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Catégorie : Buying Property Process and Regulation In France
With so many people in the UK making the decision to take up residency and purchase property in France, it seems a good idea to make as much information as possible available to those considering a move.
Buying procedures are relatively complex – this is France after all ! – and it is essential to know the ins and outs of the regional market – in this case, the Hauts de France.
Here you will find all the key information relating to the buying and selling of property in France.
Above all else, be sure to use a professional and experienced estate agent (agent immobilier) in whom you can have complete confidence and who can take good care of you throughout the whole process up to and including the final signing in the presence of a notary (notaire).
Please feel free to contact me at any time – at Helman Immobilier we will be delighted to make sure that your property transaction in France is a truly satisfactory and memorable experience.
French property contracts: the sales agreement
Are you about to sign a preliminary contract? This is known as a « pre-contract ». The preliminary contract and the sales agreement are two contracts with different consequences for the buyer and the seller..
- Unilateral sales agreement
Sales agreement (also known as « unilateral preliminary contract »), the owner agrees with the prospective buyer (known as beneficiary) to sell him his property at set price. Therefore, it leads to an exclusive « option » for a limited time-period (generally two to three months).
During this period, he is forbidden from giving up the sale or offering the property to another purchaser. The candidate buyer benefits from the agreement in order to decide whether he wishes to buy or not. A key advantage! In return, he pays the seller a confinement benefit, theoretically equal to 10% of the sale price. If he decides to acquire, this compensation will be deducted from the sum which needs to be paid. But if he gives up on the purchase or if he does not show his acceptance within the option period, the owner shall acquire the benefit as compensation.
In order to be valid, the sales agreement must be registered with the tax office within ten days of signing. Moreover, when it is granted for a period going beyond 18 months, it must be carried out by an authentic act. The registration fees which is paid by the purchaser is 125€.
Often in a hurry to round off, the buyer and seller at times thinks that signing the preliminary contract does not lead to much. This is not true: despite its name, this preliminary agreement makes up a genuine « contract », which leads to important obligations for both parties. It allows them to specify the conditions for the future sale and highlights their agreement. Although it is not legally obligatory, this document is remains essential.
- Preliminary contract
In the preliminary agreement (or « bilateral sales agreement »), the seller and buyer both agree to round off the sale at a price which is set jointly. Legally, the preliminary contract is the same as a sale. If one of the parties gives up on the transaction, the other can force the latter to do so through legal means, through additional damage and interest.
Signing the preliminary contract requires the purchaser to pay a sum which approximately ranges between 5% and 10% of the sale price. This is known as a security deposit ; it shall be deducted from the price when the notarial act is signed.
Unlike the sales agreement, the preliminary agreement does not require to be registered with the tax authorities. This absence of fees may seem to be an asset. However, in the event of a dispute, in terms of fulfilling the prior conditions, the parties shall remain bound by the sales agreement, except through an amicable agreement or court decision, in the event of a unilateral sales agreement, the parties resume their freedom. if the option is not applied by the purchaser
- Offer to purchase or price offer
Indiscriminately known as an offer to purchase, a unilateral sales agreement or even simply a price offer, this document presented by some real estate agents should be treated in a cautious manner. Its main feature is to make the buyer commit and not the seller.
The seller must notify you with the offer, within the time limit and in the form prescribed within the offer (generally via registered letter and acknowledgment of receipt). If he accepts the offer in writing, the sale is theoretically deemed to be rounded off. On the other hand, you can perfectly retract if the seller makes you a counteroffer or if he does not respond to you within the given time.
A primary precaution consists in including in the purchase offer, the suspensive conditions (for example obtaining a loan) and to leave the seller only with a little time (a week or fifteen days) to give you his answer.
No payment can be demanded from the buyer, under penalty of the offer’s nullity (Article 1589-1 of the Civil Code).
Suspensive conditions: commitment exceptions
Whether it is a sales agreement or a preliminary contract, the buyer and seller can decide through mutual agreement to add suspensive clauses. These make it possible to foresee the nullity of the preliminary contract if certain events were to occur before the final sale (each of the parties resume their freedom).
- This can for example be a loan refusal from the purchaser’s bank, application of the pre-emption right by the municipality, discovering a new urban easement. In this case, the sums that had been paid by the purchaser are given back to him.
- Moreover, a sales agreement may also contain a clause, known as a « withdrawal clause », allowing the seller and/or the purchaser to waive the sale without cause by leaving the other party with the same that was agreed in advance. But theoretically, this isn’t common.
- It shouldn’t be confused with the penalty clause, present in most preliminary contracts, according to which the buyer undertakes to pay the seller a sum, as damages and interests, if he refuses to sign the sale.
Get your preliminary contract drawn out by a professional
Buyer and seller are free to write it themselves on paper or using standard contracts. However, the clauses present within the contract are of high importance, the final contract theoretically includes these, it is recommended to entrust the drafting to a professional, who has the duty to inform both parts. The cost of drafting the preliminary contract is included in the real estate agent’s commission, with whom the final sale shall be signed.
Withdrawal period for buyers
Purchaser of new or old house, you sign a preliminary contract, unilateral agreement: you have a period of ten (irreducible) days during which you can reconsider your commitment (through registered letter with acknowledgement of receipt).
Regardless of your reason, the sums you have paid must in all cases be returned to you in full. This withdrawal period runs from the day after hand delivery (or signing of the act if it is kept by the notary) in the event of a sales agreement made in the authentic form or the first presentation of the the registered letter with acknowledgment of receipt, containing the preliminary contract, in the event of a private signature.
For example, if the latter is sent on the 10th of the month and its first presentation is on the 12th, the deadline will be from the 13th onward and shall expire on the 22nd at midnight.
Act of sale: Timelines after signature
You leave with the keys, but without your Ownership Title. However, the notaire has given you the Certificates of Ownership . These certificates represent, in some way, a provisional and simplified Ownership Title.
Why do we need to wait for the title deed?
The notary has given you certificates of ownership (very useful for your administrative procedures: subscription for water, gas, electricity, telephone subscriptions, a fire insurance contract, registration of children at school). These certificates are in a way a provisional and simplified title deed.
