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Service France
Please note that taxation and property are complex subjects and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it.
Q. I have agreed to buy a French property for £500,000. The seller and I want to do everything in sterling to avoid currency exchange risk and fees. The notaire has said we have to convert the price to Euros, pay the money through his account and then re-covert back to sterling.
A. This is the stock answer from most notaires, but it is wrong. There is no obligation on you to actually pay in Euros. The transfer document ( acte authentique ) must however show the price in Euros but you can simply use the exchange rate on the date you and the seller complete the transaction, as set out in the first contract ( compromis de vente ).
Q. So how do we deal with the transfer of funds?
A. There is no legal obligation on you to pass the funds either through a notaire's account or a solicitor's account. It is sensible to use a solicitor's client account in sterling because otherwise the buyer may not pay you in full. In practice the notaire is under no legal obligation to ensure he has the money in his account. In our view the risks are too high not to use a solicitor in England.
Q. Take me through this stage-by-stage.
A. Initially the deposit in sterling is paid by the buyer to the buyer's solicitor who holds it in his client account subject to the terms of the French contract ( compromis de vente ). French law governs all the rights and duties under the contract e.g. what happens if one side refuses to complete. The compromis de vente can express the price in sterling. The important point is that the contract must have certainty as to price or it may not be valid in French law. This means that the contract must have a formula, which produces a price in euros on the completion date.
Q. What happens once the conditions suspensives (the conditions precedent) in the compromis de vente are satisfied and we are ready to complete?
A. The balance of the funds in sterling needs to be paid by the buyer to the buyer's solicitors. You will also need to ensure the notaire has all the money in euros he needs to complete. This will include the notaires fees stamp duty and agents fees if the buyer is paying them. The buyer's solicitor holds the money in sterling in his client account until the notaire confirms completion has taken place. He then transfers the money to the seller's solicitor who pays out to the seller. The final transfer document (Acte Authentique) is prepared with the price shown in Euros, converted at the exchange rate for the date of completion. The relevant registration fees in France are paid on the basis of this price, so the purchaser assumes some exchange rate risk and will have to pay the notaire a little more in euros to guard against this. The notaire will refund the balance.
Q. What other angles are there?
A. The notaire cannot complete unless he is sure the seller's tax position is clear. This is because, unlike in the UK, the notaire is under a duty to ensure ( inter alia ) that any French capital gains tax is paid i.e., he withholds French capital gains tax. Before completion, the notaire uses a form to work out the French capital gains tax and lets the seller know the amount due. The seller or the seller's solicitor must send the notaire sufficient funds in euros before completion to ensure the French CGT will be paid.
Q. Can the buyer and seller use the same English solicitor and French notaire?
A. You cannot both use the same solicitor as English rules prohibit this. You can, however, use the same notaire. Normally we strongly recommend the use of separate notaires, but the difficulty of explaining the above to French notaires means that this is an exceptional case when it is easier for our recommended notaire, who understands the mechanism, to act for both buyer and seller. The risks are in any event lower as the seller is in the UK.
Q. What about the seller's mortgages?
A. This is trickier. Notaires do not "freeze" the Land Registry title as we do in the UK. They pay the mortgage off after completion and have an insurance policy, which pays out in the unlikely event of a seller fraudulently mortgaging the property just before completion. The notaire's insurance policy only pays out if all monies have gone through his account so there is some risk here, as the monies will not have gone through his account because they stayed in the UK in sterling. In practice the notaire has to have a copy of the registered mortgages from the French Land Registry, which is not more than 2 months old at the date of completion. This can be renewed but it is difficult to have one less than 2 weeks old at completion. There is a small risk the seller could mortgage the property shortly before completion, which would not be known to the notaire. The risks of this are however low but neither the notaire nor the solicitor will accept this risk. Insurance in the UK may be available to protect you against the risk.
Q Any other thoughts?
A Yes there are a lot of angles here, which are outside the scope of this article and will depend on your particular circumstances. We will be pleased to discuss them with you in more detail.
Sykes Anderson LLP runs a specialist French property conveyancing service.