Please note that international tax law is a complex subject and you should not rely on this article without professional advice on the facts of your case.
An aspect of buying or selling property in France which is almost never touched on when a contract is first presented for signature is what happens if the buyer or seller for whatever reason refuses to complete the sale. This may, for instance, be because the buyer is unable to raise the money or the seller has received a higher offer from a third party. These cases normally end up in court when property prices move, either up or down.
In France generally, two different initial contracts can be signed, either a compromis de vente or a promesse unilaterale de vente. This contrasts with the position in England when generally one type of contract is used for residential sales which is roughly similar to a compromis de vente. Which type of contract has been signed will affect the position if one of the parties refuses to sign the final sale deed. However there is rarely any discussion at the outset as to which type of preliminary contract should be signed, it is often a matter of notarial habit (notaires in Paris tend to use promesse de vente, those outside tend to use compromis de vente). More frequently, however it is the estate agent's decision, if they ask the client to sign a preliminary contract they tend to use a compromis de vente as there are additional formalities associated with a promesse de vente which has not been drafted by a Notaire.
English buyers are often unaware of the difference between the two kinds of contracts. Ensuring you understand how the contract works is particularly important if there is to be a lengthy period between exchange and completion or if you are planning to take steps such as applying for planning permission or changing the use of the property which will make it more valuable and may result in the seller seeking to renegotiate. If a party will not sign the final sale deed some of the principles, are set out below.
Promesse de vente
Simplistically, a promesse de vente, is an undertaking by a seller to sell to a given buyer if that buyer exercises the option to do so. In English terms you can view it as an option agreement. The buyer pays a deposit which is actually called an "indemnity for immobilisation". This payment is to indemnify the seller for having taken their property of the market and undertaking not to sell to a third party. This means that the buyer can withdraw at any time by losing his deposit. The promesse de vente will also provide circumstances in which various conditions relating to the sale are not met and therefore the buyer can withdraw and recover their deposit.
Because of the nature of the contract, where there is a promesse de vente the buyer cannot force completion until after the option has been taken up. The conditions for taking up the option will be set out in the promesse de vente. Generally, the buyer has to notify the Notaire who is due to draw up the final sale deed and pay over the money for the purchase including all fees within the time-frame provided. The wording of the various conditions which the buyer needs to comply with and the time limits are set out in some detail in the promesse de vente and need to be carefully followed so that the option has been validly exercised by the buyer.
If the seller refuses to complete, the buyer can require the Notaire to draw up a procès-verbal de carence. This is a form of minutes stating that a party has failed to attend or to complete the purchase. The procès-verbal de carence can then be published at the appropriate Land Registry which will temporarily block the title. The buyer then needs to either convince the seller to sign the final sale deed or bring court proceedings so that a judgement can be made in lieu of the sale deed. The seller will find himself in the difficult position of being unable to sell the property until the Land Registry entry is cleared off the title by either agreement or a court order. This can freeze the seller's title for years.. In some cases the position can become complex if the property has been "sold" to a third party and a buyer may prefer to recover their deposit and walk away.
When it is the buyer who will not complete, the seller can simply keep the money once the contract has expired. The seller cannot force the buyer to complete the sale.
Compromis de vente
Simplistically, this contract can be analysed as a sale which is subject to conditions being fulfilled. It is not in English terms an option to buy. As in a promesse de vente a deposit is usually paid. Although the deposit can be qualified in such a way as to be a payment made if a party withdraws, this facility is normally excluded. Rather, because of the nature of the compromis de vente as a sale subject to conditions, it is usual for the buyer and/or seller to be able to force completion, as well as potentially receiving damages if the conditions are met but one party does not wish to complete.
If one party refuses to complete, the other can require the Notaire to draw up a procès-verbal de carence. This is a form of minutes stating that a party has failed to attend or to complete the purchase. The procès-verbal de carence can then be published at the appropriate Land Registry which will temporarily block the title. After this, either the final sale deed is signed or court proceedings are brought by a party so that a judgement can be made in lieu of the sale deed.
The procès-verbal de carence
Literally described as "minutes of failure or absence this can be drawn up by a Notaire or more normally by a huissier (a bailiff). The parties are sent formal letters requesting their presence at a meeting and if one fails to attend the Notaire or bailiff takes down a record of the meeting, stating who did attend and who did not. They will also confirm if the purchase price and other matters required for completion are available.
In some cases if the buyer or seller anticipates that the other party will become difficult about signing on the completion date by say seeking to renegotiate at the last minute regardless of what the earlier contract states, it may be prudent to have a huissier on standby. In such a case the party who is ready to complete can ask the huissier to come to the notaire's office and officially note that he is ready to complete but the other party is refusing to do so. This can then be used as proof in any court case. It can tactically bring matters to a head with the other party as it shows a determination to seek redress. If the buyers do not speak French usually the notaire will have a translator present. It is best for buyers to say as little as possible and simply confirm all monies are with the notaire to complete on the due date.
The notaire is placed in a difficult position here especially if he acts for both buyer and seller. If say the seller refuses to sign then the notaire will have to advise the buyer to arrange for a huissier to attend at the notaires office, usually without telling the seller, which the seller may see as "his" notaire acting against him. The notaire will normally be seen as leaning in favour of the buyer as he will normally be paid by the buyer only if the transaction completes. This is where there is a clear difficulty with the French notarial system and probably why notaires may uncomfortable discussing the position at the outset with both parties present.
Forcing completion
It is more likely that the buyer will seek to force the seller to complete rather than the other way round. This usually happens when prices are rising. The law is in Article 1184 of the French civil code. It provides that where a party to a contract breaches the contract, the other party can either force the execution of the contract or request that the contract is rescinded with damages.
January 2011
Solicitor and Chartered Tax Adviser
Solicitor and Clerc de Notaire
Sykes Anderson LLP9 Devonshire Square
London EC2M 4YF
Telephone + 44 20 3178 3770
E-mail: david.anderson@sykesanderson.com
Website: www.sykesanderson.com