Why don’t you get the title deed immediately?
During the signing appointment, the notary explained to you that the act of sale is published in the « Land Registry Service » and that it is necessary to wait several months before receiving the title deed and the final account of the operations which have been carried out.
Associated formalities to fulfill after the signing of the deed
It is important to know that the notary has as many formalities to complete after signing the act, compared to before.
During the appointment you had noticed that a voluminous file prior to the sale was put together. The questions were mainly related to the civil status services, the purchaser’s criminal record, the BODACC, town planning, land registry, mortgage services and the seller’s bank. Each property’s act of sale (apartment, house, or land) is preceded by constituting a specific file, regardless of the size of the transaction. The notary calls this file phase as « the preliminary formalities ».
After the signing the sale, a certain number of operations, “the subsequent formalities”, are also carried out. The most important subsequent formality is registration . It takes place at the Land Registry Service. This is the moment when the act is published in the real estate file and when the notary pays the duties and taxes to the tax authorities, which are paid by the purchaser during the signature (improperly known as « notary fees « ).
In addition, the notary provides various administrations (land registry offices, Land Use advertising Office) with copies and extracts of the acts of sale. Among these documents, a special copy known as an « authentic copy », signed by the notary, will be returned to the latter with the tax administration stamps. This document makes up your title deed. Do not forget that the original title deep will be kept by the notary in its office for one hundred years, before being entrusted to the departmental archives service.
Tele@ctes (online acts)
In order to complete these post-sale formalities , the notary sticks to strict procedures. The actions take place through queues for the various administrative services to which the latter is obliged to address. However, due to the deployment of Tele@ctes, transmission and response times have been shortened.
Tele@ctes allows acts relating to real estate transfers to be passed on electronically to the Land Registry Service, Caisse des depots (transfer of funds) and the tax administration (payment of transfer rights, capital gains tax, etc. …). Therefore, a change of owner is notified and passed onto the Land Registry Service in real time, and the financial flows are carried out through remote procedures set up with Caisse des Depots.
Electronic authentic act (AAE)
Technological developments have also paved the way for the electronic authentic act, now introduced into our legislative law. This is how the notary has opted for the electronic signature since several months.
After signing an electronic authentic act (AEE), a copy of the electronic act can also be given to the client with the certificate of ownership . Last but not least, the customer has, if he wishes, a dematerialized version that he can keep on his computer and send if need be to his bank, to his insurance company…
The acts signed by the notaries will be directly sent to the Land Registry Service for registration . At the end of the day, ownership changes could be completed in 48 hours, through secure high-speed links.
Each year, millions of acts are processed by these services and they are subject to rigorous monitoring. It takes rather long to process, and this is inevitable. With some exceptions, the notary sends all the documents to the various administrations within two months of signing the act of sale.
When your title deed (the « authentic copy »), with the official stamps, is sent back to your notary, the latter carries out the final accounting operations which is of concern to you and closes the account opened in your name in the office for your purchase.
If you overpaid while signing up, the credit balance is sent to you along with your account statement and title deed.
If you didn’t pay enough, the notary will ask you for an additional amount.
Funds held by notaries on behalf of their clients
These are governed by the Ordinance dated November 2, 1945 « relating to the status of the notarial profession » and amended by article 15 of the Ordinance dated May 27, 2014: « Notaries shall not keep cash in their office, for more than two days working, that it to say, more than 5% of the total amount of funds they hold, on behalf of their client and for any reason whatsoever (sale price, estate account, etc.). » Beyond this limit, these sums must be deposited in current accounts opened at the Caisse des Depots et Consignations, through Treasury accountants. « These funds can only be debit transactions for the settlement of the business, which is the source of the deposits . »
When these sums are held even after a period of 3 months, these are then transferred by the notaries to mandatory deposit accounts opened at the Caisse des Dépots et Consignations. « These accounts can only be subject to debit and credit movements, with current cash accounts. These movements are identified on a case-per-case basis. ». Since October 1, 2015, (two decrees dated September 24, 2015), these funds are remunerated at the rate of 0.75% per year.
This remuneration is paid:
- to the notary, for the interest paid on the amounts deposited by the notaries on the current cash accounts during the first 3 months. This is a quarterly payment.
- and then to the client, for the interest paid on the amounts deposited by the notaries on the mandatory deposit accounts. This interest is calculated on a case-per-case basis and liquidated while closing each case, on the current cash account.
Obligations related to a real-estate sale
A building’s seller (apartment, house, land) is obliged to inform his buyer as soon as the preliminary contract has been signed. It is important to get advice before putting a property up for sale.
What information should the seller pass on?
Generally speaking, the seller must send all the information he has about the building. In addition, some of this information is provided for by law. The courts strictly sanction any breach by the seller in terms of this general obligation.
If the latter hides important information, the buyer can obtain a reduction in the price or cancellation of the sale in the most serious cases. The seller is then summoned to reimburse the price and at times, pay compensation to the buyer who went through damage (moving costs, searching for another accommodation). Therefore, it is extremely important to respect these constraints. However, the list of information that the seller must provide to the buyer keeps extending continuously.
What legal and technical information must be provided by the seller?
- Legally
The seller must, for example, inform the buyer if easements exist (passage, view, waterflow), mortgages or privileges (taken in favor of a bank to guarantee a credit) or other charges (preferential agreement or an advertising bulletin).
- Technically
- The seller of a co- ownership apartment, for example, is obliged to provide the exact area of the accommodation (Carrez law). The maintenance booklet, which is obligatory for co- ownership buildings, must be given to the future purchaser (unless he already owns at least one lot in the same co-ownership), just like the co-ownership regulations, the description of division or the amount of current outlays in the provisional budget and charges outside of the provisional budget, the amounts which are due to the syndicate of co-owners, etc. The seller must also provide the purchaser with a large number of diagnoses, so that the latter is mainly informed about the possible presence of termites, lead or even asbestos, radon gas, energy performance, conditions of installing electricity and gas, environmental data, natural hazards, technological seismic mining.
