What is the process of buying property in France?
Once an offer has been made and accepted on a property in France, the process is divided into two stages. The purchase is first formalized by a preliminary contract that may be prepared either by a notaire or by an estate agent. While the seller cannot retract the sale after signing the preliminary contract, the buyer has a 7-day period during which he or she can withdraw without any financial penalty.
The purchase is ultimately finalized with a formal deed of sale called the "Acte de Vente." This is executed in the presence of the notaire. At this time, all moneys are exchanged and the property ownership changes hands.
The period between signing these two documents is normally about 10 to 12 weeks. During this time, your notaire will verify the seller’s title to the property, various building code requirements and other legal issues surrounding the sale. The buyer will arrange for any financing.
What is the Preliminary Contract?
The "contrat de vente sous conditions suspensives," "compromis de vente" or "promesse de vente" is a binding written agreement between you and the seller of the property by which you agree to buy it. The final date for signature of the purchase and sale contract is fixed in this preliminary contract, but can be moved up if both parties agree. Upon the signing of the preliminary contract, a deposit – normally 10% but possibly reduced to 5% – is paid either to the notaire or to the escrow account of the estate agent. (Not all estate agents are legally entitled to receive a deposit.)
The agreement is subject to conditions known as "conditions suspensives" or "clauses suspensives." These state that the contract will only be binding under certain conditions – for example, if the buyer obtains a mortgage within a set period of time. Naturally, it is very important to be accurate when drafting these conditions and to make sure that they cover all important points. The party to whose benefit the conditional clause was written will be released from the contract if that condition is not fulfilled.
Typically, the buyer has the right to a conditional clause based on obtaining a loan. The loan amount, rate of interest, and term length are all specified in the agreement; if the buyer cannot obtain a loan on conditions at least that favorable, he or she is released from the obligation to buy the property. Note that with higher priced properties, the seller may decline to sign with a buyer who reserves this clause.
If you are seeking a loan in France, you may be required to take a medical exam to qualify for life insurance, which must be secured in order for the loan to be issued. If you are seeking a loan in France, then, it is best to keep the conditional clause intact.
Loans, mortgages etc.
While the notaire is dealing with the drafting of the title deeds and final act of sale, the buyer will be arranging the finance for the purchase. Financing the purchase of the property may take several forms depending on the circumstances:
- first (or second) mortgage on your existing property outside of France
- a mortgage in euros on the French property from a French lender
- a mortgage from one of the main French banks made in your currency and secured by a charge over the French property.
French banks have particular standards and requirements for mortgages, and the process can be unfamiliar to international buyers. The loan is usually limited to 80-85% of the assessed value of the property. Mortgage rates can be fixed or variable.
We will be pleased to put you in contact with a trusted mortgage advisor to assist in the obtaining of any finance that you require.
Who is the Notaire?
The notaire is a public official who prepares the title deeds relating to the sale and purchase of land, and attests on public record the fact that the deed has been signed in his or her presence and understood by the parties concerned. Notaires enjoy a very privileged and highly respected position in French society.
The notaire does not need to represent the interests of any one party. Often one notaire deals with both parties to the transaction. However, it is quite legitimate — and often advisable — for a buyer to have his or her own notaire who would then represent him and his interests. In such a case, the professional fees – regulated by the state – are split between the two notaries. No extra cost is involved in having your own, who naturally will be more on the lookout for your best interests.
The buyer’s notaire will make various title checks about the property and:
- ensure that the property being sold matches the title deeds and registry documents
- establish the identity of both parties (with the help of birth and marriage/divorce certificates)
- ensure that the seller is indeed the owner of the property to be sold
- ensure that there are no covenants other than those already mentioned in the preliminary contract that might adversely affect the property
- search the Land Registry with a view to establishing whether there exist any restrictions to the right of disposal of the property, such as easements or mortgages over the property
- if the property is mortgaged, will ensure that the purchase price will be sufficient to redeem the mortgage completely
- obtain from the local Town Hall a planning certificate showing the planning rules relevant to the property
- inform anyone entitled to pre-emption rights of the impending sale, giving them two months within which to decide whether to take advantage of their rights.
In whose name should I buy the property?
There are a number of ways to purchase the property:
- in your own name
- in the joint names of you and your spouse or co-purchaser(s);
- in the names of your adult children or of someone who will eventually inherit the property from you;
- in the name of an ordinary limited company, whether English or French
- in the name of a special type of French company called an SCI (société civile immobilière), which exist mainly to own and manage properties in France.
