| The contract | | | | determining whether you should sign the contrat de |
| You should not sign any agreement until you are | | | | reservation at the outset. |
| entirely happy with its contents and fully understand | | | | Builders' construction guarantees |
| the legal implications of what you are signing. If you | | | | Garantie extrinsique |
| are unsure, then you should first consult with a | | | | This is either:a) the opening of a line of credit by a |
| solicitor who is an expert in French Property Law. | | | | bank to the developer orb) a bank accepting joint |
| Once you have spoken with a developer and wish to | | | | liability with the developer and agreeing to complete |
| go ahead with an off-plan purchase, you will be | | | | the construction of the property if the developer fails |
| asked to sign a Contrat de Reservation. This fully | | | | to do so. |
| commits you to the purchase of the property - it | | | | Garantie intrinsique |
| does NOT allow you to withdraw only at the cost of | | | | This is the personal guarantee of the developer and |
| your reservation fee, as other contracts might. | | | | can only be made in limited circumstances where |
| Contracts for the sale of property off plan are | | | | eithera) the property is already protected from the |
| known as VEFAs or 'Vente en état future | | | | elements (ie: the roof is on) and it is not subject to a |
| d’achèvement'. They are quite distinct from | | | | mortgage, or alternativelyb) if the foundations of the |
| other contracts for the sale of land and they have | | | | property are built and the developer can prove that |
| certain legal and practical pecularities that are not | | | | he has available to him funds equivalent to 75 per |
| seen in English law. | | | | cent of the sale price of the property through either |
| Deposit | | | | bank finance or through sales receipts from other |
| On signing such a contract you will usually be asked | | | | properties. |
| to pay a deposit of between 2 and 5 per cent. The | | | | The maximum stage payments allowed by French |
| maximum of 5 per cent is set by law. If, however, | | | | law are as follows: |
| the developer states in the contract that the | | | | 1)5% deposit on signing of the contrat de |
| property will not be completed within a year of the | | | | reservation. |
| date of signing it, then the maximum is 2 per cent | | | | 2)35% on completion of the foundations of the |
| (Rule 261-28 Code de la construction et d’ | | | | property. |
| habitation). | | | | 3)70% when the property is weatherproof. |
| You should also ensure that the contract makes | | | | 4)95% on completion of the construction of the |
| provision for the deposit to either be held in a bank | | | | property. |
| account in your name set up by the developer or, | | | | (Art R 261-14 Code de la construction et |
| alternatively, held by the notaire until the date that | | | | d’habitation) |
| the legal title to the property is transferred to you. | | | | Buyer's contractual leverage |
| This is actually a legislative requirement and if the | | | | You pay the final 5 per cent when you receive the |
| developer fails to comply with it, this is an offence | | | | keys to the property. If you are unhappy with the |
| punishable by a fine and/or imprisonment. Your | | | | completed property in that you feel the developer |
| knowledge of the law in this area may ward off | | | | has not complied with the specifications contained in |
| unscrupulous developers if you encounter difficulties | | | | the 'notice descriptif', then you can withhold this |
| in getting your deposit repaid (Rule 261-29 Code de la | | | | remaining payment. However, you must place it in |
| construction et d’ habitation). | | | | the hands of a stakeholder who will hold it until the |
| You are entitled to the return of your deposit within | | | | dispute is resolved by an independent arbiter. Once |
| three months of requesting it if the developer does | | | | you comply with this requirement, the keys to the |
| not proceed with the transfer of the property to | | | | property can then be released to you. |
| you within the timescale set out in the contract, or if | | | | Mortgages |
| you are unable to obtain a mortgage offer (provided | | | | French mortgages take into account the structure |
| that details of the mortgage you have applied for are | | | | for financing the purchase of a new-build property |
| contained in the initial Contrat de Reservation which | | | | and the mortgage funds are advanced in accordance |
| you signed). Once again this is your statutory right. | | | | with the requirements of the contract. Legal title is |
| When signing a 'Contrat de Reservation' you are | | | | usually transferred on completion of the foundations |
| effectively agreeing to complete the purchase of the | | | | of the property when 35 per cent of the total cost |
| property at some later date. The date at which the | | | | of the property is payable. You need to take care |
| legal title in the property is transferred should be | | | | that the contrat de reservation includes all necessary |
| stated in the contract. It is important to note that | | | | 'clauses suspensives'. |
| the date of transfer of the legal title to the property | | | | Costs |
| is not necessarily the date that completion of the | | | | New-build properties are subject to VAT at 19.6 per |
| building works takes place and thus the date that the | | | | cent, which is usually included in the price. This results |
| property will be available for occupation. | | | | in reduced 'frais de notaire'. If you are planning to |
| Transfer of the legal title takes place whena) the | | | | rent out the property, in some cases you can |
| developer becomes the legal owner of the property | | | | recover the VAT. This needs to be discussed with |
| andb) is able to offer you a legal guarantee that | | | | your professional adviser at the outset. |
| either the construction of the property will be | | | | Sale and leaseback |
| completed or that if it is not, your funds will be | | | | Many developers offer sale and leaseback schemes |
| repaid. Once again these two provisions are legislative | | | | to purchasers. These allow you to purchase the |
| requirements set down in the Code de la | | | | property as a rental investment. The developer |
| Construction et d’habitation. | | | | usually drafts the contractual documentation. |
| With respect to legal ownership of the land, the | | | | Although we are unable to cover sale and leaseback |
| British assumption that the developer owns the land | | | | agreements within the scope of this article, a |
| is not always correct - the developer can in fact | | | | purchaser should have the contractual documentation |
| enter into a contrat de reservation with you without | | | | checked carefully by a legal expert prior to signing as |
| owning the land that he intends to develop. The | | | | there are a number of potential pitfalls. |
| contrat de reservation should set a date by which | | | | Pre-contract enquiries |
| the legal title in the property should pass to you and | | | | These are not usually raised in a formal way as in |
| if the developer is still not the legal owner at this | | | | England because it is not within the legislative |
| date then he is entitled to withdraw from the | | | | framework of a VEFA. This is often because French |
| contract as long as your deposit is returned within | | | | buyers carry out their own enquiries. We recommend |
| three months. You will be able to claim for damages | | | | that you ask the developer to include service charge |
| if you have sustained a loss as a result of the breach. | | | | levels and information about any proposed |
| If the developer is already the legal owner of the | | | | development in the immediate vicinity. We also |
| land upon which your proposed property is to be | | | | recommend that you arrange to have the equivalent |
| built, the transfer of the legal title in the property | | | | of a English local search carried out. |
| from the developer to you cannot take place unless | | | | Choice of notaire |
| the developer is able to offer one of the two types | | | | The developer's notaire can act for you. However, in |
| of guarantee detailed below. The type of guarantee | | | | our view, this creates a conflict of interest and you |
| to be offered may be very important to you in | | | | may prefer to appoint your own notaire. |