- Seller of building land, on which the purchaser intends to build a building for residential purposes or for a combination of residential and professional use, must specify whether a demarcation has been carried out and inform about the town planning rules, which are applied to the land not to mention the possibilities of construction. In addition, when the building land is a subdivision lot, due to the division which is carried out, within a coordinated development zone by the public or private person, who is responsible for the development or comes from a Land consolidation, which is carried out by an urban land association, the mention of the description of land, which results from the demarcation is included in the agreement or the contract. The demarcation mentioned above does not really make up a demarcation within the meaning of article 646 of the Civil Code. Indeed, this isn’t about contradictory demarcation, except in the case of the outer perimeter limits of the lots. The environment of the building must also be taken into account: possible the existence of foreseeable natural risks in the region (flood, land movements), town planning easements, conformity of the individual sanitation installation of the house, operation of a polluting activity nearby.
- Last but not least, selling land that has become constructible by individuals (individuals or companies falling under the personal capital gains tax regime) as part of their private assets may be subject to a flat-rate tax, known as « local » if the municipal council (or the appropriate legislative body) of the municipality where the land is located has taken a decision concerning this. In which case, the tax shall be paid by the seller. The tax will be equal to 10% of 2/3 of the sale price of the land and shall be paid by the notary, on behalf of the seller during the land registration of sales agreement. The seller may also be liable for a so-called « national » tax, if the sale makes up the first transfer for payment of bare land, which is made constructible due to its classification after January 13, 2010.
Capital gains on real estate in France
The real estate capital gain is equal to the difference between the sale price and the purchase price or the declared value, when the property has been received by donation or inheritance .
- Determining taxable capital gains
Calculation Basis
The capital gain is equal to the difference between the sale price (minus the transfer costs and the amount of VAT paid) and the purchase price (mainly the registration costs paid during the purchase or 7.5% of the purchase price) or the declared value when the property was received through a donation or inheritance (plus actual costs and transfer rights, free of charge, if these were borne by the donee or the ‘ heir ).
Works expenses
The purchase price may be increased due to construction, reconstruction, extension or improvement expenses, as soon as these have been borne by the seller and carried out by a company, who shall be subject to presenting the supporting documents (invoices concerning VAT Note: the materials and works carried out by the owner himself are no longer deductible). Moreover, these must not have already been taken into account, in order to determine the income tax (mainly deduction for property tax revenue) and these must not be rental costs (CGI, art. 150 VB II, 4°).
The works taken into account to determine the real estate capital gains, are defined in the same way as those taken into account for determining taxable property income.
Solely the incurred costs since the completion of the building or its acquisition, if it is later can be taken into account, in addition to the purchase price.
In all cases, maintenance, and repair expenses, including major repairs, are not included among the expenses that can be taken into account, in order to calculate the capital gain. These concern works which are intended to maintain or restore a building, in proper condition and allow normal use.
Expenses in addition to the purchase price must be justified (CGI, art. 150 VB II). However, the documents justifying works are only provided at the request of the administration (CGI, ann. II, art. 74 SI).
Alternatively, the seller may increase the purchase value by 15%, if he has owned it for more than 5 years, on a flat-rate basis, without having to establish the reality of works, the amount of works genuinely carried out or his inability to provide supporting documents (CGI, art. 150 VB II, 4°). There is no need to check, if the work expenses have already been taken into account for the income tax base. The 15% flat rate is a simple option for taxpayers, who have owned their property for more than five years. It does not add up to the costs, which are borne by the owner.
If many works have been carried out in the second home, the notary will advise to keep all the invoices because the purchase price may be subject to an increase in the amount of the actual expenditure of the works, for which the invoices have been retained. Otherwise, only the standard increase of 15% shall be applied without proof if the property has been held for at least five years.
Reduction for detention period
The rate and reduction rate for the detention duration are different, in order to determine the taxable base for income tax and social security contributions.
Holding period | Applicable abatement rates each year detention Tax base on income | Applicable abatement rates each year detention Base for social contributions |
Under 6 years | 0 % | 0 % |
From the 6th to the 21st year | 6 % | 1.65 % |
22nd pass year | 4 % | 1.60 % |
Beyond the 22nd year | Exemption | 9 % |
Beyond 30th year | Exemption | Exemption |
Thus, the real-estate capital gain is exempted:
- after 22 years of income tax detention
- after 30 years of detention for social security contributions.
The years of detention are counted from the anniversary of the property purchase (date of purchase, date of donation or date of death)
Exceptional reduction under certain conditions due to transfer of property which are built or building lots
In accordance with the provisions of II article 28 of the law n °2017-1775 dated December 28, 2017 of amending finance for 2017, an exceptional reduction applies, under conditions and temporarily, in order to determine the net taxable capital gain, both for income tax and social security contributions, resulting from the sale of building land or built real estate, or related rights.
Therefore, the capital gains resulting from the sale of building land or built buildings intended to be demolished, towards a reconstruction of one or more collective housing buildings, located in geographic areas characterized by a peculiar imbalance between the demand and supply for housing, are determined after applying an exceptional reduction of 70% or 85%, on the dual condition that the sale:
– is either preceded by a unilateral or synallagmatic sale agreement and has acquired a firm date from January 1, 2018 and no later than December 31, 2020.
– be carried out at the latest on December 31 of the second year following the year in which the unilateral or synallagmatic sale agreement acquired a firm date. Theoretically, the exceptional reduction may therefore apply to transfers, carried out until December 31, 2022
Tax rate on capital gains:
The capital gain is taxed under income tax at the current flat rate of 19% (with a linear reduction of 6% from the 6th year) and under social security contributions at the current rate of 17.2 % (with a progressive reduction 6th year onward).
The amount of the tax shall be deducted by the notary from the sale price, while signing the authentic act and paid by the latter to the tax authorities.
An additional tax (from 2 to 6% depending on the amount of the capital gain after applying the reduction) applies to capital gains on property, other than on building land of an amount higher than 50,000€ . The capital gains resulting from transfers carried out since January 1, 2013 are concerned.
One can collect a municipal tax during a sale of a land, which is now approved as a building land (CGI Art. 1529) and/or a national tax (CGI Art. 1605 ch).
The capital gain regime varies depending on the sale price, the nature of the property, and the ownership duration. Given the concept of taxation, there are cases of limited exemptions.
