Legal Advice for Buying French Property
Property Law in France
The French conveyancing system is on the whole a safe system and the purchase of a property is secured by registration at the equivalent of a Land Registry. The process generally takes up to three months from when an offer is made and accepted.
Signature of the contract (le compromise de vente) occurs at a much earlier stage than most British buyers will be used to in the UK. A contract is signed and is conditional on the notary (the French lawyer who is required to deal with the transaction) obtaining a clear Land Registry search result and a clear local search result. The buyer receives a ten day cooling off period which runs from the day after a copy of the contract signed by both parties is served on him by registered post.
Once the notary has completed all the required searches and other formalities he will invite the parties to attend his office to complete. There is no fixed completion date however. The contract will simply indicate a target date by which completion should take place.
A much higher percentage (as many as 50 per cent) of properties are sold privately in France than in the UK, avoiding the hefty estate agent fees, so a good starting point may be driving around the area you’re buying in, looking out for signs saying “A Vendre”, or sometimes just “AV”. Obviously, you then lose the “hand-holding” service that agents offer, both during and after the sale to help you settle in, and you will need good legal representation.
However most buyers start their search by looking for property online. When looking through French search engines, “pièces” means rooms and “chambres” means bedrooms. Unlike the UK, with French properties the floor size (surface) in square metres (m2) is prominently displayed, as well as the plot size (terrain), which is so much more useful in comparing properties. It is always a good idea to line up some sort of legal representation before you look for property, so that if you find the right property you’re in a position to make an offer, and can check what you’re signing!
When you’re ready to start looking at properties, make contact with some agents. They will show you a selection of houses that meet your criteria and will be able to answer questions on the buying process and compulsory diagnostic tests that will be carried out before purchases.
The Cost of Buying Property in France
A buyer should budget for between 7-8% on top of the purchase price for notary's fees and tax. The tax (effectively stamp duty) represents approximately 5.5% of this amount and the rest is the notary's fee. The seller doesn't contribute to the notary's fees. The fees and tax are payable via the notary’s account on completion of the purchase.
For new build and off plan purchases the costs payable by the buyer are significantly less - approximately 2.5%.
Additional notary's fees will be charged if the buyer is obtaining a French mortgage to assist with the financing of the purchase. Buyers should expect to pay additional notary's fees of 0.5 -1% of the amount of the loan for the notary to receive loan instructions from the bank and register a charge over the property in favour of the bank.
Getting a Mortgage in France
Applying for a mortgage from a French bank is a very bureaucratic process. The bank will require extensive information from the buyer in order to assess his financial standing. Details of income and all outstanding liabilities including current borrowings will be scrutinised.
The maximum loan to value permitted is 85% and life cover is generally compulsory for loans representing more than 50% of the purchase price. A buyer may be required to undergo a medical examination prior to being accepted for life cover.
French banks will not lend to non-French residents for what may be considered as a quasi-commercial project such as the purchase of a gite business. They will also tend not to lend to non-French residents who state they intend to move permanently to France once the property purchase is completed unless there is very clear income continuity. This is because they will be concerned as to how the borrower will be able to maintain his loan repayments if the previous UK source of income is discontinued by any proposed move to France.
There are no up-front valuation / product booking fees, but all lenders tend to charge an arrangement fee which is generally speaking only payable if you proceed with them with their mortgage offer. If the mortgage is refused, no fees are payable.
By using one of the regulated currency exchange companies to arrange the conversion of your GBP into Euros you will invariably save money compared to if you were to use your high street bank. The rates offered by currency companies are very competitive with no hidden charges.
They make hundreds of foreign currency transfers every day and have sophisticated systems in place to ensure that your Euro funds arrive where you need them, when you need them.
A 10% deposit is generally payable by the buyer on signature of the contract. It is sensible to set up an account with one of the currency exchange companies at the start of the buying process so that the Euros required for this deposit and in due course the balance of the purchase price and the fees and taxes can be purchased at the best rate available.
Property Ownership in France
In terms of how best to structure the purchase of the property, this is something that needs to be considered at the beginning of the transaction and it is important to take specialist independent legal advice on the ownership options available and the legal and tax consequences of the death of a joint buyer.