Each method has its own advantages; the best structure depends on your own personal circumstances. It is important to address this issue early on because of the potential tax and other savings that can be had when you plan to sell or transfer the property. For example, certain fees and taxes are payable each time a property changes hands. If you create the right structure so that a property passes smoothly to your inheritors without “changing hands,” your tax savings are substantial: property in France may be subject to up to 60% inheritance tax.
As is the case with any tax savings structure, there are advantages and disadvantages to the various choices available to you in France. Having the right information and choosing the right ownership structure is the key to maximizing the potential of your property investment.
What about a survey?
Property purchase in France requires the seller only to show proof of lead, asbestos and termite tests. You can choose at your cost to have the property you intend to buy surveyed. However, in Paris, buildings are quite strictly regulated, and therefore surveys are not ordinarily performed and ultimately may not be necessary. A survey may be advisable for properties purchased outside of Paris or other metropolitan area, where their condition may be less sure. If you wish, we can make arrangements for a survey in or outside of Paris, and will be pleased to discuss the merits of doing so.
What is the Acte de Vente?
This is the final act of purchase, in essence the title deed proving who is the owner of the property. Whereas the preliminary contract can be prepared by either the notaire or the estate agent, French law requires that this deed of sale be prepared by and signed in front of a notaire.
How is the transaction completed, and must I be in France for the final signing?
Prior to the final signing, the notaire will send the buyer a completion statement showing the balance of the purchase price and all other registration fees for the purchase. Once the deed of sale has been signed by both parties, the notaire will register the transfer (as well as the mortgage if applicable) at the Land Registry (Conservation des Hypothèques). The original deed will remain with the notaire who will give a certified copy to the buyer.
The buyer may be present to sign the documents before the notaire, or arrangements can be made for a Power of Attorney to enable another person to attend and sign on the buyer’s behalf.
What are the capital gains tax implications of a property purchase in France?
There is no capital gains tax on the sale of a primary residence.
For a secondary residence owned either individually or through an SCI, the amount of capital gains owed is a factor of (1) the fiscal residence of the seller, and (2) the length of time that the seller has owned the property.
Residency: The base rates are as follows:
- 27 % for French residents
- 16 % for residents of any other EU country
- 33,33 % for non-EU residents (US, Canada, Australia, etc.)
Period of ownership: If a property is sold within 5 years of purchase, the seller will owe tax on the full capital gain. For each year of ownership after the fifth year, the capital gain on which the tax is calculated is reduced by 10%. This means that after fifteen years of ownership, the reduction is 100% and there is no capital gains tax to pay in France.
For all sellers, estate agency and notaire fees are deductible from the basis for calculating the capital gains tax. Other adjustments apply, including renovation and improvement expenses. Sellers may use the real renovation cost, or, after 5 years of ownership, an allowance of 15% of the purchase price may be applied. A 1000€ tax-free allowance is also permitted.
Any tax due is calculated and collected by the notaire at the closing of the sale.
Whether and how much capital gains tax is due in the home country of the seller will depend on where the seller is from.
Can I move money into and out of France freely?
Yes. But bank exchange rates can be prohibitive if you are moving money from other currencies. We work in close contact with a currency exchange service with offices around the world that offers rates very near the official interbank rate. In addition, they can fix a rate forward for up to two years if you are taking a French mortgage, so that you can predict the cost to you of the monthly payments and not be subject to uncertainty and fluctuations in the currency market. We will be glad to put you in contact with our currency exchange partner for more information on your options.
If you take a French mortgage, you will be required to establish a French bank account for your payments.
How do I pay the purchase money?
When the acte de vente has been signed, the notaire pays the purchase price to the seller and the fees to the agent or agents on the sale.The entire purchase price, including taxes, fees and any agency commissions, must be in the hands of the notaire by the day of completion, unless other specific arrangements have been made. You will normally need to transfer the money to the notaire’s escrow account in France. If this is an international wire transfer, arrangements will need to be in place a few days in advance, to ensure that the money is received on time for the closing.
What are the taxes and additional fees on my purchase?
All in all, the buyer should normally expect to pay fees and taxes of about 6.5-7.5% of the purchase price. These break down roughly as follows:
- Land Registry taxes (known as TPF - Taxes de publicité foncière) of approximately 5.1%
- Miscellaneous expenses – calculated according to various documents that the notaire must search and examine in order to draft the deed of sale. They usually amount to less than €700.
