Food for thought
When you find your dream French home, there may be legal issues to iron out before you sign on the dotted line, says Marie Slavov
I thought that this month I would give you a case study to work on – to test your knowledge of French law and get your brain in gear while on holiday; lying on a beach with a cocktail in hand!
Mr Relax and Miss Concern, unmarried, would like to purchase a barn in Normandy to convert into a home. They will continue to spend most of the year in England. The barn is located on 10,000 square metres of land, where there is also an existing property and tennis court owned by an old French widow called Mme 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 whether they could use the tennis court.
It may not appear 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 extracted four main questions from this case study to advise Mr Relax and Miss Concern before they go ahead with their project.
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Mr Relax and Miss Concern are still young and their aim is to provide the survivor with stability at the property, regardless of their personal situation.
The purchase in joint names (en indivision) is the first option. It offers flexibility for 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.
The solution would be to draw up a French will bequeathing their share to each other, providing they don’t have any children in the future. It will automatically trigger a payment of inheritance tax at a rate of 60% as they are not married. We could possibly recommend that they enter into a French civil partnership agreement, known as PACS, but this will have to be discussed carefully so they can assess the advantages and disadvantages of this structure.
The other solution would be to ensure that their title deed includes a clause that 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 has the 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 passes automatically to the survivor without the children being able to challenge this. Again, as a non-married couple, it will trigger a payment of 60% of tax.
Finally, we might advise the client to set up a French company (SCI). The memoranda and articles of the company could suggest that the surviving shareholders would 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 to make an English will bequeathing the shares to each other; bearing in mind that English law applies on the transfer of shares of a French company SCI.
In this case, maybe the clause tontine or en indivision structure would be recommended. If they choose the en indivision structure, we would recommend that they 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.
The price will be partially paid by a mortgage and Mr Relax and Miss Concern will probably apply for this to French banks. Since the credit crunch, banks have reinforced their control on clients’ solvency and, providing that monthly costs and charges do not exceed around 33% of the client’s monthly income, there is no reason why the bank should refuse the mortgage.
French banks automatically take a charge over the property to guarantee the repayment of the mortgage. Providing that the amount borrowed does not exceed the property sale price, the charge is called a privilege de preteur de deniers and is filed at the Land Registry at the same time as the registration of the title deed. The purchaser should be aware that there will be an additional notaire’s fee to register the guarantee on behalf of the bank.
We are assuming that Mr Relax and Miss Concern will purchase the barn jointly and will agree to be co-borrowers.
As far as 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 may be subject to the development legislation (lotissement). The question the notaire would need to resolve before the signing of any contract is whether or not the division will be covered by this legislation as this will trigger additional formalities and authorisation from local authorities.
Since the 2007 law came into force, the high court has not yet been requested to resolve any conflict between local authorities and purchasers over the application or not of a lotissement. In a 1991 case (under previous law) it was decided by the High Court that the renovation of a barn that was to be separated from a larger plot of land would not be subject to lotissement legislation.
Nevertheless, it would be wise for the notaire to request a planning certificate to reassure the purchaser that their project is viable. Note that before the law dated 13 December 2000 (Loi sru), it was compulsory for the notaire to request a planning certificate (L111-5 of the planning act) when land has to be divided; this formality has now been cancelled.
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, i.e. change of use. The purchasers will probably need to create an additional floor, maybe restructure some internal walls and create open windows. They will have to refer to Article R421-14 of the planning code to verify whether or not they will need to obtain planning permission before commencing any work.
Right of way
The land to be purchased will not have any direct access to the main road. The purchasers have the right under 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 to lay out the right of way and also the conditions of use.
Maybe the purchasers could also discuss with the notaire and vendor the possibility to include in this right of way the 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 differ 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 Civil Code. However, if they wish to pass this right to their future purchasers, another easement will need to be created in accordance with Article 686.
This brief case study gives you an idea of the work that has to be carried out by a notaire and the reason that there are sometimes delays in completing transfer of ownerships.