Guide to Buying Property in France

Paris Property Group is a full service real estate agency offering tailored buyer and seller property solutions in Paris. We navigate our clients through the market to find, purchase and enjoy a perfect property in Paris.

What are the buyer’s rights and responsibilities?

What is the process from accepted offer to owning the property?

What are the important issues to consider on structuring a purchase to maximize enjoyment and profit?

These and other common questions about purchasing property in France are answered below.

What are the necessary steps for purchasing a property in France?

The essential purchase process is divided into two stages. The purchase is first formalized by a preliminary contract that may be prepared either by a notaire – a promesse de vente – or by an estate agent or privately between the parties – a compromis de vente.

In either case, the seller is obligated to sell immediately upon signature, whereas the buyer has a 10-day period of reflection during which he can withdraw from the purchase without any financial penalty.

The sale is finalized with a formal deed of sale, the acte de vente. Regardless of the form of the initial agreement, the signing of the acte de vente is overseen by a notaire.

Once the preliminary contract is signed, it is ordinarily between two to three months until the acte de vente is signed. During this time, the buyer obtains any needed financing, and the buyer’s notaire verifies good title to the property and takes care of other legal and administrative requirements surrounding the sale.

At the signing of the acte de vente, the buyer pays the purchase price plus all taxes, fees and commissions; the keys are handed over by the seller, and ownership of the property passes to the buyer.

Who is committed to what at the signing of the preliminary contract?

Whether the parties sign a compromis de vente or a promesse de vente, the preliminary contract will always contain the following terms:

• The agreed purchase price.
• Any conditions for completion of the sale, including the minimum acceptable terms for financing if the buyer will be seeking a mortgage. The party to whose benefit any conditional clause was written will be released from the contract if that condition is not fulfilled.
• The final (last possible) date for signature of the acte de vente.

Upon the signing of the preliminary contract, a good faith guarantee of 10% of the purchase price is paid into the escrow account of either the seller’s notaire or estate agent. The buyer may be able to negotiate putting 5% down, but will in any case responsible for the full 10% if he defaults.

The buyer will lose the good faith deposit if he fails to meet his obligations to purchase the property in accordance with the timing and conditions set out in the preliminary sales agreement. Acting in a timely manner to secure your loan and to arrange your final payment at closing is important to ensure that this problem does not arise.

What is the difference between a compromis de vente and a promesse de vente?

A compromis de vente is a mutual obligation of the buyer (to buy) and the seller (to sell). Literally translating as “a promise to sell,” the promesse de vente is a unilateral obligation to sell.

For the buyer, there are two substantial drawbacks to a compromis de vente:

• If the buyer chooses not to complete the purchase, he can be sued for specific performance by the seller or the estate agent. In contrast, under a promesse de vente the buyer’s risk is limited to the 10% good faith deposit.
• If the buyer ultimately decides to complete the purchase through a company structure or wants to add a co-purchaser, there is a risk that this substitution will be considered a second “sale” of the property subject to a second round of taxes.

Most importantly, the promesse de vente is drafted by a notaire, a legally trained authority on property transactions. Signing a compromis runs the risk that it is poorly drafted and can result in consequences the buyer (and/or seller) did not foresee. If circumstances required a compromis, have a notaire review the document during the 10-day period of reflection so that you can retract without consequences if need be.

What is the role of the notaire?

The notaire is a public official with legal training (but different from a lawyer) who prepares and registers official acts such as wills and property ownership transfers. Notaires enjoy a very privileged and highly respected position in French society.

In the context of property sales, while the preliminary contract can be prepared without involvement of a notaire, French law requires that the final deed of sale (acte de vente) be prepared and signed by a notaire.

The notaire also plays a vital role in the closing process:

• Ensures that the property being sold matches the title deeds and registry documents
• Establishes the identity of both parties (with the help of birth and marriage/divorce certificates)
• Ensures that the seller is the rightful owner of the property being sold
• Ensures that there are no unknown covenants or liens that might adversely affect the property
• Searches the Land Registry to determine whether there are any restrictions on the right to dispose of the property, such as easements or mortgages
• If the property is mortgaged, ensures that the purchase price will be sufficient to redeem the mortgage completely
• Obtains a planning certificate from the local Town Hall
• Informs any person or entity with preemption rights of the impending sale, so that they may decide whether they wish to purchase in the place of the buyer. In some areas of Paris, the city government has a right of preemption on any property sale.
• Calculates and collects the stamp duties or purchase taxes, commonly known as “notaire fees”. A detailed breakdown of the notaire fees is provided below.

A notaire is different from a lawyer, since his primary role is to ensure that the transaction is legitimate and that the official requirements have been met. A good notaire, of course, is also an advocate for his client’s interests.

One notaire can represent both parties in the transaction, or each party can have their own notaire. The notaire’s total fee on the transaction is set by law, and is simply divided between the notaires if each party is represented separately. Having your own notaire is ordinarily advisable, and will not cost more than sharing one with the other party.

Is it possible to finance property in France?

