Please note that French property law is a complex subject and you should not rely on this article without professional advice on the facts of your case.
Most French property transactions go through smoothly though by English standards slowly. However as in England when they go wrong they go wrong badly and English buyers generally find it much harder to get redress. They are also at a disadvantage in that they usually do not initially understand what the problem is and so have not asked the right questions at the outset or insisted certain checks are made. A miscellany of recent French conveyances "gone bad" which reached France's Supreme Court during 2010 appears below.
Check your seller's marriage contract
Marriage contracts are effectively unknown in English law, but have a major impact in French law, not only between the husband and wife to the marriage, but also on third parties. Most English buyers are totally unaware of the effects of marriage contracts on third parties because publications in English only deal with the position as between the spouses. In a recent French Supreme Court case a couple were married under the 'separation of assets' French matrimonial regime. The husband signed a contract selling the family home. The contract had been drafted by the estate agent, which is not unusual in France, who had not sought the agreement of the wife. The contract contained the usual provision for a penalty payment if the seller did not complete.
On the completion date the wife refused to sign the transfer and the buyer then sued the sellers, the estate agency and also the notaire involved in preparing the transfer documents, for payment of the agreed indemnity in the contract. The Court of Appeal in Paris decided that the contract remained valid in so far as it could require the seller husband to pay €18,300 as a penalty even though it could not require the wife to convey the property to the buyers. This was overruled by the French Supreme Court which decided that because the Civil Code requires couples married under separation of assets to both agree to the sale of the matrimonial home, this meant that the whole transaction was a nullity and no payment of any compensation needed to be made by the seller husband. The buyer could get no compensation under the sale agreement because legally there was no contract to enforce.
The lesson to be learned from this case is that buyers should, regardless of the seller's marriage contract, ensure that the contract is signed by both husband and wife and, indeed, any other interested party. It is not unusual in France for the contract to be signed by the estate agent as the 'mandataire' of the sellers. This, however, carries the obvious risk that if the wife is not aware of the sale, or has not been fully informed and signed the estate agent's mandate, then the buyer may find he has no rights at all to the property and no rights to any compensation. If it is obvious that you are buying a matrimonial home and you do not meet one of the seller spouses it is sensible to make some enquiries and ask the agent to confirm in writing he has all the signatures needed. The agent will be unlikely to show you the mandate as it may contain a minimum price the seller will take and other price sensitive information.
What Happens when the seller sells the same property twice?
It is surprisingly easy for circumstances to arise in which the seller has purported to sell a property twice. The simplest scenario is when he agrees a sale to one purchaser and has usually signed some form of documentation and then receives a better offer from another party and signs a contract with the second "better" buyer. It could also arise if a tenant has a right of first refusal and there is any element of confusion as to whether or not the tenant has exercised his right of first refusal, but the owner goes ahead and sells to some third party nevertheless usually at a higher price.
The basic principle under French law is that if there are two people who have exchanged contracts on the same property, then priority is given to the party who first registers his title even if he signed the contract after the first buyer. In other words a second buyer in time, who registers his contract first, will defeat the first buyer in time. This does not, however, apply if one of the buyers in any way colluded with the seller in order to defeat another buyer's rights. In such circumstances the bad faith on the part of such a buyer does not allow him to obtain priority over the other purchaser.
In many cases contracts for the purchase of land are signed in France and not registered in any way, the parties only registering the sale once the 'acte authentique' or a transfer is signed before the notaire. There is, however, a strong case for saying that you should always ask the notaire to register the contract as soon as it is signed. There can be some difficulties in obtaining such a registration if the contract has not been prepared before a notary because it is not then viewed as 'authentique'. It is said to be 'sous seing prive'. However, in such circumstances you can ask the notaire to 'deposit a minute of the contract' acknowledging the signature of the parties, which should be sufficient. There is normally a fee of €125 for this registration as well as some additional registration costs.
This should always be done if there is a long period between exchange of contracts and completion or if there is any concern about the seller's financial position.
Area of property sold
There is, under French law, an obligation to state in the sale contract the usable surface area being sold which has to be calculated in a prescribed way excluding for instance areas with low ceilings. In a recent French Supreme Court decision a buyer noticed after completion that the surface area of the property he had bought was less than that stated in the transfer document prepared by the estate agent. He sued both the seller and the notary for a reduction in the price. The Court of Appeal in Paris found that the plans which had been provided by a geometre (chartered surveyor) did not have the area calculated according to the prescribed law (loi Carrez) and that the works which the seller had carried out had not followed the plans set out by the architect. The Court of Appeal, however, found in favour of the seller and decided that the statement in the notary's transfer document as to the surface area did not require the notary either to check the same or to inform the seller that he had to have the surface area checked by a professional.
The Supreme Court rejected this and decided that there is an obligation on a notaire to see from the documents which have been sent to him whether he has any reason to believe that the surface area is not correct and whether he has fulfilled his obligation to notify the parties of the legal effect of the surface area not being as stated in the transfer document. This must be the right approach. The price of property in France, especially in cities, depends to a large extent on the area. If you are in any doubt measure the area (or get an expert to do this) before you sign the contract.
