French Leaseback Properties - The Facts

Leaseback Facts || Leaseback Enquiry Form || Leaseback Listings || Leaseback Finance || Choosing a Leaseback Development || Filing French Tax Returns and TVA Formalities after Leaseback Purchase || Leaseback Re-sales || About Non Leaseback French Buy to Lets || Non Leaseback French Buy to Let Listings

Please note we deal with all the major French new build (ie leaseback, buy to lets,investment or holiday properties) promoters and developers and have access to details of many more leaseback developments than we list, therefore please do email us if you have either come across a specific French leaseback development and would like our opinions or more information about it, or indeed if you have specific search criteria and you’d like us to find you the leaseback or new build property that suits you.

Leaseback - Lease Non-Renewal
Many of you have questions about the potential of ‘opting out’ of the commercial lease at the end of the first, or subsequent, terms. Generally this possibility has to be approached on a leasebackdevelopment by leaseback development basis and depends on the leaseback management company associated with that leaseback development.

The reason that opting out is discouraged is that for the leaseback development to remain a viable financial operation for the rental management company, they need to have a very minimum of approximately 70% of the units available for rentals. Should an owner discontinue the lease at the end of the first or subsequent terms, then by French law, the management firm has the right to seek compensation in the French court. This has been quoted to us as being in the region of between 6 months’ to two years’ worth of rental income although there is no legally defined limit. It is difficult to obtain any degree of assurance at the beginning of a lease as to whether the leaseback management firm will seek compensation for non renewal. Some leaseback management companies have said that this will depend on the percentage of owners wishing to terminate their lease. That is, if it is only a few, then the likelihood of seeking compensation is quite low; if, however, a respectively high percentage decide to opt out, then the chances are high that they will seek compensation.

Note that a) you will usually need to give at least one year’s notice if you wish to terminate the leaseback lease agreement and b) that even if you no longer have a lease obligation on a leaseback property, you will often not be able to use the property as a primary French residence as many - not all - leaseback developments are built in zones where there are restrictions on maximum total annual occupation (this can range from 3 months up to 11 months).

Please ask us about this when discussing leaseback developments and we will endeavour to find out the situation on a case by case basis.

On some leaseback developments we can obtain an 'affidavit' from the leaseback management company stating that they will not seek compensation for non renewal of the lease, while technically this does not negate the inherent right of the tenant with a French commercial lease - bail commercial - to seek commercial compensation for non-renewal, it shows a volonte (sign of goodwill) that would, according to French lawyers, count against them succeeding in any action undertaken in a French court.

One of the leaseback developments where the management firm will provide attestations stating that they will not seek compensation for non renewal of the lease is at Les Forges,, a luxury golfing leaseback development near La Rochelle, where you can either buy on a light leaseback or on a straight purchase basis. The light leaseback formula allows the buyer to recuperate the TVA.

A few examples of French leaseback developments with the possibility of opting out:

Les Demeures de Ventoux, luxury French leaseback villas, Aubignan, Provence

There is more information on french light leasebacks at the bottom of the page.

VAT Paid For You Leaseback Developments
Of course, we all love the fact that when you buy a French leaseback property, you are refunded the VAT on the property, making it a highly desirable method of purchasing. You can either put the refunded money back into your mortgage or splash out and treat yourself! Either way, it’s a good saving, and better the longer you keep the leaseback property.

Making the purchase process smoother and easier, there are some leaseback developers who offer to forward the Vat for you. This makes for cleaner, clearer figures and less paperwork. Lagrange offer this bonus, as do Pierre et Vacances. Promeo are offering this on their new development in Brittany – Leaseback Residence Ker Goh Lenn in Plescop, France. All of these leaseback developers have impeccable reputations and we cannot recommend them highly enough. Lagrange also offers what they call their ‘Five Strong Points’ – see individual leaseback listings for details – these include an exchange programme for your weeks of use in any of their huge portfolio of holiday developments, plus the possibility of selling weeks back to them or buying extra weeks in for a discount. Now, these people are really in tune with their leaseback market!

Examples of Lagrange Leaseback Developments:

French Ski Leaseback Development - Residence Cybele at Brides-les-Bains, Three Valleys, Alps

French Ski Leaseback Development - Residence Edelweiss, La Plagne, Alps

Les Tamarins, St Brevin-les-Pins, Brittany

Leaseback Re-sales
A new addendum to the law (early 2007) regarding the selling on of an existing leaseback property has clarified and simplified the re-sales process. Nicole has been working her socks off researching the ramifications of selling on your leaseback property and you can find this information here – leaseback re-sales info. We are happy to extend this service to other leaseback developments.

