposure vary depending in particular on locations.

Mortgage - several scenarios may be envisaged, but generally the taking of a mortgage will imply payment of notary fees (0.55% on the value of the loan), plus Land Registry fees (0.05%), plus Land Registry tax (0.715%), the whole, in addition to lawyers fees. The Land Registry tax is not applicable to lender's lien.

Other taxes - an annual tax of 3% of the market value of the property is due each year by the owner legal entities and the shareholders of the owner legal entities which are not resident in the European Union or in a country with which France has concluded a tax treaty that contains an administrative assistance clause or a non-discrimination clause. If certain conditions are met, including a specific yearly declaration or undertaking to the tax authority, these legal entities may be exempt from this tax.

Property lease tax - not specifically treated in this summary as situations and exposure vary depending in particular on locations.

Value added tax - Freehold: VAT of 19.6% is payable (however see above). Leasehold: rent in relation to commercial leases for premises of commercial or industrial use may be VAT exempt because of the nature of the landlord (the letting of unfurnished property being a 'civil' activity). However, the landlord can decide to make the rent subject to VAT (this is quite common) by exercising a specific option with the tax authority.

Additional Information - under certain conditions, real estate companies such as Sppicav or SIIC (ie companies which main purpose is the acquisition or construction of buildings for lease, or holding capital of real estate companies) may be partly or fully exempt from corporate income tax in France.