Some contracts but not all will allow for a substitution of the buyer by another or the addition of another buyer or a different legal entity between signature of the contract and completion. In addition, for some joint buyers it might be desirable to include what is called a tontine clause in the final purchase deed. This clause would ensure that on the death of one joint owner, the survivor is considered owner of the whole property. Use of the tontine is not however without its drawbacks and for married couples the adoption of the French marriage regime known as universal community is generally considered preferable to buying with a tontine clause.
Who Does What
You should only view properties through a licensed immobilier, as these agencies must have a carte professionnelle as well as full professional indemnity insurance. Almost all prices that you see on an agent’s website, or in their window, will include their fees (normally around 5-7 percent) but will not include notaires fees and taxes. You should check this before viewing.
All French estate agents operate under the Loi Hoguet (their code of conduct) and are subject to tighter regulations than their counterparts in the UK. There are also a small number of federations that have best practice charters and who offer training & guidance to their members.
The biggest, and best known, of these is the FNAIM which has over 11,000 member agencies throughout France, selling almost half a million houses.
A Notaire is a self-employed legal specialist who has public approval to draw up the conveyancing contracts and oversee the sale. All sales need to go through the hands of a notaire. They act on behalf of the state and are pointed by the Minister for Justice. Both seller and buyer are able to request a notaire of their choice – costs remain the same and they simply split the work. You can find a list of notaires, and their duties, at www.notaires.
Contrary to popular opinion, the notaire is not there to represent you. They represent the state and undertake planning and other searches with the local authorities. If you want to have someone representing your legal interests there are many UK legal practices that employ French notaries.
Once you become the owner of a property in France, there are several annual taxes for which you are likely to be liable. You will definitely be required to pay two local taxes (broadly equivalent to Council Tax in the UK). The first is the land tax (taxe fonciere). The more land a property has, the more land tax will be payable. A local refuse tax is also often charged together with the taxe fonciere.
The second local tax is the occupier's tax (taxe d'habitation). The taxe d'habitation is payable by whoever owns of or occupies a property on the 1 January each year and so for many buyers this won't actually become your responsibility until the 1 January of the year following the purchase. The taxe fonciere on the other hand is routinely apportioned between buyer and seller on the completion date with the buyer being required to pay the seller the amount payable for the period from completion to 31 December of the year in which completion takes place.
These two local taxes equate broadly to Council Tax in the UK.
Unless you are a building specialist and are able to satisfy yourself as to the structural soundness of the property, it is essential to consider having an independent survey of the property carried out prior to signing the contract. This can be arranged either via a local French expert or via a UK qualified surveyor working in France.
The seller is unlikely to agree to the contract being conditional on a satisfactory survey and so any survey must be arranged as soon as your offer has been accepted and before you sign the contract.
The cost of a structural survey will depend on the size of the property. Some surveyors will inspect a property and provide a verbal report whereas most will issue a formal written report. As a guide you should expect to pay anything between £800 - £1,200 Euros for a survey or the Euro equivalent.
The seller is required to arrange and pay for a series of diagnostic surveys however these do not remove the need for an independent survey of the structure and the property generally. The diagnostic reports required depend on the age and location of the property and will give the buyer information on the presence or absence of any asbestos at the property, any risk of exposure to lead poisoning , the presence or absence of termite infestation, the condition of the electrical and gas installations if these are more than 15 years old.
In addition, if the property is not connected to the mains drainage network, the seller must arrange and provide a drainage report which is now more than 3 years old. Finally, the buyer must also be given details of any natural, technological or mining risk factor which may be present in the area where the property is situated.
On-going Property Costs
In terms of ongoing costs and taxes linked to owning a property in France, you should be aware that if you rent the property out, your first obligation to pay tax on the rental income arises in France. You must declare any rental income generated by the property even if you are not permanently resident in France.
You will need to insure the property and contents just as you would in the UK and in France insurance policies include a public liability cover in case of accidents or injury to third parties whilst at your property.
If your property is an apartment or a villa within a co-ownership complex you will have to pay an annual service charge to cover communal services and facilities including the insurance of the complex.
Some owners will also need to take advice on their potential liability to pay an annual Wealth Tax however this only applies if the net value of your French property exceeds 1.3 million Euros.