Tax-free real-estate capital gains
Transfers exempt from tax on real estate gains are listed under II et III de l’article 150 U CGI.
The following are exempted:
- The sale of the main residence and its immediate and necessary outbuildings, which are sold simultaneously or almost simultaneously.
- The sale of an elevation right, under the conditions of article 150 U II-9 CGI;
- The sale of housing located in France by non-resident taxpayers under certain conditions (CGI art. 150 U II-2 à 9 et III);
- Capital gains made on property sales for a price less than or equal to 15,000 euros, for a single person, 30,000 euros for a couple;
- Those made during a property sale, held for more than 30 years.
- The sale of a property in the event of its dispossession, under conditions of re-use (CGI art.150 U II-4)
- Sale by pensioners or the disabled with modest backgrounds (CGI Art. 150 U III)
Taxpayers who do not own their main residence, can benefit from an exemption from capital gains made on the first home sale, under certain conditions:
- The transferor was not the owner of his main residence, directly or through an intermediary, during the four years preceding the transfer (CGI, art. 150 U II, 1°bis, al. 1st);
- The transferor must proceed with the re-use of the transfer price « within twenty-four months from the transfer, with the aim of an acquisition or construction of the latter, upon its completion or acquisition, if it is subsequent to the main residence ”(CGI, art. 150 U II, 1° bis, al. 2 – in limine).
In the event of a breach of any of these conditions, the exemption shall be questioned, with respect to the year of the breach (CGI, art. 150 U II, 1° bis, al. 2 – in fine). You can obtain more information through the Official Bulletin of Public Finance Tax.
Is it better to sell before buying?
It is a safer option to sell your property before buying the next one, to finance the necessary contribution. However, if the acquisition takes place before the sale, this leads to two solutions: the bridging loan and transferring loan
Bridging loan and transferring loan
- Bridging loan
This solution is offered to people who buy before selling and who need the funds from the future sale of their property, in order to finance their new acquisition. In practice, the establishment advances a portion of the property’s value for sale (between 60 and 80%).
- Transferring loan
Transferring the balance of the current loan, which is used to finance the property for sale can be granted by the bank to its customers, who wish to defer it on their new purchase.
It should be noted: new guarantees need to be undertaken; the guarantees taken during the initial loan are not automatically transferred to the new property.
What is the warranty against latent defects?
Omitting certain information can be dangerous and therefore can go against the seller, who must guarantee the buyer against hidden defects .
Under what conditions can the seller be attacked by the buyer?
The buyer can summon the guarantee against latent defects against the seller, as soon as the following three conditions are met:
- the defect is hidden, which means impossible to detect on the spot (example: crack on the facade concealed by ivy-clad);
- the defect exists before the sale, which the buyer needs to prove.
- the hidden defect makes the product unsuitable for normal use (example: lack of waterproofing related to a roofing problem).
It should be noted: The clauses of the sales contract generally provide what the individual didn’t know, in good faith, namely the defects in the property that he is selling and isn’t responsible.
Which rules must be respected to sell a rented property?
Sell at what price?
In principle, the sale price of an occupied property is subject to a certain discount, compared to its empty value (10% to 20%). Estate agents, through their knowledge of the markets, have developed real estate expertise services, which allow them to offer reliable estimates, whether the property is free or occupied.
Does the tenant benefit from a right of first refusal?
At the end of the lease , the right of first refusal exists, when the owner wants to sell the property as empty.
Careful:
- the leave must be given in writing, at least 6 months before the end,
- the offered price must not be overvalued, for the sole purpose of making the tenant leave, otherwise the leave may be canceled by the courts.
During the lease, the right of first refusal can take place in two cases:
- in the case of the building’s sale, the owner divides it co- ownership lots, in order to sell it on an apartment by apartment basis (so-called split sales).
- in the case of the sale « in its entirety and in one shot » (so-called bulk sale) of a residential or mixed-use building, with more than five dwellings.
Purchase in France by a non-resident
Before any real estate investment in France, a foreign national must contact a professional to find out the conditions for the investment in question. Several aspects need to be examined:
The profile of the non-resident buyer
Firstly, it will be required to examine the nationality of the buyer, his country of residence, his personal situation (if he has already lived in France for example) not to mention his matrimonial regime , if he is married. Bearing in mind that the law of the property’s location is the one which applies in matters relating to real estate, the French law shall therefore prevail. The consequences on the purchase will be very significant, in terms of the property’s ownership , its tax regime or its possible resale.
However, it should be noted that in the event of the purchaser’s death, the property isn’t subject to the French law. Since August 17, 2015 (the effective date of the European Regulation which took place on July 4, 2012), it is no longer the law of the property’s location which is applied, in matters concerning inheritance , but the one of the purchaser’s country of residence. Therefore, the latter decides the people who can inherit and sets the payable fees . It should be noted that members of the European Union, but also nationals of foreign countries who have signed a special agreement with France, benefit from special regimes (bilateral agreement, Hague Convention, etc.).
Nothing also prevents the foreign buyer from setting a company to acquire; once again depending on the status which has been chosen, the legal and fiscal regime of the property acquired shall differ.
Financing a property purchase by a non-resident
The acquisition of real estate in France will require significant fund transfers at times. These transfers are verified by intermediaries (Banks, Credit institutions). Notaries must also check the source of funds, in order to prevent money laundering operations. They may be called upon to make declarations, if they have major doubts, in terms of the origin of used funds (TRACFIN). Notaries must also ensure the security of transactions, as they are responsible vis-à-vis the foreign buyer and the seller. It must be mentioned again that they will verify the transfers or the bank wires which are sent to them, not to mention the reliability of the banking establishments which carry out the transfers.
Applicable taxation
The tax system applicable for a property purchased in France must also be explained to the foreign buyer: the cost, the various taxes, and fees . But also, the taxes which will need to be regulated depending on the fact if the property will be used as the main residence or shall be treated as an investment, for rental purposes. The choices that will be made during the purchase will often depend on the taxation which shall be applicable during the ownership of the property or during its subsequent resale (VAT, capital gain, intervention by an accredited representative, etc.). Once again, various systems do exist ranging from exemption to high taxation.