The French Property Company gives you the straight facts about french leaseback schemes
A recent proliferation of sites claiming to be ‘leaseback specialists’ has been the result of well-deserved increased public interest in this particular method of purchasing property for investment and/or personal use . However, experience and knowledge come with time, so it is in your own best interests to perform independent research not only on the formalities of buying a leaseback property, but also WHO you are buying it from. We here at The French Property Company Ltd were, in spite of a****z claims, the first English company to market and n commercialize French leaseback property. We take great pride in our personal service to our clients; we quickly reply to emails and return phone calls, we chase notaries, banks, accountants, in order to help our clients through the French purchase process. Nicole has even been out and selected, paid for and delivered an air-conditioning unit for clients at the Les Berges, Beziers leaseback development for which she was remunerated later! Now THAT’S service!

With our in-depth knowledge and experience of the leaseback purchase system, we thought that here would be an ideal place to clarify some of the ‘leaseback (mis)information’ that can be found in the public domain. So here are some straight facts about leaseback in France.

Let’s start with what they say……

  1. The French government gives you 19.6 percent off the price of the property…” NO, the French government gives you nothing on leaseback sales – the VAT refund that you receive is calculated to be up to and equal to the perceived holidaymakers’ tax recuperated from your property over the ensuing 20 years. You sell before 20 years and you pay back 1/20th of the VAT saved for each year remaining of this period.( Check our leaseback resales info for a slight change in the French law re TVA payback)

  2. “The VAT tax incentive is a real discount off the market value of the leaseback property giving a VAT refund on the whole property from the French government. The current rate of VAT on all new property is 19.6%.(this refund represents a 16.4% discount of the market value normal selling price)” See above, plus on refurbishment leasebacks the rate of VAT is 5.5% and is applicable only to the percentage of the price that represents refurbishment.

  3. You choose the weeks you want to use yourself and…..’ NO – it depends on the lease contract.

  4. The return is linked to the cost of living index……..” NO – it is linked to the French Cost of Construction Index.

  5. Your property is fully managed and serviced by the property company who lease from you and you have no further costs or charges for the period of the leaseback……..” NO – each lease contract is different, but as a property owner in France, you will always have at least the annual Taxe Fonciere to pay (French property owners’ tax).

Now the straight facts….

The Principle of Leaseback

The leaseback scheme works on the principle that you buy a freehold property, be it an apartment, a chalet, a cabin or a house. This is furnished and leased to either the developer or an accredited property management firm for a fixed number of years, 9, 10 or 11 are popular choices. This is a commercial lease*, which has certain repercussions in French law.

The furniture is usually sold to you in the form of a predefined furniture pack.

The management firm sublets the furnished properties on a short term basis, offering other services such as cleaning and breakfasts that qualify the letting business as being like hotel letting, hence making the rents charged by the management firm subject to VAT (purchase tax).

The French government agrees in these cases to offset the VAT payable on the purchase of the property against that charged to the short let customers of the rental management firm. In most cases you pay the VAT on purchase and receive it back from the government within five months of the purchase, in some cases the developer advances the VAT against the reimbursement by the buyer on the day he receives the money from the government.

If the property is new build (as in most cases) the VAT is 19.6%, if it is a refurbished property there is VAT of 5.5 % on the part of the price that represents refurbishment works. Quite often on a refurbishment, the end % will lie somewhere between 5.5% and 19.6%, once VAT of 5.5% on parts of refurbishment + 19.6% on parts of new build( perhaps garages or parking) is taken into consideration.

The number of years needed to offset the total VAT is 20 years.

Some leaseback schemes offer no guaranteed annual return and, except for a minimum period given over to the management firm that qualifies the deal for offset VAT, the leaseback property is available for the owner’s use. Other schemes offer choices with returns varying according to how many weeks the owner takes for his own use - usually a minimum of 0 and a maximum of 6. Some leases stipulate a fixed guaranteed annual yield and, instead of free weeks of use, give a discount of a certain percentage off the public brochure tariffs for the leaseback development in which the purchaser has bought, and often in some or all of the other holiday developments managed by the same rental management firm. The lease that the management firm and the buyer sign defines the periods during which the owner may choose his weeks and the length of notice that must be given. It also defines who pays what in terms of shared facilities charges, services etc.

