Things to think about when selling a French property
- Credit: Archant
Don’t get caught out – it’s as important to understand your legal obligations when selling a property in France as it is when buying one
There are various differences between the sales process between the UK and France, a fundamental one being the point when the buyer and seller are bound to a transaction. A French property transaction does not recognise the same ‘subject to contract’ period, where either party is free to withdraw without penalty before contracts are exchanged as in English and Welsh law (transactions in Scotland and Northern Ireland may be treated differently). A contract in France becomes binding on the seller when the sale has been agreed, for example, when the initial sales contract, usually the ‘compromis de vente’, has been signed by both parties.
Capital gains tax
Even if you are not currently selling your French property, steps that can be now that may be relevant if and when you sell the house in the future. Take, for example, the potential for capital gains tax – a second home being sold at an increase could give rise to a tax liability (potentially in the UK as well for those who remain resident there).
One way of reducing the tax burden is by offsetting the cost of building work carried out to the property. All paperwork relating to the works must be retained, including written estimates, receipted invoices and proof of payment, and the work must be carried out by French-registered artisans.
When instructing an agent, it is important to understand if the commission is to be included in the asking price or not as it can make a substantial difference. Be sure to read the terms of the mandate for sale in detail. Does it authorise the agent to confirm an agreement with a proposed buyer if the full asking price is offered? Does it allow for the same amount of commission to be paid even if the sellers agree to a reduction in the asking price? What are the formalities relating to termination of the retainer?
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As mentioned above, a contract can be achieved at an earlier point in France than in the UK. In fact, a clause in the French Civil Code states that a contract is completed as soon as the ‘thing’ and the ‘price’ are agreed. It doesn’t matter if nothing is in writing: if there is agreement, the contract is perfected. Thus, in France both parties are bound to the contract at a very early stage: in practice as soon as the price is set.
This is not the whole picture though: the buyer is still able to withdraw without penalty at this point. They have a day cooling-off period after the contract has been signed by both parties, in which they have the right to cancel the contract.
This may impose a certain imbalance between the parties: the buyers are free to change their minds, the seller is not. It is perhaps prudent, therefore, for a seller to be certain they intend to proceed with the sale before confirming to the agent that they are happy with the price offered.
The next stage is for the various pre-contract diagnostic inspection reports to be prepared. It is often said that the buyer pays all of the costs on a French property transaction; this is not quite correct. The buyer pays the notaire’s fees (regardless of whether only one notaire oversees the transaction or if each party has their own), however, the seller has to pay for the diagnostic reports, which often amount to around €500-€800. This payment can occasionally come as a surprise to sellers who may not have anticipated having to bear any of the costs of sale.
The importance of a detailed understanding of a contract on the part of a buyer is often stressed, yet it is just as important that a seller is able to consider and approve the terms of a draft contract before it is signed by either party.
There may well be a number of declarations, warranties and other guarantees that a seller will extend to a buyer in the sale, the full consequences of which should be fully appreciated. As an example, if you have recently carried out any works to the property, not only will you need to be aware of the capital gains tax position, you will also have to bear in mind that you may be conferring on your buyer certain structural guarantees that could remain in place for up to 10 years.
Matthew Cameron is a Partner and Head of French legal services at Ashtons Legal