French banks will lend up to 85% of the assessed value of the property and renovations to most non-resident buyers. French banks respect a very strict loan-to-income ratio for issuing mortgages, although some are more flexible than others in considering assets and investment income. Mortgage rates can be fixed or variable, or a combination of the two. French banks require borrowers to obtain life insurance to guarantee the loan.

If the buyer is seeking a loan in France, the preliminary contract will include a conditional clause for financing. The clause sets out the intended loan amount, rate of interest, and length of the term. If the buyer cannot obtain the loan he is released without penalty from the obligation to buy the property.

Note that some sellers may choose to accept an offer from a buyer who does not have a conditional clause over one who does. Agreeing to waive the financing contingency can be a real point of negotiation. Also note that, if you will be seeking financing only outside of France, the conditional clause will not protect you.

It is advisable to be in contact with banks or a mortgage broker at the start of your property search, so that you know what your borrowing capacity will be and have all your documents ready once you have found the right property.

Are there more/less tax advantageous ways to purchase a property in France?

Having the right information and choosing the right ownership structure can be key to maximizing the potential of your property investment.

There are several options for structuring the property purchase:

• in your own name
• in the joint names of you and your spouse or co-purchaser(s)
• in the names of your adult children or of someone who will eventually inherit the property from you
• through an ordinary limited company, whether foreign or French
• in the name of an SCI (société civile immobilière), a company specifically structured for owning and managing properties in France
• SARL de famille – a family-based corporation

Each option has its own advantages, and the best structure depends on your own personal circumstances and your intended use of the property. The right choice can be important for inheritance tax and other financial planning considerations. Be sure to complete the purchase with the ownership structure that you will want long term, because changing it can be costly.

What about a property inspection?

Property purchase in France requires the seller to provide to the buyer the results of 8 required diagnostic examinations of the property:

• loi carrez – precisely defined measurement of the surface area of the property
• presence of lead
• presence of asbestos
• presence of termites
• condition of the electricity installation
• condition of any natural gas installation
• assessment of the quality of insulation, gas emissions, etc. (graded on an energy index)
• presence of any natural/environmental risks (for example, flood zone)

These tests are performed by companies that certify their results; if they prove to be incorrect, you will have recourse for compensation.

However, they are informational only, and the seller has no obligation to correct any problems that are revealed. It is thus important that you read and understand the tests and the costs of any required repairs, so that you can make an informed decision whether to purchase.

A buyer can choose, at their cost, to have the property surveyed. However, additional surveys are ordinarily not performed and, particularly in Paris, may prove to be of limited use. A survey may be advisable for properties purchased outside of Paris or other metropolitan areas, particularly with freestanding houses, as their condition may be less certain.

How much are the notaire fees on the purchase?

The buyer should expect to pay fees and taxes of about 6.5-7.5% of the purchase price. These break down roughly as follows:

• Land Registry taxes (known as TPF – Taxes de publicité foncière) of approximately 5.1%
• Miscellaneous expenses – calculated according to various documents that the notaire must search and examine in order to draft the deed of sale. Usually about €700 or less.
• The notaire‘s service fee, set at 0.825% for properties over €16,800. The fee is subject to VAT (value added tax) of 19.60%. If each party is represented by their own notaire, that fee is split between the two.

Who pays the broker fees, the buyer or the seller?

Agency fees are included in the public listing price for a property. Listing fees are ordinarily about 5%. The purchase is ordinarily structured so that the buyer pays the seller and the seller pays the agency out of his total. But, it is also possible for the purchase contract to separate the two, with the buyer paying the seller his net price and the agency fee separately.

The advantage to most buyers of this second option is that they do not then pay notaire fees on the agency commission amount, which is a significant savings. But, for non-resident buyers who need the maximum possible financing, banks may not finance the agency fee if it is listed separately in this way.

Since there is no loss or gain either way to the seller, the buyer should be aware of this issue and ask for the structure that best suits his needs.

How is the purchase completed, and must I be in France for the final signing?

Prior to the final signing, the notaire will send the buyer a completion statement showing the balance of the purchase price and all other fees and taxes required to complete the purchase. The buyer will need to get those funds into the escrow account of the notaire in time for the date fixed for the signing of the deed of sale, the acte de vente.

The buyer can either be physically present to sign the acte de vente, or arrangements can be made for a power of attorney for another person to sign on the buyer’s behalf.

When the acte de vente has been signed, the notaire distributes the funds to the respective parties: the purchase price to the seller, the taxes to the state, fees and charges owed to the building management, commissions to the real estate brokers, and keeps the amount of his own fee.

Can I move money into and out of France freely?

Yes. But, exchange rates can be prohibitive if you are moving money from other currencies. If your home currency is not Euros, working with a currency exchange service is key to getting favorable exchange rates on transfers, mortgage payments, and other financial needs.

If you take out a mortgage in France, you will be required to establish a French bank account for your monthly payments. Even if you don’t, most utilities and other French services can be paid by automatic debit if you have a French bank account, so most owners establish one regardless.

Are there other arrangements to make at the time of purchase?

