Today is: 30 July 2010
Important Note: - The information given here is for information only and is of a general nature and is not exhaustive or comprehensive. Taxation and French property law are technical and complex areas of law and you should not act or refrain from acting without comprehensive specialist advice on the facts of your case. Please note that Sykes Anderson LLP does not provide investment advice.
Q. I am interested in a simple structure which will allow me to pay a property owner in France for an option to purchase their property depending on whether I get planning permission to redevelop it. Is this possible?
A. Yes, though the concept of granting an option as developers understand it in England is not the same in France and the French notaire may have difficulty in grasping what you are seeking to do.
Q. As an example I want to buy a villa for €1M to complete in 1 year’s time but only if I can get planning permission to extend it and put in a swimming pool and a pool house. I think the value with the permission will be €1.5M. The seller is in agreement but wants €100.000 now to agree to this. In England I would sign an option agreement with the seller and register it at the Land Registry. Do I do the same in France?
A. No. In France what you will need to do is enter into a compromis or promesse de vente i.e. similar to any other sale. The key issue will be the wording of the suspensive conditions which will need to be carefully worded to provide that you only have to complete the purchase if you get planning permission. Obtaining planning permission could take 6 to 8 months. The clause dealing with the release of the €100,000 is an unusual clause.
Q. What happens if I obtain planning permission within the time limit in the compromise?
A. You will have to complete the purchase. Unlike an English option agreement which you can decide not to exercise here you would have to go ahead with the purchase. The €100,000 you have paid will be deducted from the sale price.
Q. What happens if I don’t get planning permission but decide to go ahead anyway?
A. You can waive the suspensive condition because it is in your favour and complete the purchase anyway.
Q. What happens if I don’t get planning permission and I want to withdraw from the transaction?
A. You are able to do this because a suspensive condition has not been fulfilled. Normally the deposit will be held by the notaire and he will pay the money back to you.
Q. In these deals the seller normally wants the say 5% paid out to him straight away when the compromis is signed and regards this money as a fee for granting me the option. In other words it is not paid back to me if I don’t get planning permission.
A. You can deal with this in the compromise. The contract should provide that the deposit is paid to the notaire who forthwith releases it to the seller. There may be some resistance to this from the notaire. This is because releasing the deposit from a notaire’s account is unusual. The notaire may prefer only to release part of the deposit. You can have a provision that if the sale does not go through because you don’t get planning permission the deposit does not have to be paid back.
Q. What risks do I run?
A. If the seller were to default on any other suspensive condition (i.e. not related to planning permission) and you decided not to proceed you may have difficulty getting the money back. It is probably best to check matters out carefully before signing the compromis.
Q. How do I protect myself in case the French seller reneges on his promise and sells the property to someone else without my knowledge?
A. You can register the compromis at the French Land Registry.
Q. Could I get permission from the seller to start works to the property after I get planning permission but before I am obliged to complete the purchase?
A. Yes this is possible with the seller’s consent though a specific agreement usually has to be entered into.
Q. How will the transaction be taxed?
A. If you complete the transaction it will be taxed in the usual way when you sell on. You may be regarded as a marchand de biens if you do several transactions though you will probably be better off tax wise to avoid this tax status.
Q. Can I sell the option on after I get planning permission so that someone else does the building work?
A. This has a number of legal difficulties in France though can be very worthwhile from a tax point of view as a non French resident may well legally avoid all French taxation on the profit. This needs more expert advice.
David Anderson - Solicitor and Chartered Tax Adviser
Hélene Mézin - Solicitor and French notaire
November 2008