The Buying Procedure for leasebacks

When you buy a leaseback property you are buying a freehold property which you will own from the point of signing the deed. Therefore the process of buying is essentially the same as for any other property in France.

Leaseback developments can be defined as new builds or resales at first sale. This is because whilst some leaseback developments will be brand new constructions (and therefore defined as 'new') others are existing buildings that have been renovated and refurbished by the developer and the extent of the work will determine if the development can be sold as 'new' (thus attracting 19.6% VAT ) or resale (attracting c.5.5% VAT upwards - depending on the value of the renovation). Therefore leasebacks, depending on their status will be subject to one or other of the different processes and documentation - 'compromis' or 'vefa'- as expained below.

Below follows a broad guide  which applies to the purchase of all freehold property in France

What is a Notaire?

In France the business of conveyancing, i.e. the buying and selling of property, is handled by a notary (le notaire). The notaire is a public official who is responsible for ensuring that all deeds are authentic and of incontestable value. They are personally responsible for the contracts drawn up and must be objective and must act with impartiality towards the various contractual parties, because they will, normally be acting for both parties - although not representing them.

It is not obligatory that there is just the one notaire however, as both parties may employ their own notaire at no extra cost since the fees (always paid by the purchaser) are fixed by law and will be split between the respective notaires.

How to put an offer?

This is  one area in which leasebacks differ. Offer cannot be made. You must pay the asking price, because the subsequent rental contract guaranteed income is based on the published prices.

Once you have seen the property you would like to buy, you have to put an offer on the property. C'est La Vie! Properties or the agent will recommend at what price level you might  start offering on the property, depending on the property, the situation of the vendor and how long the property has been on the market.

Whilst a verbal offer can be made it should be confirmed in writing, has to mention the address of the property, the amount of the offer, in euros, your conditions (see below) and for how long your offer is to be valid (generally three to four days).

The conditions to buy could be to get a mortgage (amount of the mortgage), to get planning permission to extend the property, to perform a specific survey. Remember that the more conditions you include in your offer the less flexibility on the price you will get.

 The preliminary sales contract

Purchasing a property in France will normally involve two contracts. Once the purchaser and the vendor have agreed on the price for the property, and the conditions, they do not immediately enter into a definitive contract.

Various papers and authorisations will be required before the final deed is signed: searches will have to be instigated; often a loan must be obtained first. So while waiting for the final deed of sale, which is drawn up by the notaire, you will need to sign a preliminary sales contract. This can be drafted and witnessed by the estate agent or by the notary. As this is an important stage, it is necessary to understand the different types of contract, and your notary/solicitor/ agent can advise you on the wording and conditions of the contract.

There are essentially two types of preliminary contracts. The form of the contract will depend on whether it is an outright purchase of a property in its finished state or the purchase of a property where construction is not yet completed. The preliminary contract will usually take one of the following forms:

  1. Purchase of a completed property - "Compromis de vente"

If the leaseback you are buying is This constitutes the most common type of preliminary contract for the purchase of existing property with both vendor and purchaser committed, having mutually agreed on the property, the price and the conditions ("conditions suspensives").

Upon the signing of this agreement, the purchaser has to deposit a sum, which is normally 10% of the purchase price with the notary. This deposit is usually described either as a payment on account or a penalty for breaking the contract and will be deducted from the sale price.

The agreement must describe the property, and should contain other conditions relating to town planning, rights of way, etc.

Once the “compromis” is signed, a 7 days cooling off period commences. For whatever the reason you may decide that you do not want to buy anymore. In this case you have to inform the notary (“letter recommandée avec accusé reception”) that you do not want to buy anymore. You will be refunded your deposit.

After the 7 days cooling off period you are commited to buy:

·         if the purchaser indicates that he does not wish to proceed, he forfeits his deposit

·         if any conditions included in the agreement have not been fulfilled for reasons beyond the purchaser's control, the deposit will then be refunded;

·         if the seller decides not to proceed, he may have to pay a charge to the buyer.

The Notaire holds the “compromis”. He will obtain and study the Title Deeds, apply for searches etc., and generally check that all is legally in order with the transaction and not favouring either vendor or purchaser. If all is well, he proceeds to the “Acte de vente”. If he finds a problem or potential problem, he notifies the parties, either cancelling the transaction or stating that there is a reason for cancellation if one of the parties so desires. If the contract is cancelled the deposit monies are returned to the purchaser.

 The purchaser and the vendor must subsequently within a period of time stated in the preliminary contract, enter into a formal deed (“ acte de vente”)to complete the purchase of the property, drawn up and executed by a notary.

