In addition to exclusive ownership, the French system recognizes the division of ownership between a right of usufruct (a right to receive the income and produce from real estate without outright ownership) and a bare ownership (ownership without the right to use and derive profit from the property) as well as timeshare arrangements.
Last modified 22 Mar 2024
There are no restrictions on foreigners investing in property located in France, whether directly, or indirectly through the purchase of a company holding real estate assets except for agricultural use properties that must be authorised by the local Prefect and sensitive activities (relating to public authority, public order, research, production and commercialization of weapons and explosive substances) that must be authorized by the Ministry of Economics. However, the sale or purchase of a property located in France for an amount exceeding €15 million by non-residents must be reported to the Banque de France for statistics purpose only.
Last modified 22 Mar 2024
Pre-emption rights exist for the benefit of French local government and administrative bodies. There are three pre-emption rights of significance here.
Where the relevant municipal council has exercised its power to implement a legal pre-emption right, the municipality in which the property is located has first call on the property itself or on the shares of the company holding the property where either the majority stake in the company or a minority stake granting the majority stake to any shareholder is sold – provided that the said company is a real estate civil company (société civile immobilière).
This right arises following the filing of a declaration of intent to sell (Declaration d’Intention d’Aliéner, DIA) by the owner of the property.
The municipality has two months as from the filing of the declaration of intent to sell to decide whether or not it will pre-empt – this two-month period can be extended if the municipality requires additional information or asks to visit the property. If the municipality decides to exercise its pre-emption right and purchase it may purchase at the price and conditions proposed in the declaration of intent to sell or make a counteroffer at a lower price/different conditions.
If the authority fails to reply to the notice within the applicable time scale, it is deemed to have waived its right.
An immediate consequence is that investors should account for a 2.5 to 3-month period between signing and closing.
Agricultural organizations (SAFER) have a right of pre-emption over agricultural assets. This allows them to consolidate farmland into larger units if this would be of benefit to the local economy.
In certain limited situations, a sale may be conditional on pre-emption rights granted to tenants of retail or of residential premises.
Last modified 22 Mar 2024
The applicable legislation is set out in a wide range of laws, each dealing with a particular aspect of the sale and purchase of real estate.
Last modified 22 Mar 2024
Different legal regimes apply to transfers of title to different kinds of real estate and there are a number of different tax regimes. There are no specific provisions linked to the industrial, office or retail sectors.
Last modified 22 Mar 2024
The legal stages of a transfer comprise an initial ‘promise to sell’ (promesse de vente), after which, if all the relevant conditions precedent are met satisfactorily (eg waiver applicable pre-emption rights), the parties will conclude a formal deed of sale before a notary public (acte de vente notarié).
Last modified 22 Mar 2024
Ownership of real estate, as well as important matters affecting it, such as mortgages, lender’s lien, easements and leases of over 12 years, must be registered with the registry maintained by the locally competent mortgage office (Service de Publicité Foncière) in order to be enforceable towards third parties. The information recorded is generally available to the public at a nominal cost.
The registration is carried out by notaries and is normally subject to a real estate publication fee (Taxe de Publicité Foncière). The real estate publication fee for long-term leases amounts to 0.715% of the total rent and service charges due for the entire period of the lease (within the limit of 20 years). Transfers of title trigger transfer taxes at a rate from 5.09% to 5.81% depending on the characteristics of the transfer, it being specified that (i) transactions involving “new” buildings or transactions whereby the buyer commits to re selling the property within a five-year period are subject to a 0.715% transfer tax and that (ii) if the buyer commits to erect a building within a four year period and complies with such undertaking, a fixed registration duty of EUR125 will apply.
Preliminary sale agreements, known in France as promises to sell (promesses de vente), are not normally recorded at the mortgage registry, but must be recorded with the tax authorities. The tax authorities keep this information confidential.
Under the French legal system and regarding asset deals, the notary is responsible for ensuring that the buyer receives a valid title to the property. This is one of the mandatory duties of notaries, for which they receive fees proportionate to the value of the property.
The risk of malpractice by a notary is covered by a system of indemnification provided by all notaries within a given Département of the French Republic. Title insurance is, therefore, not generally available in France.
Warranty and indemnity insurance and related insurance over titles tend to become market practice for share deal transactions.
Last modified 22 Mar 2024
The purchase of real estate is traditionally structured as a two-tier process:
First, the execution of a promise to sell, which can be a reciprocal agreement between the buyer and seller or an undertaking by the seller only. A deposit is normally paid by the buyer, through an escrow agent, of 10% of the purchase price (less for larger transactions). The deposit is offset against the purchase price when the sale is completed; returned to the buyer if, for some reason, a clean title cannot be transferred to the buyer within the stated period; or forfeited by the buyer if he no longer wishes to proceed with the purchase.
