French mortgage ten must knows is a must-have checklist of the ten essential things you need to know before making an offer to buy a French property.
French Mortgage Ten Must Knows
Be sure to have the French mortgage ten must knows with you when you set off on your French property search. It will help you manage your expectations and avoid the pitfalls arising out of the French property buying process.
1. Estate Agent / Offer To Buy A French Property
Properties in France are mainly marketed by estate agents.
They are professionals who are required to be registered and hold a professional certificate to practise called a carte professionnelle. Make sure you ask to see it before you view or sign anything because there are severe penalties for dealing with an unregistered estate agent.
It is likely that the agent will as you to sign a document called ‘bon de visite’ before you view. This proves that the property was viewed with the estate agent – thus protecting the estate agent’s commission.
Notaires also have the right to market properties on behalf of their clients. Not all Notarial offices have a sales department.
An offer can be made verbally or in writing. It is difficult to accept an oral offer because it is not necessarily binding and it could be complicated for the other party to prove that his contracting party wished to proceed. For this reason written offers are always requested by the estate agent or vendors.
The offer must be detailed and the full terms of the contract must be set out including a description of the property, the proposed price and any conditions for the purchase. If the offer contains any reserve clause it is likely that the offer will only be considered as an intention for serious negotiations to begin.
2. Signing of the Initial Contract
This is the most important part of the transaction as it is the legal point of commitment.
With an agreed contract signed the terms and conditions of the sale are set and a Notaire can begin to conduct the searches needed for completion.
Two contracts are used in France.
The first type of contract is a promesse unilaterale de vente. Under a promesse only the vendor will be committed to sell to the purchaser who, without being committed to purchase, will benefit from the fixed period to decide as to whether he wishes to proceed. This type of contract is mainly used by Paris based Notaires.
The second type of contract is a promesse synallagmatique de vente, normally called a compromis de vente which commits both parties to the transaction.
At this stage of the transaction the vendor will have to disclose any information regarding the property. For example the vendor must declare any lease agreement (rural or residential), disputes with neighbours or servitudes. Additionally the existence of any modification with guarantee similar to the British NHBC insurance and/or planning approval should be noted.
The purchaser must state if they will need a mortgage and its conditions will be set out in the contract as a clause suspensive.
3. Cooling Off Period
In England it is the practice not to enter into a binding contract until you or your solicitor are satisfied about searches and enquiries, any survey and any necessary mortgage offer.
In France, as in Scotland, it is usual to enter into a compromis de vente, which will immediately bind both parties to the transaction.
To counter high pressure sales techniques by estate agents, a French law – Loi SRU – was enacted which includes a provision to allow buyers to change their minds and unilaterally withdraw from the contract within a short fixed period.
This cooling off period will last for ten clear days, starting the day after the contract is received by the purchaser.
4. Appointment of Notaire
Notaires in France are Public Officials appointed by the Ministry of Justice. They have their own system and practice that is distinctive from the other legal professions of avocat or solicitor.
They are empowered to place the French State Seal on the deeds that they prepare and as they fall into a category of public documentation they are difficult to challenge.
The Notaire also has a duty of care towards his clients and cannot restrict his duty as a solicitor would do when agreeing the terms of his retainer with a client.
A Notaire can, and normally does, act for both parties in a transaction and his duty of care obliges him to be impartial.
The purchasers will have to decide if they wish to get a second Notaire involved in the transaction or rely on the Notaire suggested by the estate agent: There is no extra cost involved in using your own Notaire.
A minimum of two months from the signing of the initial contract should be allowed before completion. This allows enough time for the Notaire to carry out his searches and obtain the results from the various institutions involved.
The Notaire will first notify the relevant public bodies who might be the beneficiaries of a preemption right ie a first option to buy the property. These include the town hall (Mairie) or the local Famers Committee (SAFER) when the property is in a rural area.
The Notaire will also request a note de renseignement d’urbanisme from the Mairie which will reveal the planning rules applicable to the property.
The land registry will deliver a document called état hypothécaire. This indicates who owns the property, and whether there are any charges, mortgages or easements registered. The Notaire will have the duty to discharge the property charges for the new owners.
6. Structure of Ownership
This is one of the most important aspects of the transaction for the purchasers. They will have to decide exactly how to purchase the property. English and French inheritance law will be taken into consideration to minimise tax liabilities and also to provide the buyers with the best vehicle.
There are four classic structures of ownership in France:
- Purchase en Indivision: This is similar to the English tenancy in common. Each co-owner’s share will be governed by the ‘intestate’ succession law in France. Bequeathing the deceased’s share to the surviving spouse by Will will be limited by the presence of reserved heirs.
- Purchase with Clause Tontine: This is the French ‘joint tenancy’. Under this vehicle the property will pass to the surviving spouse/partner and overcome French inheritance law. On the second death the property will be inherited by the survivor’s heirs only. This clause is often used for couples with children from previous relationships who may not wish them to inherit the French property. Please be aware that the clause must be inserted into the final deed and cannot be added after completion.
- Purchase with Communauté Universelle: This is the French matrimonial regime of community of property.
- Purchase with Communauté Universelle avec attribution au survivant: This is a form of post-nuptial agreement under French law. The property will automatically pass to the surviving spouse, as with the Tontine. However, unlike with a Tontine, children from a previous relationship retain a five-year claim against the surviving spouse to claim their statutory rights.
These classic structures are probably the most recommended to buy a property in France. In addition there are number of other structures, such as companies, that can also match the purchasers’ tax planning requirements.
Before signing any binding contract to purchase property in France the purchasers should be sure they will have finance in place.
As a cash buyer the only consideration will be the exchange rate between the signing of the binding contract and completion.
If you need a mortgage to complete your purchase a mortgage application will have to be made. Once the bank has agreed to finance the purchase you will receive an offer issued under Loi Scrivener. This includes a cooling off period of 10 days before you may return the accepted offer.
Mortgage funds are always released to the Notaire.
8. Payment of Price
The purchase price and Notaire’s fees are paid onto the Notaire’s bank account. Only electronic transfers are accepted so no cheques and no cash.
Whether the purchasers transfer their funds from within France or elsewhere, the Notaire will check the origin to ensure they comply with money laundering legislation.
Prior to completion the Notaire will send a breakdown of costs to the purchasers. The Notaire also ensures that all the formalities will have been completed.
Completion takes place at the Notaire’s office. Prior to signing the Notaire will read the contract to both parties. He has to make sure that they understand the terms of the contract and reply to any of their queries.
The original deed is kept by the Notaire while a certified copy is sent to the purchasers. Registration at the Land Registry can take up to six months.
10. Post Completion
At completion the purchasers will have to transfer the utilities into their names and insure the property.
The annual local taxes will automatically be transferred in their names during the registration process at the Land Registry.
The purchasers reimburse taxe fonciere to the vendors on a pro-rata basis for the period of the first year’s ownership.
The taxe d’habitation is the responsibility of the owners of the property on the 1st January.
Beyond the Ten Must Knows Guide
The French mortgage ten must knows guide only covers the basics of what you must know about French mortgages. For more information check our French Mortgage Knowledge Base.