by Paul Newberry and Francois Despres
This summer has seen the English, perhaps taking advantage of their holiday in France, investigating the purchase of a secondary residence on the other side of the Channel or, with the advent of the Channel Tunnel, even making their principal residence there. The English have traditionally purchased property in the Dordogne, the Alps and the Cote d’Azur, but they are now purchasing in the North.
The most popular areas there are Pas de Calais, Normandy and Brittany. Since last Easter, in the case of the Finnistere department of Brittany, one property per day has been sold to a UK citizen; and within the last 12 months 200 properties in the St Malo region have been sold to UK citizens.
Access to these properties is either direct to the vendor, through French and English estate agents, property exhibitions, newspapers or French notaries. Indeed, local estate agents in France are quoting prices in sterling.
Investment
Since the residential property boom of 1988 in the South of England it is financially attractive to purchase in the North of France, where prices are on average 40% less than their comparables on the other side of the Channel. In the UK, inflation of property in the residential sector was 34.3% from January 1 to December 31 1988(*), whereas in France this was only 3% for the same period.
In an area which the English are calling “South Kent” the French are taking active steps to encourage investment. This area is mainly residential or agricultural, but there is also industry in Upper Normandy and Pas de Calais. Upper Normandy, indeed, has the second highest level of GNP in France, surpassed only by the Paris region. In the residential property sector, the French are organising conferences and launching advertising campaigns, and French estate agents and lawyers are brushing up on their English. One recent conference attracted 150 English estate agents and lawyers.
Financing
Patterns for financing the purchase of French properties are developing, but in general terms they will be bought in one of three ways:
(a) cash;
(b) a further charge secured on the English property of the purchaser;
(c) a mortgage on the property in France; or a combination of all three methods.
The first two methods will involve compliance with exchange control, if the purchaser is non-resident in France. This means providing a banker’s draft or a telegraphic transfer from a French franc foreign account (compte etranger en francs) which must be sent to the lawyer in France. Moreover, the source remitting the funds must be a recognised intermediary (intermediaire agree): this should not cause a problem, since the major English clearing banks are recognised intermediaries and they will provide a letter addressed to the French lawyer, certifying the origin of the funds. French banks with branches in London will also be recognised intermediaries. The French lawyer has to be satisfied that the financial restrictions laid down by the Bank of France are complied with.
An alternative and simpler method, not involving the export of currency from the UK, is to borrow funds in France against the security of the French property.
Furthermore, whereas the current base rate in England is 14%, in France the current base rate is 9%, and consequently the loan repayments can be considerably less. French banks in London are able to offer secured loans at rates of 10.4%. However, while English lenders will take a multiple of the borrower’s salary, such as three times, French loans are based on the mortgage repayments not exceeding a percentage of a borrower’s income, such as 35%.
The conveyancing process
The first stage in the conveyancing is to sign a contract (promesse de vente/compromis de vente) and to pay a deposit: thus a binding commitment is made at the beginning of the transaction by vendor and purchaser. An equivalent of “subject to contract” does not exist in France. However, this contract is usually made conditional on, for example, a loan facility being made available, and there being no adverse entries revealed on a form of local authority search (showing such matters as planning) which will be submitted. This conditional contract is a serious undertaking: the deposit paid is 10%, which can be forfeited; the identity of the lender and amount of loan can be specified in the contract; and there is a time-limit to fulfil these conditions written into the contract. Moreover, this contract should be registered at the local tax office.
No preliminary inquiries are made of the vendor, although a survey would be made by a lender if he is taking a charge on the French property.
The next stage is the signature of the conveyance (acte authentique) for which it is necessary to instruct a French lawyer or notaire (solicitor or notary). Having said this, it would be prudent to instruct the notary at the beginning, ie the contract stage. The vendor and purchaser must both attend at the notary’s office for signature of the document, although a power of attorney may be given to a representative of the vendor or purchaser for this purpose and it is also possible to attend at the French consulate in London and other major cities in the UK for the purpose of signing a document to give effect to the “acte authentique”.
The birth certificate of the purchaser must be produced to the notary.
Role of the notary
The notary can act for both vendor and purchaser, although it is possible to instruct separate notaries. It is important to realise that the notary is an officer of the French state: thus he accounts, for example, to the French government for taxes payable in connection with the transaction.
Against this formidable status, the English solicitor cannot act in a conveyancing transaction in France, although he or she can advise on the steps involved and the implications of the transaction. The notarial profession in France exercises public functions which are not regarded as falling within the Treaty of Rome on freedom of establishment and services (see Article 55 of the Treaty) and therefore does not recognise a right for English solicitors to act in the French conveyance.
The notary can also sell and market the property, and plays a key role on the transmission of the property on death. This is because if the property is bought in individual names, it is impossible for a spouse to disinherit his/her children. If a parent wishes to leave part of his/her French estate, shares will be given automatically to the children — for example, one child will have a one-half share, two children will have a one-third share and three children will have a one-quarter share, and so on. The purchaser should make a separate will in France dealing with the remainder. It is also open to a purchaser to avoid the statutory gift to the children by taking the property in the name of a “civil company” (called an SIC) which would not thus be required to give the property to children.
Costs and disbursements
As in England, it is the vendor who pays the estate agent’s commission — it is worth bearing in mind that on a French sale this averages 5%.
The vendor, however, does not pay the legal costs, which are borne in total by the purchaser. These costs and disbursements will be higher than in England, and are based on a graduated scale according to price. For existing properties a rule of thumb is that a purchaser should make allowance for approximately 10% of the price of the property; as a deliberate attempt to encourage developers, the disbursements are lower on new properties, and a purchaser should make allowance for approximately 3% of the price of the property in total. Disbursements thus payable will include stamp duty, land registry fees for official plan and registration, and mortgage registration fees. VAT of 13% is also payable on building plots.
The future
The dual effect of the single European market and the Channel Tunnel would seem bound to reinforce an obvious trend. In 1987, 2,000 properties were sold to UK citizens out of a total of 100,000 properties changing hands throughout France. In 1988 this proportion doubled, and this year it is likely that this will again increase. Mary Tudor — who was said to have died with “Calais” burned across her heart — might well have been pleased with this result!