There is no legal requirement for a specific deposit to be paid or for this to be done through an escrow arrangement.
The time limit specified in a promise to sell is normally set for a few weeks after the expiry of the public authorities' pre-emptive rights. During this time, the notary is responsible for securing official copies of entries from the mortgage registry that provide details of any recorded mortgages on the property, so that title can pass to the buyer without any interference from creditors.
Secondly, the parties will proceed to the execution of the deed of sale in front of the notary (acte de vente notarié). Title passes to the buyer upon the execution of the deed, unless this states otherwise.
Last modified 22 Mar 2024
With the assistance of their lawyers and notaries, buyers will normally conduct due diligence on significant transactions involving commercial properties, portfolios of assets, hotels, etc. Lawyers and notaries share the responsibility for conducting these investigations, with the former being responsible for tax, social, leasing and insurance matters, while the latter are normally responsible for title, zoning, construction and commercial status.
Due diligence is normally much more limited on smaller residential and commercial transactions.
Due diligence is generally conducted between the acceptance of an offer and the execution of a preliminary sale agreement.
Last modified 22 Mar 2024
In addition to specific consents linked to the legal capacity of the seller (for example, in the case of minors or the mentally disabled), the consent of a spouse is required for the sale of a residential property that is the marital home. No other specific consents are required.
Last modified 22 Mar 2024
There are no formal requirements regarding the content or structure of a deed transferring title, except an indication that both buyer and seller are willing to carry out the transaction and can legally do so.
A typical real estate transfer contract consists of two parts and generally contains the following information:
Last modified 22 Mar 2024
French law imposes the following obligations and warranties on the seller:
The obligations are stricter when the buyer is not a real estate professional.
Last modified 22 Mar 2024
The buyer’s remedies in relation to misrepresentations by the seller in either the promise to sell or in the deed of sale are limited to a claim for financial compensation or, in some cases, the annulment of the sale.
However, an annulment of the sale does not allow the buyer (or the seller) to obtain a refund of the transfer taxes (transfer taxes amount to 5.09%-6.41% of the price paid for the property, depending on the type and location of the property, and are payable upon the execution of the notarial deed of transfer).
If there is a mutual promise to sell and to buy and the seller refuses to complete the sale, a buyer can petition the court to compel the seller to complete.
Last modified 22 Mar 2024
Private ownership of real estate is subject to land use rules and other limitations, such as the protection of archaeological sites, or mandatory expropriation for reasons of public interest (expropriation pour cause d’utilité publique). Ownership rights can also be restricted by easements for public use (servitude d’utilité publique), which are incorporated into planning documents such as the local land use plan.
Public authorities also have pre-emption rights, allowing municipalities to purchase property to facilitate projects that are in the public interest (for example, the creation of communal facilities) (droit de préemption urbain).
A buyer should also verify that the property is not part of the public domain (domaine public). Public authorities hold both public domain (including property and fixtures that are either identified as belonging to the public domain or used for the performance of a public service) and private domain assets. Authorizations to occupy a public domain property normally take the form of a temporary occupancy agreement between the public authority and a private contractor. These authorizations are subject to the French General Code of Public Property (Code général de la propriété des personnes publiques).
An authorization for temporary occupation of the public domain usually grants the private developer some of the privileges typically associated with legal ownership, such as the right to dispose of (subject to prior approval by the public authority), or create a security interest over, a building or structure on the public domain, even though the legal ownership of the land remains with the public authority.
The public body granting a temporary occupancy authorization is not obliged to renew it upon expiry. If an authorization is not renewed, the French General Code of Public Property does not provide for any right to compensation.
More generally, an investor should also have a clear understanding of the commercial lease regime as set out in the French Commercial Code which has been deeply modified following the law n°2014-626 (Pinel law) dated 18 June 2014.
These past years American and English compliance rules are increasingly being incorporated into French real estate acquisition practice. The latter integrates more and more in the performance of the obligations of the parties some of the provisions of the United States Foreign Corrupt Practices Act 1977 and the UK Bribery Act of 2010 concerning anti-corruption, sanctions and anti-money laundering compliance – which French equivalent legal provisions would be the law “Loi no 2016-1691 du 9 décembre 2016 relative à la transparence, à la lutte contre la corruption et à la modernisation de la vie économique” (often referred to as loi Sapin II).