Sale of real-estate renovation (VIR)
The seller of real estate for residential and/or professional use, who undertakes to carry out work within a specified period and receives sums from the purchaser before the completion.
How to draft the Sale of real-estate renovation contract?
The seller must round off the « sale of real-estate renovation contract » through a notarial act which allows better protection for the purchaser. Due to this act, the seller immediately transfers the ownership of the land to the purchaser but also of the constructions, when the latter is completed.
Sale of real-estate renovation contract and the related works
They are necessarily related to an existing built building. Their nature is specified negatively by the application decree dated 16 December 2008. These works are those that do not correspond to expansion or complete restructuring of the building, comparable to reconstruction, for which only the sale system of buildings to be constructed is open.
Is it possible to sign a preliminary contract during sale of real-estate renovation?
A preliminary sales contract can be rounded off and must include, under penalty of nullity , the key information relating to the description and the time of completion of the work, its price, but also the seller’s commitment to produce, while signing the authentic act of sale, proof of the completion guarantee , not to mention the compulsory insurance. This preliminary contract can be rounded off, under a suspensive condition . In which case, the law provides that no payment can be carried out before the condition has been fulfilled. There is a principle which is specific to the sale in the future state of completion.
What are the payment methods for sale of real-estate renovation?
The law organizes an instalment payment scheme for the sale price: the price of the existing one is to be paid while signing the authentic act of sale. The payment of the price of the works must, for its part, be carried out as follows:
- 50% upon completion of the work representing half of the work’s total price.
- 95% upon completion of all work, the balance upon delivery.
It should be noted that since the decree dated 27 September 2010, it is possible to provide interim payments as long as the above limits are respected.
Sale of real-estate renovation and completion guarantee
The law requires the seller to provide a completion guarantee carried out through a joint guarantee, given by a credit institution or through an insurance company approved for this purpose. This warranty is exclusive of any other form of guarantee.
The guarantee ends with the acknowledgment of completion resulting from the declaration certified, by a skilled person appointed through the agreement between the parties. A work acceptance record is then signed between the seller and the buyer.
Buying property: types of loans and Bank guarantees
There are various types of loans granted by french banks: repayable loan, In Fine loan, bridge loan, home loan, loan agreement, PTZ, PEL … In return, the bank can ask you for bank guarantees.
French bank loans
These reimbursements may include:
- fixed interest, definitively calculated for the entire duration of the loan;
- variable interest, indexed or dependent on interbank variations, capped or not.
On the contrary, no interest applies to certain “interest-free” loans. Allowed with requirements, they are only available to low earners and there is a limit to the sum borrowed.
The majority of loans granted by banks are depreciable. Here, the repayment is spread out over time: you repay both the capital and the interest throughout its duration.
In contrast, the « in fine » loan assumes that you only pay interest over the term of the loan. Thus, the capital is refunded only once at the end of the term. This system has a significant tax interest for heavily taxed persons. To settle the capital, it is possible to create savings associated with an investment product backed by life insurance.
French bank guarantees
The bank that lends you money can ask you for several types of guarantees:
- This may be a joint and several guarantee , either from a specialist company (legal entity) or from a friend or relation who guarantees the reimbursement of the said loan. The bank requires that the person be solvent, that is, able to pay the debts of the borrower on his own finances or on his property.
- However, the bank may also want to have property as collateral. It may be a lender’s privilege, a mortgage or both.
Guarantees are taken out for the length of the loan plus one year. They then disappear automatically one year after the repayment of the last installment.
If the property is sold, for example, the entry on the mortgage registry is cancelled. The notaire draws up an instrument releasing the mortgage.
Financial aid for housing energy renovation
As part of a renovation project, individuals may be eligible for financial aid. For insulation, heating changes or a full renovation… criteria relating to the property, the individual’s situation and technical characteristics of the installations must be met in order to obtain financial aid for housing renovation. Different aid can sometimes be cumulated for the same work.
FINANCIAL AID FOR HOUSING ENERGY RENOVATION
As part of a renovation project, individuals may be eligible for financial aid. For insulation, heating changes or a full renovation… criteria relating to the property, the individual’s situation and technical characteristics of the installations must be met in order to obtain financial aid for housing renovation. Different aid can sometimes be cumulated for the same work.
The energy cheque, exemption from property tax and pension fund aid can also be combined with the aid set out in this table.
* MaPrime Rénov’ is capped so that the cumulative amount of aid does not exceed 90% for homeowners with very low incomes, or 75% for homeowners with low incomes.
** The CITE is capped so that the amount of CITE aid does not exceed 75% of the eligible spending actually incurred by the household.
MaPrime Rénov’
As part of its energy renovation policy, the government has overhauled the aid system to make it simpler, fairer and more efficient. The transformation of tax credits for energy transition (CITE) into a single premium (MaPrime Rénov’), which launched on 1 January 2020 for homeowners with low and very low incomes, was an initial step. The reform will be finalised in 2021 by extending MaPrime Rénov’ to all homeowners (regardless of income). Households that are not currently eligible can already start the process of submitting their applications as of 1 January 2021.
As part of the stimulus plan, there will be exceptional premiums to help fund works to insulate housing, strongly encouraging comprehensive and ambitious enovations. MaPrime Rénov’ will also be open to condominiums and landlords.
ADEME and the FAIRE network offer a financial aid simulation tool to help you when applying for your property’s energy renovation.
- The Simul’Aid€s tool is still the most efficient way to find out what support is available to you.
- Aid changes regularly so feel free to consult a FAIRE advisor (Monday to Friday from 9am to 6pm by calling +33 800 800 700) and find out more about what aid you may be eligible for.
VAT on property
Property Value Added Tax on property (VAT on property) is a tax levied by the French State, when the sale concerns a new property whether it is housing or building land.
VAT on property and acquisition of housing
We must distinguish between new buildings old buildings:
1. Old housings
Sales of buildings completed for more than 5 years are exempt from VAT
2. New housings
Sales of buildings completed within the last 5 years are subject to VAT at 20%)
VAT on property and acquisition of building land
To determine the tax system, we must distinguish two cases:
1. Transfers between individuals
Only registration fees are due (5.09%, 5.80% worn in most departments), no VAT.
