French legal: The fine print
Now might be a great time to buy your dream home in France. Vincent Morand talks through the fine print...
Are you thinking of buying the property of your dreams in France within the next few months? It might be the right time to do so. According to a recent French study, the rate of interest for mortgages has dropped since the beginning of this year; at the same time some estate agents believe that due to the bad economic situation it is possible to find some real bargains.
So are you ready to take the plunge? If the answer is yes, do not forget that you are buying a very specific asset and that you are doing this abroad. Here are some of the main points to be taken into consideration to make sure everything runs smoothly.
What is your budget?
You should know your budget, not only because it is the first step on the road to selecting the right property for you but also because if you need a mortgage, a particular clause called the condition suspensive de financement will be included in the first agreement (promesse de vente or compromis de vente). So before you start looking, calculate how much you will have to borrow and how much you will be able to finance yourself, taking into account not only the purchase price but also the agent’s fees (if these are not paid directly by the seller), the notaire’s fees and any stamp duty, which can amount to around 8 per cent of the total price. It is also advisable to check in advance with your bank regarding the length of the loan, the expected rate of interest and all the specific conditions of a possible mortgage. In this way the wording of the condition suspensive will be more precise and therefore more protective for you.
Finally, in relation to financing, since it is very hard to forecast the exchange rate with the euro at the time of completion, it may be prudent to make contact with a company specialising in international transfers of money, as they should be able to negotiate preferential rates. There can, however, be disadvantages in using currency exchange contracts, and these need to be considered in advance. Such concerns may for example affect your timing of booking a forward currency purchase contract – what if you agree to buy €100,000 (�88,308) at a fixed rate, only to find out that the mortgage you were seeking for the balance of the purchase price is not approved?
What are you going to sign?
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Even though you do not take ownership of the property on the day the first contract is signed, it would be a mistake to underestimate its importance. This document includes all the conditions suspensives and all the specific arrangements made between you and the vendor. That is why it is essential to check it carefully. You will have a cooling-off period of 7 days following receipt of the completed contract so that you can change your mind if you wish. However this is a very short period – if you do decide to withdraw, the notice must be received in that time, and a simple fax, email or telephone call is not sufficient. You would need to send a registered letter with confirmation of receipt, or even deliver the letter in person, asking the agent to sign a receipt to acknowledge it has been delivered in time.
The first contract also refers to the different surveys that are now compulsory. Depending on the area and on the age of the property, they cover termites, asbestos, lead, gas, energyefficiency audit (diagnostic de performance �nerg�tique), electricity and natural and technological hazards. These documents apart, you will be buying the property in its current state and your vendor will not be liable for any defects to the property unless there has been deliberate misrepresentation. Therefore it may be advisable to appoint a surveyor to carry out a complete inspection; of the sanitation system and structure, for example.
You cannot be forced to sign a first agreement, but if you sign one and do not want to sign the deed of completion, although all the conditions suspensives have been completed, you may lose your deposit and be forced to pay the agent’s fees and other penalties. When first viewing a property in France through an agent, the only document you have to sign is called a bon de visite. By doing this, you acknowledge that you have seen the property with the agent.
How to structure the ownership?
Whatever your age, it is essential to take time to think about your estate planning. Once the deed of completion is signed before the notaire, it might be almost impossible or, at least, very expensive to change the structure of ownership. The answers will very often depend on your marital status. If you are married with children, a change of matrimonial regime may be the most suitable option to protect the surviving spouse. If you are married with step-children, the tontine clause can be used but there are disadvantages. Sometimes, but not always, it can be worth buying French property through a soci�t� civile immobili�re.
The question of domicile must also be taken into account. French and UK rules are different on this. If at the time of death, one is deemed as domiciled in France, French rules will apply to worldwide assets apart for immoveable property located abroad. Therefore the requirements of French law may override a UK will. In practice it is imperative to take detailed advice in advance of a purchase as to the implications of estate planning.
How long does it take to become the owner?
In France, the first step is the promesse de vente or compromis de vente. After this, the notaire deals with the paperwork. For example, he checks if the property is clear of mortgage and he applies for a certificat d’urbanisme in order to know if the property is subject to any administrative restrictions.
Regarding the condition suspensive for a mortgage, the first agreement usually provides the purchaser with a delay of about 30-45 days to submit a mortgage application and about 15- 30 days after this first period to provide the notaire and/or the agent with the positive or negative final answer.
Usually the full process takes about 3 months for everything to be in place for the day of completion.
What are you going to pay?
Obviously, you will have to pay the price you have agreed for the property. If you buy through an agent, the price is likely to be shown frais d’agence inclus (FAI). However, do not forget to ask the agent whether his fees are included in the price or not. As far as French taxes are concerned, it may be better not to include them. The notaire’s fees are calculated upon the valuation of the property. On the day of completion, the taxe fonci�re is likely to be proportioned between all parties. Therefore you may have to pay your part directly to your seller.
As you can see, the process of buying a house in France is very different from the UK system. It is essential to seek specific assistance. Once the first document has been signed and the coolingoff period has passed, you have legal obligations and it is almost impossible to change your mind without incurring substantial losses.