Today is: 30 July 2010
Conversation between David Anderson, solicitor and chartered tax advisor, and a UK purchaser of a French property.
Please note that the content of this article is of a general nature only and you should not act or refrain from acting in reliance on it. You should always obtain independent professional advice on the facts of your particular case. No liability is accepted in connection with this article.
*under the counter
Q: I heard about a property in France on the local grapevine, which I am buying. I went direct to the owner and we agreed a price. The property is on the market with a local estate agent at a price €40,000 higher than I’m paying. If I go ahead could I be liable for the agent’s commission?
A: Firstly, you need to establish the type of contract the seller has signed with the agent. If the seller has signed an exclusive contract, known as a "mandat d'exclusivité", with the agent he must still pay the commission regardless of whether the introduction is through the agent or not. This also affects your liability as buyer and can make you liable for the commission.
If however the seller has signed a contract with the agent on a non-exclusive basis – known as a “mandat sans exclusivité" the seller does not have to pay the commission unless the buyer has had earlier contact with the agent. So the seller pays nothing if you have dealt directly with him without the agent’s involvement. Thus the agent also cannot claim from you as the buyer because the purchase is not covered by the contract.
Q. But how can I be liable to the agent if the agent’s contract is with the seller; I haven’t signed anything with the agent ?
A: The French Civil Code allows claims in these circumstances if you have knowingly helped the seller to breach his contract with the agent. This is classed as a faute délictuelle in France, roughly similar to an English tort. The agent would have to produce evidence; e.g. (a) that the reduction in price was equal to the commission, and/or (b) that you knew that an agent was involved.
Q: The seller wants me to confirm to the notary that I am buying €30,000 furniture (which I am not) and to put this in the contract. He also wants €20,000 in cash under the table.
A: In the contract there is a statement that the full price has been disclosed. You confirm this by signing it. The penalty for a false declaration is stamp duty on the amount (4.89 %) with a penalty of between 20 to 40 % and interest on top of the total amount at 0,75 % per month.
A better approach for the furniture is to prepare a full inventory as many items, which in England are viewed as fixtures and fittings are viewed in France as movable furniture. It may well be that this inventory could realistically come to €30,000 which solves this part of the problem. No stamp duty is payable on any sum legitimately paid for furniture, as in the UK.
Q: What about the €20,000 “under the table”?
A: This is more problematic. The crucial point in France is that the notary guarantees good title on the basis that all monies pass through his account, which will not be the case here. In the unlikely event of a problem with the title, for example if the seller has difficulty redeeming the mortgage on the property from the sale price, you could find yourself with a serious problem.
Q: Have you ever seen anyone getting caught in doing this?
A: Every notary in France has had cases involving clients who have been caught out by the tax authorities. The same applies to buyers who have tried to avoid paying the agent’s commission. Our firm view is that you should not get involved in this and we would not act in such a case. In your case an agent who loses out on €40,000 commission will be very unhappy and may, in addition to suing you, contact the notary and the local French tax office to get back at you. This, needless to say, is not a good way to start off!
Q: Any other points?
A: The acquisition cost of the property will be reduced for CGT purposes. This is however, usually not an issue provided the property is kept for 15 years.
Q: What about paying cash for building works?
A: In a sale you will not be able to deduct the costs for French Capital Gain tax purposes (aside from other potential negative consequences). Since the new French CGT regime came in on 1st January 2004 we have noticed a tougher regime and only receipts with a French VAT number on them are generally deductible.