2. The land sold by a professional
Land sales by a VAT registered business are subject to VAT at 20%, the buyer is an individual or not. VAT is normally paid by the seller.
If he had bought the land to a non-taxable person for VAT, the VAT will apply to margin and the buyer must pay 5.09% of registration fees currently charged at 5.80% in most departments.
If the trader had purchased the land from a taxable person for VAT, the VAT will apply to the whole sale price. In return, the buyer will benefit from registration fees reduced to 0.715%.
Real-estate diagnostic: when, how, who pays?
Before the sale or rental, the law requires the establishment of a technical diagnostic file (DDT). Its objective: to inform and protect the buyer or the tenant.
What to do if a diagnosis produced during the sales agreement, is no longer up to date on the day of signing the notarial act?
In terms of sales, if one of the documents (lead, asbestos, termite diagnostics, energy performance, gas and electricity installations, non-collective sanitation) produced during the sales agreement is no longer valid, on the date of signing the notarized act of sale, a new diagnosis must be established
Who has to pay the real-estate diagnostic?
In case of a sale
The cost of establishing the technical diagnostic file is borne by the seller. However, the parties may agree to impose the cost of these services on the purchaser.
In case of a rental
The law provides that the technical diagnostic file is provided by the lessor. This is established through his exclusive expense.
What is the cost of establishing diagnostics?
Prices may vary.
- The cost of establishing diagnoses depends on the area of the property and the number of diagnoses which need to be carried out. The prices charged by the real estate diagnosticians vary.
- The state of the risks and pollution is free, as long as it can be established directly by the seller or the lessor, if need be, with the help of the professional who is involved in the sale or rental of the property. In the event that the diagnostician is called upon to establish the latter, the costs vary from 20 to 40 €; it is sometimes provided.
- The cost of controlling the sanitation facilities, carried out by the public service for individual waste water (SPANC), may also vary.
Can a diagnosis oblige the owner to carry out works?
Certain diagnoses (condition of the interior gas installation, condition of risks and pollution, diagnosis of energy performance and condition of the electricity installation) do not entail any obligation to carry out works, but these can lay down recommendations for works, in order to improve the technical condition of the sold property. However, the law entails certain constraints for four diagnoses:
The risk of exposure to lead
If the report highlights the presence of degraded coatings which may contain lead, at concentrations which are higher than the regulatory limit, the owner must inform the occupants and those brought to do work in the building or part of building concerned and carry out the suitable works. In the case of rental, the so-called works are borne by the landlord.
The state mentioning the presence or absence of asbestos
If the presence of asbestos is detected, the report recommends locating the materials and products in list A (the most dangerous):
- either a periodic assessment of the state of conservation of materials and products containing asbestos. The owner must carry out this assessment, within a maximum of 3 years from the date of the report’s delivery.
- or dust contamination in the air, to determine the concentration of asbestos. The owner must have this assessment carried out within 3 months from the date of the report’s delivery.
- either asbestos containment or works removal. In this case, the diagnostician is forced to send a copy of his report to the prefect of the department of the concerned accommodation. It should be noted, that if the owner does not take action, the prefect can carry out the location scouting and works, at the latter’s expense.
In order to identify materials and products in list B, the report mentions recommendations in the event of a risk of rapid deterioration of asbestos.
Condition related to presence of termites
If the presence of termites is detected, the seller must make the declaration to the town hall, during the month following the findings. Failing that, he shall receive a fine. The mayor may order the owner to conduct an eradication. In case of the owner’s negligence, the mayor can have these carried out at the latter’s expense.
Wastewater treatment
If the installation is declared as non-compliant, the owner must carry out the mandated work, within 4 years of the notification document. If on the day of the sale these have not been carried out, the buyer must bring it into line, within 12 months of the sale.
Which diagnostician should we use?
Wastewater treatment
If the monitoring hasn’t already been carried out, at the request of the municipality by a public official of non-collective sanitation (SPANC), the seller must have this monitoring established by the competent SPANC for his municipality. Contact details can be obtained from the town hall.
Risks and pollution (ERP)
It is directly established by the seller or the lessor, if need be, with the help of a professional. The appropriate form should be completed, using the information of the orders of the prefect.
Other diagnostics
For other diagnoses, the diagnostician must provide the seller with an affidavit , through which he guarantees:
- have the required skills for the diagnoses which need to be established.
- have subscribed to a professional liability insurance.
- maintain « no link likely to affect the impartiality and independence.
The seller must make sure that the diagnostician he calls upon, has a certificate of expertise, insurance and independence. If the diagnostician doesn’t comply with the rules, sanctions shall be applied to him, but also to the owner who uses his services.
Finding a professional
On the Ministry of Territorial Equality and Housing website, a directory of french diagnosticians has been put online. It assembles a list of all the people with a valid certification.
Who is responsible in case of a mistake?
Errored diagnosis
If a diagnosis turns out to be wrong, the buyer or the tenant can ask the seller or the lessor for justifications. The latter can in turn go against the professional whom he called upon, hence the importance of checking the insurance in advance. The responsibility of the diagnostician in regard to his client (lessor or seller) may be liable, depending on the case.
DPE, a peculiar case
On the other hand, the energy performance diagnosis is of information value. In the case of a consumption estimation error, the seller or the lessor cannot act against the professional. However, the purchaser or the tenant could bring an action against the diagnostician, who made the mistake.
The Carrez law certification
When the actual area is more than 5% less than the one mentioned in the act, the purchaser of a co- ownership share may request a reduction in the sale price, in proportion to the number of missing square meters. Conversely, if the actual area exceeds the area which is mentioned, the seller cannot obtain an increase in the price.
What are the consequences if a diagnosis is missing?
Missing diagnosis for a sale
When signing the official act of sale, if the diagnosis of lead, asbestos, termites, gas, electricity, sanitation is missing, the seller cannot be exempt from the corresponding latent defects guarantee . Therefore, he shall remain responsible, with the purchaser in the event a defect were to be discovered (for example: presence of asbestos).