Last modified 22 Mar 2024
In accordance with the ‘polluter pays’ principle, a landowner cannot be held responsible for historic contamination of the soil/groundwater. The French Supreme Court holds that owning title to a property is not enough to render the owner liable to carry out the remediation required by the environmental authorities (the préfet and the environmental authorities, DREAL or DRIEAT in Ile-de-France). However, if it is established that the landowner has been negligent or that he has not been ‘stranger’ to the process of production of pollution, then it is assumed that he could be considered as liable. Nonetheless, the notion of ‘stranger’ has not been defined by the legislatives.
French regulations do, however, state that environmental liability is transferred in the case of an asset purchase, when the buyer has the status of an 'operator' under the Seveso regulations, i.e when the buyer has a new operating permit to carry out 'classified activities for the protection of the environment' (Installation classée pour la protection de l'environnement or ICPE).
Consequently, where 'classified activities' are carried out on a site, the operator (the entity holding the permit issued by the environmental authorities to carry out the activities) will be held liable for pollution (historical or recent) unless it can prove that it is not responsible for the pollution and the previous operator, which caused the pollution, can be traced.
It is assumed that a third party can take over the obligation to restore a site after it has been polluted, when investing in a site which has these problems. This transfer of the obligation is coupled with the transfer of liability. This means that if the site is not properly restored, then the third party will be liable, but, if that investor becomes insolvent, the initial polluter will be liable again.
The French Environmental Code provides that the seller of a site where a 'classified installation' has been operated must inform a prospective buyer of any related dangers or inconveniences and disclose a list of any chemical or radioactive substances which have been stored on the site.
Last modified 22 Mar 2024
The zoning and planning laws and regulations for each local region are available to the public and copies of the regulations and local decisions can be obtained for a nominal cost.
Zoning and planning regulations must be checked before planning a construction project and applying for a building permit.
An operational planning certificate (certificat d'urbanisme opérationnel) which lists some of the regulations and local decisions applicable to the parcel of real estate and freezes them for 18 months can be useful.
Last modified 22 Mar 2024
Development projects can be private, public, or both; in the latter case under the auspices of the Société d'Economie Mixte (company grouping private and public interests) and, more recently, in the form of PPPs (Partenariat public-privé).
The allocation of responsibilities, charges and profits relating to a project with a mix of private and public interests is subject to negotiation between the parties.
Last modified 22 Mar 2024
Expropriation processes are used to facilitate major public or semi-public development projects. Proceedings can be lengthy but are generally considered to be fair, both in terms of the assessment of what is in the public interest and in terms of the amount paid for expropriated properties.
Last modified 22 Mar 2024
Generally, the sale of property is subject to transfer taxes or value added tax. Transfer taxes, at the rate of 5.09–5.81% of the price paid for the property, depending on the type and location of the property, apply to transfers of property built more than five years ago.
An additional tax of a rate of 0.6% of the sale price applies to transfers and sales occurring as from 1 January 2016. This additional tax only relates to disposals of office premises, retail premises and storage premises in Ile-de-France department for consideration. As a result, as from 1 January 2016, the global rate of transfer taxes applicable to disposals for consideration in Ile-de-France department is increased from 5.81% to 6.41%.
This additional tax does not apply to disposals for consideration that are subject to VAT.
Moreover, transactions involving real estates or rights on real estates are subject to a real estate security contribution (contribution de sécurité immobilière) of 0.10% of the price paid for the real estate or for the rights on real estates.
Properties built less than five years ago are subject to VAT at the rate of 20%.
Special rules apply to renovation works completed during the last five years on properties built more than five years ago.
Special regimes, driven by tax incentive legislation, apply to some newly built properties intended for use as primary residences or rental properties.
Professionals in the real estate industry who buy and sell properties as their normal business benefit from a reduced rate of transfer taxes (0.715%), provided that the properties are resold within five years of acquisition.
Transaction costs include:
Alternative arrangements for meeting the costs of the transaction can be agreed between the parties.
Last modified 22 Mar 2024
Indirect transfers of real estate, through the transfer of a company holding real estate assets, are subject to transfer tax at the rate of 5% of the price paid for the shares. Transfer tax applies to all companies, irrespective of their legal form, where the market value of the real estate accounts for more than 50% of the total value of the company's assets.
The basis for the assessment of transfer tax is the price of the shares, after the deduction of the company's debt.
Last modified 22 Mar 2024
What seller's warranties are provided under statute in the sale of real estate in this country (for example, as to the state of the building, asbestos etc)?
French law imposes the following obligations and warranties on the seller:
The obligations are stricter when the buyer is not a real estate professional.
Last modified 22 Mar 2024