A purchaser may not wish to revisit France to attend the final completion signing, in which case, given due notice, a “Procuration Form” can be issued by the Notaire and signed by the purchaser. This gives someone else (usually an Articled Clerk in the Notaire’s office) powers to make enquiries etc., and sign on behalf of the purchaser).

An original of the deeds is sent to the Land Charges Registry and an official copy (“expedition”) is sent to the buyer.

You can usually expect a 2 to 3 months gap between the “compromis” and the “acte de vente”.

  2. Purchase of a property to be built

Vente en l'Etat Futur d'Achèvement "VEFA" (Sale of property for future completion)

This is the most common type of contract for the purchase of a property, which is not yet completed. Payments are made by instalments as the construction progresses.

The parties must sign a reservation or preliminary contract ("contrat de réservation"/ “contrat preliminaire”)which states, among other things, the price of the completed property, the technical specification, the methods and dates of payment, etc.

Once signed by both parties the seven day cooling off period applies as with resale properties. At this point the purchaser must pay a deposit, usually, of up to 5% of the estimated price, which is deducted from the purchase price.

If the purchaser decides not to proceed with the contract, the deposit will be forfeited.

Providing the contract includes a "condition suspensive" e.g. if the purchaser cannot proceed because a mortgage application has been unsuccessful, or because provisions of the contract have not been observed, the deposit will be refunded.

The parties then sign a deed of sale (“acte de vente”) containing the binding agreement of the parties on the various terms of the preliminary contract before the notary. It is at this stage that the purchaser will pay the majority of the purchase price – it will vary with developers, but can be between 50% and 80% of the total price. The vendor transfers ownership of the property to the purchaser at this point, but not the keys! The property is usually not yet complete and there will be a number of final construction/decorative stages to be completed at which final stage payments are made. When the building is complete and the payments made the keys are handed over “remise des clefs”. Again an original is sent to the Land Charges Registry and an official copy (“expedition”) is sent to the buyer.

 Your guide to financing a home in France

For more information on mortgages visit the website of our mortgage partners at www.french-mortgage.com or www.french-mortgage-connection.com. Below is some top line information

How much can I borrow?

French mortgage lenders do not use a ‘times salary’ calculation to determine what advance they will make. They use an ‘affordability’ guideline which is based on your monthly payments for all loans and rent should not exceed 33% of your joint or single pre-tax monthly income.

·         Currency: Euros

·         Maximum Loan: Usually 80% of the purchase price or property value

·         Security required: First legal charge on the French property (hypothèque)

·          Mortgage type : Repayment (although some interest only mortgages are available

·         Mortgage Term : 7-20 years ( loan repayed by age 70)

·          Arrangement fee : 1% to 1.5% of the total mortgage

·          Location of property : Mainland France.

·          Method of payment : Monthly Direct Debit in Euros.

A valuation appraisal is carried out the bank in most instances. However, it is important to note that this is not the same as a mortgage valuation carried out in UK . The appraisal is undertaken by a valuer as opposed to a professionally qualified surveyor and, in many instances, an inspection of the property is not undertaken. Structural defects may, therefore, not be identified. The purpose of the valuation appraisal is for internal risk assessment only and the results of the appraisal are not released to applicants. The bank requires you to take out life assurance and buildings & contents insurance for the duration of the loan.

What type of mortgages can I get in France?

•  Fixed rate mortgage

The mortgage rate is fixed for the whole term so you'll know exactly how much you will have to pay in Euros and how many payments you'll have to make. If you take out a fixed rate mortgage, the option to convert it to a variable rate mortgage at a later date is not available. There is an early redemption charge payable on our fixed rate mortgages.

•  Variable rate mortgage

As in the UK, variable mortgage rates are linked to the variations in the central bank lending rate. However, unlike the UK, the monthly payment on your loan usually remains stable when rates change, with the mortgage term varying according to the rate movement. Mortgage rates are reviewed quarterly, after the end of the first year following mortgage completion and complete release of funds.

How to apply for your mortgage?

We work with French Mortgage Connection who have been arranging mortgages for French property for English buyers for some seven years. Visit them at www.french- mortgage-connection.com

Acceptance of your mortgage offer

Once you have received your mortgage offer, you must wait at least 10 clear days before signing and accepting it in order to comply with French financial legislation, and then return it to the mortgage lender.

However, you must accept the offer within 30 days otherwise the offer will expire. When you return the offer to the bank, you should enclose a Euro bankers draft for the arrangement fee. The bank will then send details of your mortgage offer to your notary so that he can prepare for the deed of sale to be signed.

 ENDS