If the risks and pollution diagnosis is missing, the buyer can ask to cancel the sale or ask the judge for a reduction in the price. In the same way, if the area of the co- ownership lot is not indicated in the sales agreement (act of sale), the purchaser may request the invalidity of the act, with the omission before the District Court, during the month of this act’s signature. However, if the area of the co- ownership lot is missing in the sales agreement and it is then mentioned in the act of sale, the invalidity cannot be invoked.
Last but not least, the absence of the energy performance diagnosis is less serious since it does not lead to any sanction.
Missing diagnostic for a rental
When the owner does not establish any report of risk of exposure to lead or when he does not carry out the necessary works, if need be before the rental, this is considered as a breach of the obligations concerning safety and prudence, likely to engage the latter’s criminal liability.
When the report of risks and pollution is missing, the tenant can ask the judge to resolve the lease or reduce the rent.
However, if the DPE is missing, theoretically there is no penalty.
Mandatory property diagnosis for selling : technical diagnostic file (DDT)
The various real diagnosis are intended to improve the information of the buyer. There are many mandatory real estate diagnoses: ASBESTOS, LEAD, ELECTRICITY, GAS, TERMITES…
Real estate diagnosis: Technical diagnosis of file or DDT
The various mandatory technical real-estate diagnosis in case of a sale are grouped in one file which is known as the Technical diagnosis file (DDT). This file must be annexed with all sales agreements and any sale of a housing.
You are the seller:
Do not hesitate asking your notary about your obligations. The law requires you to provide these documents, under penalty of being responsible for the consequences of lack of information. So, you can’t be exempt from this
You are the buyer:
You need to get information so that you’re not mistaken on the features of the commodity that you’re planning to buy. The diagnosis allows the buyer to get a more precise idea on his investment, qualities and defects.
It’s possible that in the future, other checks may be added to the file, with the constant aim of gathering better information and protecting the consumer.
ASBESTOS diagnosis
- Nature of the document: State mentioning the presence or absence of materials or products containing asbestos.
- Concerned buildings: All buildings for which the building permit was issued before July 1, 1997.
- Document validity duration: If no trace of asbestos is detected, the period of validity is unlimited. On the other hand, if the presence of asbestos is detected, a new check must be carried out within 3 years following the submission of the diagnosis. Please note: if the diagnosis was carried out before 2013, it must be renewed if the property is sold, even in the absence of asbestos.
- Penalties provided : The seller cannot be exempted from the corresponding hidden defects guarantee
NON-COLLECTIVE SANITATION diagnosis
- Nature of document: Document relating to the non-collective sanitation installation.
- Concerned buildings: All built buildings which are not connected to the public network.
- Document validity duration: 3 years.
- Penalties provided : The seller cannot be exempt from the corresponding hidden defects guarantee . The buyer must rin git into line, within one year after the signing of the authentic act.
LEAD diagnosis
- Nature of the document: Report of Risk Exposure to Lead (CREP). This observation must be accompanied by an information leaflet, which sums up the effects of lead on health and the precautions that need to be taken in the presence of coatings that may contain lead..
- Concerned buildings: Residential buildings or part(s) of buildings which are used for residential purposes and built before January 1, 1949.
- Document validity duration: If there is lead presence above certain thresholds: 1 year for sale. Otherwise, unlimited.
- Penalties provided : The seller cannot be exempted from the corresponding hidden defects guarantee .
ELECTRICITY diagnosis
- Nature of the document: State of the indoor electrical installation.
- Concerned buildings: Residential buildings or part(s) of the building allocated to housing, whose installation has been carried out since more than 15 years.
- Document validity duration: 3 years maximum for the condition of the indoor installation, as for the certificate of conformity in case of renovation works.
- Penalties provided : The seller cannot be exempted from the corresponding hidden defects guarantee.
ERP diagnosis
- Nature of the document: State risks and pollution (natural, mining or technological hazards, seismicity, radon gas risk and polluted soils)
- Concerned buildings: All types of buildings covered by a prefectural decree specifying the municipalities which are concerned and the list of foreseeable risks.
- Document validity duration: Less than 6 months before the date of the sales agreement.
- Penalties provided: Pursuing the resolution or the request to decrease the price per seller.
GAS diagnosis
- Nature of the document: State of the indoor gas installation.
- Concerned buildings: Residential building or part(s) of building which are allocated to housing, whose installation has been carried out since more than 15 years or whose last certificate of conformity dates back to more than 15 years.
- Document validity duration: Maximum 3 years for the condition of the indoor installation, as for the certificate of conformity in case of renovation works.
- Penalties provided: The seller cannot be exempt from the corresponding hidden defects guarantee . As for the latter, the buyer can obtain a reduction in the sale price or even cancel the sale.
TERMITES diagnosis
- Nature of the document: State concerning presence of Termites.
- Concerned buildings: All built buildings (areas delimited by prefectural decrees).
- Document validity duration: 6 months maximum. To be redone in the event of a new municipal decree which shall declare an infested zone.
- Penalties provided: The seller cannot be exempted from the corresponding hidden defects guarantee .
Map of the departments covered by an order of the prefect, delimiting the areas infested by termites dated January 1, 2016
ENERGY PERFORMANCE diagnosis (EPD)
- Nature of the document: Energy performance diagnosis.
- Concerned buildings: All buildings except those listed in article R.134-1 of the CCH.
- Document validity duration: 10 years. To be redone in case of substantial work.
GRINDSTONE diagnosis
- Nature of the document: Information on the risk of grindstone presence.
- Concerned buildings: All built buildings (areas delimited by order of the prefect).
- Document validity duration: No fixed duration.
- Penalties provided : The presence of grindstone may, under certain conditions, make up a latent defect which is likely to engage the civil liability of the seller.
CARREZ LAW Diagnosis
- Nature of the document: Certificate attesting the surface area of the concerned batch.
- Concerned buildings: All co- ownership batches for residential or commercial use (except cellars, garages, parking space and generally, batches or fraction which are less than 8 m2)
- Document validity duration: Permanent
- Penalties provided: Nullity of sales action in case it hasn’t been mention. Request to decrease the price if surface error of more than 5 %.
