Case in court
David Anderson and Nicole Gallop Mildon’s latest round-up of recent property court cases
Leaseback properties are sold on the basis that the buyer can recover the VAT which would otherwise be payable on a new-build. This is on the basis that the property is rented on a commercial basis for 20 years.
A problem can arise if the para-hotel operator goes into liquidation with no rents being paid. The question is whether, in this circumstance, the VAT which was reclaimed on the purchase needs to be paid back.
In a government minister’s reply in the French Senate on 21 March 2013, it was stated that it is possible for the owners of at least 50% of the properties in the leaseback building to appoint one or a number of companies to ensure that the same para hotel services continue to be offered during the rental period.
Other measures are designed to reduce the risk of the VAT having to be repaid on the basis of one-twentieth for every year during which the property is not used as para-hotel accommodation.
Anyone who finds themselves in this unfortunate position should ensure that, in addition to not receiving their rent, they do not also receive a demand for repayment of the VAT they have recovered on the purchase.
The moral of the story is to check very carefully who the hotel operating company is and be sure it is likely to be successful.
buying en TONTINE
French properties bought en tontine pass automatically to the survivor. Under French law, the rule is that the first to die of two purchasers en tontine is considered never to have had any right and that the property belonged, in its totality, to the survivor from the day it was bought.
This is markedly different to the English concept of a joint tenancy in which both parties own the property equally.
In a recent case of the French Supreme Court, a couple bought a house together en tontine. Six years later, the man, through a criminal act, ended his partner’s life and then took his own life.
Under the tontine rules, the man’s daughter claimed the entire house. The wife’s daughter sought to sue the man’s daughter claiming that the value of the house belonged to her. The court decided in favour of the man’s daughter.
This is quite a strong case and shows that the courts are likely to apply the tontine clause quite mechanically. It can be simple in many cases but can occasionally have unforeseen effects.
A UK national resident in France received funds from a Guernsey bank in respect of an offshore trust. The French tax authority sought to tax it under Article 120.9 of the tax code (subsequently modified) which stated that the products of trusts were to be treated as revenue and accordingly taxable as such.
The tax authority’s position was that there was no need to distinguish whether the money coming out of the trust was interest or capital or to ask any questions about the assets within.
The Court of Appeal in Bordeaux took a different view and said that the money received was essentially simple transfers of capital paid out to the beneficiary and as such they could not be deemed to be ‘products’ within Article 120 of the Tax Code. They were accordingly not liable to French income tax. However, the court said that interest which had been capitalised within the trust and then paid out was to be treated as taxable.
This judgement, which is based on the law which pre-dates the recent important changes in the law of the taxation of trusts in France, is in line with the new drafting of Article 120.9. The new drafting provides that the French Revenue will only tax ‘distributed products’ from trusts and will not tax products which are reinvested by the trust.
The important point here for beneficiaries of trusts resident in France is to ensure that they keep clear records showing the source of any funds brought into France. They should also ensure that those funds are brought in from the original capital account and not in respect of capitalised interest.
The French government has recently imposed National Insurance contributions on both income and capital gains tax arising to non-French residents. This is a charge at 15.5% which is particularly onerous for UK residents who rent a holiday home in France.
Most UK residents do not understand why they have to pay French NI when they have no access to any of the French social services. There is clearly an issue as French residents selling a UK property, or on receipt of rents from a UK property, do not pay UK National Insurance.
In a reply in the Senate on 7 March 2013, the French government minister has said that this contribution is being imposed on non-French residents for reasons of “justice and fiscal equity and in respect of the community and international framework”. They also said that it did not appear to be fair to have differences in overall taxation depending on whether the person who received the gain was fiscally domiciled in France or abroad.
We believe this statement makes no sense. The imposition of French National Insurance contributions on non-French residents lacks any form of justification. It is immoral to ask non-residents to contribute to a social fund from which they cannot benefit. The EU and UK government should take this up with the French government and the charge should not be levied.
The Cour de Cassation (the highest civil court in France) has recently given judgment in a case involving an easement (servitude) which was not disclosed in any of the registered documentation relating to the title.
A lower court had decided that the easement – pipework containing a portion of the Canal de Provence – was equivalent to a hidden defect, thus coming under article 1641 of the Code Civil.
The Cour de Cassation disagreed and said that it was a non-apparent easement and therefore fell within article 1638. This was better for the purchasers, who had bought the land without knowing about the piping. Because of the piping, the buildable surface of the land was reduced by approximately 28m² and a whole section of the land could not be built on. The remedy under article 1638 is that if the purchaser is not satisfied with damages, they could void the entire contract. This is not possible under article 1641.
Purchasers should be aware that easements such as underground piping may exist and not be registered. If you are offered land at a bargain price the best approach is to assume there is some form of problem and make extensive enquiries.
Broadly speaking, there are two kinds of contract for the sale of French land. One is the compromis which is similar to a contract as generally understood in the UK homebuying process. The other is a promesse de vente in which the seller grants the buyer an option to buy, which the buyer can accept by a specified date in the contract.
In a decision of 19 December 2012 the Cour de Cassation has ruled that where the contract does not provide for any specific form or formality for exercising the option, then this can be done, even through a third party.
The facts were that the buyer’s notaire communicated orally to the sellers’ notaire that his purchasing client would waive a condition precedent that had yet to be fulfilled and therefore was exercising the option to buy.
The sellers’ notaire then informed his clients of the same, all within the deadline for exercising the option. The sellers tried to claim that they were free to sell elsewhere as the option had not been exercised correctly.
The judges at first disagreed with them and it went all the way to Cour de Cassation who came to the same conclusion.
This is a restatement of existing case law which dates from shortly after World War II.
The conclusion is:
1. Be sure you are very careful when making any oral statements in respect of a promesse unilatérale de vente as the option will still be binding.
2. Check that the formalities are set out in the preliminary contract as to how the option should be exercised.
David Anderson is a solicitor advocate and chartered tax adviser; Nicole Gallop Mildon is a solicitor and diplômée notaire. Both work for Sykes Anderson LLP Tel: 020 3178 3770 www.sykesanderson.com
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