Notaires obtaining copy of the title early on
In a recent Supreme Court decision a contract was entered into under which a buyer agreed to purchase some land with a suspensive condition linked to obtaining planning permission and the absence of an easement over certain land. The suspensive conditions allowed the purchaser to pull out if planning permission was not obtained or there was an easement over the land. The purchaser, after exchanging contracts, incurred costs in preparatory work. The notaire at this stage did not obtain a copy of the seller's title. After the costs had been incurred by the purchaser the purchaser found out that there was an easement which reduced the area which could be built on. The purchaser sued the notaire requesting the return of his costs for the preparatory work. The purchaser argued that if the notaire had obtained the French equivalent of office copy entries 'état hypothécaire' then it would have been obvious there was an easement and the works would not have been undertaken.
The Supreme Court decided that the notaire had not been negligent in that he had done enough in putting in a suspensive condition which did not require the notaire to obtain details of the title before preparing the contract. This decision is somewhat surprising and buyers are best advised to insist upon a notaire obtaining an 'état hypothécaire' at the outset if they have any doubts about the position or are proposing to carry out any works to the property. We have noticed that notaires are often reluctant to obtain the état hypothécaire early on in transactions. In more complicated or higher value matters it is best to get a separate notaire to act for the buyer.
Estate Agents Mandates
In France estate agents are typically given a mandate which contains various powers for them to advertise, show the property and usually includes powers for them to sell the property. The mandates can be exclusive (only the particular agent has power to sell the property) or non-exclusive (a number of estate agents can be given instructions to sell the property). Estate agents are usually keen to have an exclusive mandate which is usually not in the seller's interests. In order to have power to sell the property the estate agent's mandate needs to expressly state that the agent has the power to conclude a contract. This often appears in standard printed estate agent's mandates which sellers are invited to sign. In our experience English sellers rarely read these and fewer still understand what they are signing.
In a recent case an individual signed an exclusive estate agent's mandate at a specified price. The property sold very quickly and the seller then decided not to proceed with the sale and sought a way of escaping from the contract signed by the estate agent. There is a requirement under French law that if the mandate is an exclusive one then the estate agent must give a copy of the mandate to the seller when he signs the same. In this particular case the French Supreme Court decided that this did not just apply to whether or not the exclusive nature of the contract was valid, but was a basic condition of the entire agreement. In this case the agent had not given the seller a copy of the mandate and the Court held that this made the sale null and void. The seller was lucky here.
The difficulty for bona fide buyers is that they will be relying upon the estate agent's representation that the mandate has been properly signed. It seems reasonable for a buyer to ask to see a copy of the mandate if the agent is proposing to sign the contract to make sure the agent has all the necessary powers to sign. However, it is impossible for a buyer to check that the selling agent has complied with the minutiae of the French law and provided the seller with a copy of the mandate. This may result in a buyer committing to buy a property and then being told that the estate agent had no power in fact to sell the same.
Sellers should be very careful before signing any exclusive mandate, especially one which gives powers to the agent to sell the property. An exclusive mandate allows the agent to appoint sub-agents who then report direct to the main agent involved. It also prevents the seller from going out into the market and selling through other agents. The seller has to be extremely careful if any other agents approach him during the specified exclusivity period, as he may end up having to pay a commission to the exclusive agent as well as to the other introducing agent. Standard printed contracts usually provide that a fee will be payable whether or not the introduction comes via any agent.
Exclusive Mandate
In a recent case the sellers signed an exclusive mandate with an estate agent for the sale of their apartment. Ten months later the estate agent had still not found a purchaser. The sellers decided to unilaterally end the exclusive nature of the contract by sending the estate agent a recorded letter under which the original agent could carry on selling the property but not on an exclusive basis.
A second agent was appointed and quickly found a purchaser with whom a sale was concluded. The initial agent then sued the seller on the basis that he has an exclusive agency and the unilateral actions of the seller could not terminate this. The French Supreme Court decided that the seller had the power to terminate the mandate and that this could extend to a partial revocation of the mandate. The seller had the power to totally revoke the mandate and, accordingly, could also revoke part only of the mandate.
There is, in fact, an express law which provides that after a period of 3 months from the date of signature of an exclusive mandate either the seller or the agent can terminate the mandate by notifying the other party at least 15 days in advance by a registered letter. It is important to note that in order to terminate such a mandate the seller has to wait for a period of 3 months and then send a registered letter. This case shows that you need to know the French rules and follow the procedural requirements carefully to avoid paying a double commission.
December 2010
Solicitor and Chartered Tax Adviser
Sykes Anderson LLP
9 Devonshire Square
London EC2M 4YF
Telephone + 44 20 3178 3770
E-mail: david.anderson@sykesanderson.com
Website: www.sykesanderson.com