Technical diagnosis of the condominium
Since 1 January 2017, the global technical diagnosis (GTD) has become compulsory for all buildings (partial or total residential buildings) over 10 years old which are subject to (For partial or total residential use) subject to an insanitary procedure and for which the administration asks the trustee to produce a DTG.
For the other condominiums, the realization (or not) of this diagnosis, which is intended to present the condition of the building and to fix any work necessary for its conservation and maintenance over the next ten years, must be submitted To one vote in general meeting. Where it exists, the GTD must be provided in the event of the sale of a condominium lot or the entire condominium.
Sewerage systems in France
Nearly 20% of the french population is not connected to the public sewage collection network and must be equipped with non-collective sanitation facilities that are particularly suitable for dispersed settlements.
What are the drainage system standard?
Defective or poorly maintained non-collective sanitation facilities may pose significant health and environmental risks. Located upstream of sensitive and urban areas they impact the drinking water resources
Each dwelling must have a non-polluting drainage system.
- The system is said to be « collective » when the dwelling (or building) is connected to the sewers by a communal drainage system.
- The system is said to be « non-collective » when the dwelling (or building) is not connected to a communal drainage system. If this is the case, the dwelling (or building) must have an « independent » installation (septic tank or other arrangement) in order to treat the household waste water individually.
The problem of sanitation is now common in the European Community and the notariat collaborates in the working group on regulation with the French Ministry of ecological transition and Solidarity and the Ministry of Solidarity and Health bringing his expertise. Before buying or selling a property, do not hesitate to consult your notaire to know your rights and obligations. He will advise you to avoid any dispute.
Sewage: What are the rules with a collective waste water?
Connection to sewers is mandatory during 3 events:
- When applying for a building permit on an area not provided with collective sanitation
- When rehabilitating a non-conforming installation
- At a sale of a property with non-collective sewerage system
- A peculiarity: when a collective sanitation installation settles in limit of ownership
Connection when filing a building permit
Can be placed in non-collective sanitation area parts of the territory of a municipality in which an installation of a collection system does not justify it, either because it would not present interest for the environment, or because the cost would be excessive, by individual systems or other appropriate systems ensuring an identical level of sanitation (pits or other processes). The issuance of a building permit in an area without sanitation is subject to prior approval of the future installation. The petitioner must justify the sizing (number of rooms, attendance, activity ..), the nature of the soil and its permeability and the slope of the ground and provide plans, volume of the pit and surface of the device.
SPANC will issue a notice to attach to the trial file. Once the construction has been completed, the permit holder must obtain from SPANC an inventory report prior to backfilling the system, which will make a visit upon receipt of the work. An application for a non-collective sanitation order will take note of the final configuration of the facility. The certificate of conformity justifies in case of sale of the building the good design of the installation. This document will be required when reselling the building.
When selling a building with non-collective sanitation
In the context of technical diagnoses, when selling a building the regulation requires the submission of a certificate of control of the non-collective sewage system of less than three years old (art L 1331- 11-1 of the Public Health Code). The application must be submitted to the local SPANC who, after checking the installation, will decide on compliance, non-compliance and work requirements, then specifying the causes and the work necessary to overcome the malfunction.
As soon as the visit report indicates a non-compliance, the new owner must carry out the work within one year of the sale (art L 271 of the French Construction and Housing Code). The new owner contacts his SPANC, submits to him the project of rehabilitation of his defective installation in order to obtain the conformity of the project before any realization of works which will then verify their good execution. The notary will check the documents necessary for the drafting of the act and advise the seller regarding the responsibility for hidden defects and the purchaser with regard to the obligations of compliance of the defective installation and append the diagnosis of the non-collective sewage treatment plant, in the preliminary contract and in the act of sale date of the act.
During the rehabilitation of a defective installation
Following a control of a non-collective sewerage system (maximum period of 10 years – Art 2224-8-III al2 of the General Code of Territorial Communities), in case of non-compliance of existing installations that would create proven environmental or health risks, compliance work is prescribed and must be completed within 4 years (L 271-4 of the French Construction and Housing Code) (Art L-1331 -1-1 Public Health Code), while they are only one year, in case of sale of the real estate.
Obligation to connect to the collective network
When a building is located in an area equipped with a sewerage system, whatever the nature and characteristics, the owner has the obligation to connect to the collective network, within two years from commissioning, unless derogation granted by the municipality when the property is difficult to connect and has an autonomous installation receiving domestic wastewater. (art L 1331-1 of the Public Health Code). The owner may be put in default, to connect and put from the establishment of the connection, the previous facility out of service or create nuisances (art.L1331-5 of the Public Health Code). Otherwise, the work can be carried out automatically, at its expense (art L.1331-6 of the Public Health Code). In addition, he will be required to pay an amount at least equal to the fee he would have paid to the public sanitation service if the property had been connected or equipped with a regulatory stand-alone facility.
Sewage: What are the rules with a on-site sanitation
Owners of dwellings not served by a public network have the obligation to equip themselves with an autonomous system (known as individual) for the sanitation of both greywater (toilet water) and greywater (water from washbasins, kitchen, washing machine …) before rejecting them in the natural environment.
Over the course of regulatory revisions, a realistic and pragmatic approach has been put in place to identify the situations that need to be answered. The protection of the real estate buyer and the setting up of surveys (aiming at greater contractual transparency, lead, termites, gas, electricity, etc.) led to a reflection on the need for « non-collective sanitation » diagnoses to inform the public. purchaser of the impact and consequences, in particular financial consequences, of a restoration, or even the need for an installation or a connection to the collective network following its acquisition.
French Public Non – Collective Sanitation Services (SPANC) have, with the Elan law, been granted autonomy with regards to municipalities. Their role is to verify the proper execution of the construction and rehabilitation works as well as the proper functioning and maintenance of existing installations and to carry out regular checks and possibly to prescribe rehabilitation works.
The purpose of the various regulatory amendments is to establish clear and uniform rules and a gradual renovation of non-collective sanitation facilities based on two axes:
- The installation of new installations of quality and compliant
- Priority rehabilitations for installations that present a health hazard or a proven risk of environmental pollution
Source : Notaires.fr