As of 2016, non-resident property owners can choose to apply the inheritance laws of their home country to their French property. This applies to future purchases as well as retroactively to property already owned in France. French inheritance law includes certain forced heirship provisions that are unusual for many international buyers, who prefer that they can dispose of the property as they choose. Consulting with a knowledgeable notaire and electing, in writing, the law you would like applied, is an important estate planning step.

You will want to establish homeowners insurance on the property and its contents to take effect on the date of close.

Once the purchase is complete, you will want to have utilities transferred to your name, and set up telephone, Internet and other services. If you want the building management company, the syndic, to send you quarterly statements and other information overseas, you will need to get in touch with them to let them know your home address and/or email.

It is customary, as well as convenient, to set up automatic debit of these bills directly from a French bank account, so that you are not struggling to keep up with bills from afar.

After I have settled in, what are my continuing obligations?

Property owners who spend less than 184 days a year in France and do not pay income taxes in France are considered “non-resident.” Non-resident owners are expected to:

• pay property taxes (“taxe foncière”);
• pay occupancy taxes (“taxe d’habitation”), unless you have a long-term renter in the property, in which case this tax is their responsibility;
• pay income tax on any income earned in France (including rental income from the property).

When I sell my property, how is the capital gain calculated and how much tax will I have to pay?

The capital gain realized on the sale is calculated by subtracting the purchase price from the selling price. That amount is then reduced by certain expenses, including fees paid to licensed real estate agents (at purchase or sale), notaire fees paid by the seller when he purchased, and certain renovation and improvement expenses.

After 5 years of ownership, a seller can either itemize actual renovation expenses, or add 15% of the purchase price to the basis of the property as the value of improvements (even if no improvements were made).

Capital gains tax amounts:

There is no capital gains tax on the sale of a primary residence in France.

For a secondary residence, the amount of capital gains owed at the time of sale is determined by (1) the fiscal residence of the seller, (2) the number of years that the property was owned by the seller, and (3) the status of the seller (individual, French or foreign company…).

A base rate of 19% capital gains tax is imposed on the sale of real property by any individual (or pass-through company), regardless of French residency. Under prior law, the rate varied between 19-50% depending on the seller’s country of residence.

The base amount of tax owed is reduced starting after 5 years of ownership, as follows:

Years 6 through 21: 6%/year

Year 22: 4%, after which there is no capital gains tax to pay upon sale.

Social charges:

Until January 2015, a further 15.5% of the gain realized on the sale was payable as social charges (essentially, payroll tax), regardless of the seller’s country of residence. The social charges are also subject to a reduction schedule, albeit over a 30-year period.

A recent French court ruled that these charges unlawful when imposed on EU residents outside of France, and they no longer are. French residents and non-EU residents continue to pay these taxes upon sale.

Any tax due is calculated and collected by the notaire at the closing of the sale. A nonresident seller who owes tax on the sale is required to take out a guarantee that insures that the correct amount of tax was paid. The cost of this insurance is about 1% of the selling price of the property.

How can PPG help me buy a property in Paris?

There is no Multiple Listing Service (MLS) in Paris. With over 3,500 agencies in Paris alone, finding a property is a difficult task for both resident or non-resident buyers. A comprehensive property search requires visiting scores of agencies, scanning websites, and pursuing numerous listings in each individual neighborhood. What’s more, about 40% of the properties in Paris are sold directly by the owner. Accessing those properties is yet another challenge.

Paris Property Group’s approach is comprehensive. Working one on one with a search consultant, you access all the best properties on the market, and are assisted with the evaluation, selection, negotiation, financing and closing process. Our end-to-end approach ensures that you find and ultimately enjoy a great Paris property.

How we work:

Initial Consultation: We begin with a consultation, by phone or in person, working with you to define your search criteria in terms of budget, location, and the objectives for your property purchase.

Property Search: We search, source and screen properties based on your parameters. We provide you with photographs, floor plans, and all available information about the property. We provide an expert analysis of price relative to market, a breakdown of taxes, fees and ongoing cost considerations, and any other information that might impact your purchasing decision: renovations expected in the building, city planning projects, proximity to schools, parking, shopping or other conveniences. With complete information on each property we see on your behalf, we save your time for visits only to those properties that are worth seeing.

Property Purchase: Once we’ve found the right property, we manage the entire process, from negotiation to the purchase contracts and through to closing. We schedule and attend meetings with the notaire, and assist with the signing of the preliminary purchase agreement. During the two-to-three month period till closing, we help you access all the resources you need — mortgage lenders, banks, renovation and decorating experts, legal and tax advice — to ensure that your closing process is smooth and easy.

At the time of the signing of the final deed of sale, we assist you with setting up your utilities, telephone, building management communications and homeowners insurance, all to ensure your smooth transition from property buyer to property owner. We provide ongoing property management services to our clients for an additional fee.

What are my next steps?

If you would like further advice or more information about our services, please be in touch. We are glad to answer your questions and to help you find the perfect property to fit your needs.

© Paris Property Group 2019

www.parispropertygroup.com