Beware Of The Risks Buying 'Off Plan' In France

14 March 2006

Spring is a popular time for people to decide to purchase property in France. Those coming back from the ski slopes having enjoyed a relaxing break are thinking how nice it would be to own a property close to the slopes and those who are planning their summer holiday are often so surprised by the high rental rates for holiday gites in popular areas, they start thinking about owning their own cottage instead.

Statistically, more British people are buying properties "off plan" than ever before. The expression refers to purchases of apartments and houses which have not yet been built. In France, as opposed to Spain for example, the majority of these are in the mountains close to resorts which have year-round appeal.

Purchases off plan or en l’etat future achèvement are an almost entirely different animal to purchases of rural or existing properties. One characteristic of such purchases is that in most cases, people only seek independent advice once a reservation contract has already been signed and the deposit handed over.

The legal impact of reservation contracts should not be underestimated and the English translation is somewhat of a misnomer since it can give the impression that a reservation does not give rise to a legally binding contract and that the purchaser can walk away without penalty.

Much of the law surrounding purchases off plan, is contained in the French building code and such transactions should therefore follow a defined process. There are variations but generally speaking, the process is as follows;

1. Once the purchaser has seen a property specification they like, they may sign a reservation contract and pay a deposit to the developer typically being 5%. In fact the law prescribes that this initial deposit cannot exceed 5%.

2. Signing the reservation contract may take place at any stage in the build and could even be before the developer owns the land or has put a spade in the ground. At some stage after paying a deposit however, the developers notaire will send a draft transfer deed to the purchaser who then has only 30 days in which to decide whether or not to proceed with a purchase. The transfer deed must be signed within 40 days. Failing this, in most cases, the seller is entitled to resell the property.

3. One aspect frequently misunderstood is that the price for the property stated in the initial reservation contract, is subject to variation (which almost exclusively means increase) in line with increases in the National Cost of Building Index. This means that if significant time elapses between signing the reservation contract and completing the purchase, the price can increase materially.

4. Thereafter, the remainder of the purchase price is paid as each stage of the build is completed and the developer will send payment demands to the purchaser supported by architect certificates.

5. It is important to remember that the purchaser will be the owner of the land and the works as they are completed, from the date of the legal transfer, even though at the point of legal completion there may only be a hole in the ground.

6. The final stage is the remise des clefs (release of keys) which is the point at which the building is signed off as being completed and the purchaser takes possession on payment of the balance of 5% of the price.

Probably the most important document in the whole process is the original building contract or building specification. Unless this has been clearly agreed in the first place, the question of whether or not a property has been completed is open to debate. The consequence of this is that if the property has been completed and the purchaser fails to pay over the final payment, then the seller can refuse to hand over the keys.

Some people do not even bother to have the building contract translated into English which is highly recommended for obvious reasons. Such is the desire to own a home in the first place that the reservation contract is often signed without much regard for the legality of the arrangement or the consequences of arguing about aspects of construction in the future.

A purchaser who pays the final balance before having the property looked over by their own surveyor does so at their peril, since the scope for bringing any claims for defective works after the handover is very limited.

It is not all bad news since unlike in England, French law imposes certain guarantees for the benefit of the buyer of any newly developed property and these are automatic in every case.

For the sake of completeness it should just be mentioned that slightly different rules and processes apply if plans for the building are supplied by the purchaser.

The importance of obtaining reliable legal advice from an English solicitor or at least an independent English-speaking notaire cannot be overstated. Although these transactions can be at the lower end of the price range (for example for studios or small apartments) the process described above is a minefield for the uninitiated and can lead to misunderstandings and unnecessary disputes.

If you are planning a purchase "off plan" this summer then please remember that there are reputable firms of English lawyers who can provide assistance and that their advice should be sought if at all possible, before the reservation contract is signed.
 

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