- The notaire's fee is charged on the purchase (and on the mortgage if applicable), calculated according to the value of the property and the size of the mortgage. On the conveyance, the fees are 0.825% for properties over €16,800. The fee is subject to VAT (value added tax) at 19.60%.
Are there any other things I should do at the same time as I buy a property?
Because the property will be governed by French inheritance laws, it may save time and trouble later on if you review the inheritance tax implications of your purchase, and consider making a separate will in France that governs the property. In so doing, you’ll also be able to determine the best structure for owning the property. We can steer you toward excellent resources for this.
You will also want to insure your property and its contents. We can provide you with contacts for insurance, often the same resources you will use for setting up a mortgage in France. Once the purchase is complete, you will wish to have water and rubbish collection charges transferred to your name, and set up telephone and other utilities. You will be asked to notify the Town Hall that you own the property and register for local property taxes. Again, we can provide you with information and contacts to ensure a smooth transition.
After I have settled in, what are my continuing obligations?
Residents and non-residents are subject to different standards. Those who spend less than 184 days a year in France are usually classified as "non-resident." Still, they are expected to:
- pay real estate taxes ("impôts locaux")
- make a declaration of capital assets in France and, where appropriate, pay tax on them
- pay income tax on any income deriving from activities in France
- pay electricity, water and other bills. It is customary, as well as convenient, in France to set up automatic debit of these bills directly from a French bank account.
What about inheritance issues?
The structure of the holding will largely determine what happens in this instance, and is another reason for looking carefully atv how the property is purchased. In general, jointly owned property does not automatically pass to the survivor. It will (subject to certain limitations imposed by French law) be dealt with according to any instructions which you leave in your will or, if you do not leave a will, under the rules relating to intestacy.
What should I look out for when buying a property?
It is important to make sure that you understand your rights and obligations under the preliminary contract. If you have signed a compromis de vente with an estate agency, be sure to have it checked by your lawyer and/or your notaire during your 7-day reflection period so that you have the chance to withdraw if it reveals unfavorable terms. Otherwise, you may be committed to a contract that you did not understand, that may be unfair or unsafe and which could be financially structured in a way that is unsuited to you or tax inefficient.
When you sign the preliminary contract you are likely to be asked to pay a deposit, typically 10% of the purchase price, sometimes negotiable down to 5%. If you do not exercise your right of retraction and then later fail to complete the transaction on time by your own negligence or without legal reason, you stand to lose the preliminary deposit. Acting in a timely manner to secure your loan and to arrange your final payment at closing is important to ensure that this problem does not arise.
How can you help me buy a property in France?
With over 3,500 rental agencies in Paris alone, finding a property can be a difficult task in the absence of a Multiple Listing Service (MLS), which doesn’t exist in France. To find a property on your own would require visits to scores of agencies, scanning websites, and pursuing numerous listings in each individual neighborhood. And still you would miss out on over half the available properties in Paris, which are sold directly by owners. We access all of the properties for you, giving you access to private listings through the valuable relationships we’ve built over the years, so that you see only the finest and most suitable properties.
How we work:
Initial Consultation: Once you’ve provided us with your search details, we begin with a one-on-one consultation, by phone or in person, working with you to pinpoint your needs and objectives for your property purchase.
Property Search: After the initial consultation, we search, source and screen properties based on your parameters. If you are a Paris resident, we schedule and accompany you on-site visits to the properties you want to see. If you are only in Paris for a short stay, we schedule visits to maximize the use of your time. We provide you with photographs, floor plans, and our expert analysis of the properties, including price relative to market, monthly charges, and other information on the property and the neighborhood. We can also arrange meetings with professionals who can assist in your purchase decision.
Property Purchase: Once we’ve found the right property to match your desires and investment objectives, we manage the entire process through to closing. We schedule and attend meetings with the notaire, and the signing of the preliminary purchase agreement. If you are not here for the closing process, we can represent you through a Power of Attorney, ensuring that your best interests are always at the forefront. During the two-to-three month period till closing, we help you access all the resources you need — mortgage lenders, renovation and decorating experts, legal and tax advice — to ensure that your closing process is smooth and easy.
What do I do next?
If you would like further advice, please be in touch. We are glad to answer your questions and assist in finding you the perfect property for your needs.
