Property Purchase Conditions Suspensive
In French property purchase Conditions Suspensive can be used for inserting specific conditions in the Compromis De Vente contract for the sale/purchase of French property.
Sellers do not often use conditions, because they only need to find a happy buyer. But as far as buyers are concerned, the situation is different; they are more cautious and will want further clauses to be put in the contract before contracting with the other party.
Such conditions are called conditions suspensives and will be discussed at the stage of signing the compromis de vente.
French law provides for some standard legal conditions suspensives to protect the purchaser, but special clauses can be added to the contract if they are agreed between the parties.
Conditions suspensives will need to be met before the contract can be fulfilled and completion will be postponed until each condition is fulfilled. If a condition cannot be fulfilled, the party will generally be free to withdraw from the contract and will not be bound by any obligation or indemnity.
This article does not cover all the conditions suspensives that exist, but will analyse the three most widely encountered circumstances:
- Obtaining a French mortgage
- The sale of a property by a buyer before buying
- The legal condition in the contract (grouped as one condition).
Obtaining a French Mortgage
The law dated 13 July 1979 provides some protection for a purchaser who wants to raise a mortgage in order to purchase the property. The rules are set out in the Consumers Act, which sets out that the buyer will be able to withdraw from the contract if the bank refuses to finance the transaction.
The buyer is allowed to pull out and recover any deposit paid.
To prevent any seller being in a weak position, full details of the mortgage sought should be indicated in the clause with the amount to be borrowed, the names of the banks to be contacted, the interest rate excluding or including insurance and the duration of the mortgage.
If the buyer obtains a mortgage corresponding to the conditions set out in the contract, then it will be considered that the condition is fulfilled and completion will be able to take place (Court Case 9 December 1992).
What happens if the insurance company that should guarantee the repayment refuses to insure the borrower?
As far as the insurance is concerned, it is not compulsory for a buyer/borrower to have it but we know in practice that banks will not release any funds if the mortgage is not covered by insurance.
Before the law dated 1 July 2010, bank customers were obliged to take out insurance with their affiliated insurance company but since then the buyer has been able to provide different insurance from any company providing that it covers the same risk.
Suppose the bank has agreed a mortgage with the borrower but the insurance company will not agree to cover the borrower for whatever reason. In that case shall we consider that the condition is still fulfilled and that the purchaser has an obligation to complete or will he be able to withdraw because the insurance has not been accepted?
From the seller’s point of view, he may consider that the contract stipulated the obtaining of a mortgage that has been agreed by a bank and therefore he will probably wish to compel the purchaser to complete whether or not he has the funds. As far as the buyer is concerned, he will consider that the condition is not fulfilled because the bank will not release the funds and the mortgage cannot be fully granted to him.
To avoid this difficulty, my view is that a clause in the contract should also be inserted to protect the buyer in case no insurance company will agree to guarantee the repayment of the mortgage.
Can a seller claim the deposit as an indemnity if the condition to obtain a mortgage is not fulfilled by the purchaser’s default?
As far as the buyer’s fault is concerned, the condition about obtaining a mortgage in the contract will always stipulate that the buyer should lodge an application within a fixed period and that the mortgage should be approved by the bank within 30 – 60 days. Then the buyer should inform the Notaire of the failure or acceptance of the mortgage within a fixed period which could be between three and eight days.
The question will be whether or not the seller will be able to request the payment of the penalty clause if the buyer has not been able to provide him with confirmation granting the mortgage within the timescale stipulated by the contract.
A court case precedent has indicated that the seller should ask the buyer in writing by registered post whether or not his mortgage application has been accepted. Without this formality, the court decided that the seller would not be able to claim the payment of the penalty clause as an indemnity.
‘Potestative’ is a word rarely heard in any article or book as it is not often used in this context in a contract. The condition potestative is a condition that will rely on an event or act that should be carried out by the buyer such as the sale of his property before buying another one.
The condition can be purement or simplemenent potestative. The condition purement potestative allows the buyer to decide whether or not to do the things that will satisfy the condition such as selling his existing property. The condition simplemenent potestative, on the other hand, will also depend on an external fact that will have to be fulfilled before, in the event of a dispute this is what the court would usually say applies.
A basic example is the sale of a property by a buyer before completing the purchase of another one. It is not rare in practice that a buyer will need to raise funds to purchase a property from the sale of an existing property that he has. Sellers are always reluctant to put such a clause in the contract because they could face an indefinite delay. If the clause regarding the sale of the property by the purchaser is not clearly set out there could be a delay of several months and the seller will have to wait for the sale of the other property.
It is for this reason that, to be valid in the contract, the condition should stipulate a deadline for selling the property with the description of it. The buyer should also show goodwill by putting the property on the market.
If a potential buyer mentions to an estate agent his wish to sell an existing property to finance the purchase of the property on which he has made an offer, the estate agent has an obligation to advise his clients of the possible insertion of this clause in the contract. It was decided by the court in 1999 that an estate agent who failed to advise his client about this and had to pay damages to the purchaser who was obliged to complete the sale.
Legal Conditions Suspensives
The final condition will regroup three main conditions that are always inserted in a binding contract. They are the legal conditions suspensives. The first condition will be the non-existence of any charge or debt that could be revealed before completion.
For instance, if the seller fails to reveal existing debts he has and that the creditors took a charge over the property, the Notaire who will complete the transaction will obtain from the Land Registry, and probably the local authorities, notification of the outstanding amount owed to them. Should the debt exceed the selling price, the purchaser can withdraw from the contract otherwise he could become involved with a special procedure with the creditor.
The second legal condition will be the non pre-emption from the local authorities. In France the mayor of a commune or the agricultural administration (SAFER) can decide to purchase a property from the seller and evict the buyer if the property is situated in a rural area. It will be the Notaire’s responsibility to send a notification to the Mairie or the SAFER that will then have a period of two months to reply and say whether or not they wish to pre-empt.
Finally the third condition relates to the property itself. During the local searches by the Notaire the result will have to show any constraint, private or legal easement that may affect directly the use of the property. It is the Notaire’s responsibility to request a town planning certificate, which will reveal if there is any restriction, constraint or easement that may alter the direct use of the property.
It is important to remember that selling or purchasing a property can be subject to some conditions suspensives but some of them will have to be agreed between the parties and each side will have to assess the risk of inserting such conditions in the contract.