Percentage changes in the annual returns are now index linked to the INSEE Consumer Price Index excluding tobacco and rents..

The buyer is responsible for the annual taxe fonciere (French Property Owners’ Tax) which is paid in arrears for each whole year, on newbuild there is a special exemption for the bulk of this for the first two years. Bils for taxe foncier are delivered and payable at the end of each year for which they are due. Also possibly payable, depending on the terms of the lease, is a portion of the shared facilities (co-ownership or ‘co-propriete’) charges depending on the amount of weeks that you use the property and any building or repair costs that fall outside the guarantees of the builder and the responsibilities of the management company as defined in the rental and sales contracts.

As you are being paid rent on a French property, you need to fill in an annual French tax return, and make VAT (purchase tax) returns.

The tax return form is very simple and some of our developers offer the first year’s returns filled in and filed by an accountant free of charge, you can then copy this for the following years or employ an accountant to do this for you. We can recommend accountants to do your tax and VAT returns for as little as 250 Euros/ year.

You have bought freehold and hence are free to sell at any time. Upon the sale of the property, your profit is subject to capital gains tax (16% for EEC residents, 33% for non-EEC residents). There are various allowances, depending on your family situation, certain works that you may have had carried out by registered companies and the number of years that you have owned the property. From five years of ownership, the CGT starts to diminish by 10% per year so in the 16th year of ownership there is no French capital gains tax left to pay.

With the new addendum to the law this year regarding the selling on of an existing leaseback property, you are no longer obliged to pay back the proportion of the VAT initially saved as long as the property is sold with lease intact,, pro rata of the number of years of ownership. Instead, you would sell at a relevant market price, minus the equivalent saving according to the number of years of ownership. Sounds complicated but it really isn’t. For example, let’s take some easy numbers here – if you saved 20,000E in VAT when you bought your leaseback property, you own it for four years so you take off 4/20ths (1/5th), which is 4,000E, leaving 16,000E. So you take 16,000E off the current VAT inclusive price to reach a reasonable market price where you have literally ‘passed on’ the VAT recuperation benefit. Voila!

Often a year's notice must be given to not renew a lease; no notice and the lease is automatically renewed for a period of 9 or however many years are defined in the contract.

With some leaseback schemes you are promised full use and vacant possession of the property at the end of the lease period, with others the lease must be renewed as the property is destined in perpetuity to be a 'hotel letting' unit. This is made clear in the lease and buying contracts. Always ask your agent about this before committing to a purchase.

But, because the lease is a 'commercial ' lease, the management firm has a right, that can not be negated by any clause in the lease, to commercial compensation should you end the lease or refuse to renew it. In recent cases this has worked out at about the equivalent of one year's rent, but there is no fixed and certain equation to work out the compensation. Schemes where at the end of the initial lease the property becomes yours for all year use should be looked at carefully, the viability and track record of the management firm need to be carefully checked. Do not be carried away by paper promises of higher end resale values!

The leases are generally renewed at the same cash return, but index linked, as in the original lease. Hence if one had bought a property for 100,000 in 1994 with a guaranteed return of 5% on a 10 year lease, indexing the 5000 return gives the following figures for the new lease 5,000 X 1225 /1016 = 6028

Please note that many leasebacks are sold in 'leisure land' zones, which are subject to planning regulations that limit their total annual occupation. These properties can never be considered as anything more than holiday homes, to be bought or sold as such.

As of the moment sales of leaseback properties in France are steadily increasing. The VAT (purchase tax) clawback and the guaranteed returns of between 3 and 5.5 per cent plus anticipation of a steady climb in property prices have made these offers seem very tempting.

But it is worth bearing in mind that a leaseback property's resale value is going to be largely determined by the annual return, and not by the values of its unencumbered neighbours.

The Leaseback Market

There is a proliferation of leaseback offers from developers to sate this demand.

However if we look at the history of leaseback schemes in France, we do not see a smooth highway but more of a pot-holed country lane.

Some years ago, MAEVA, an offshoot of Club Mediterranean, was selling leaseback properties, some of them with a guaranteed yield of 6%. When Pierre et Vacances bought out Maeva, on one development offering 6%, they felt they could only offer a little over 4% and the owners had the choice of accepting or selling.

This demonstrates that the ‘guaranteed’ return is only as good as the guarantors, the rental management firm. A rental management firm of size, stature and good track record is of great importance. Search for a yield that is reasonable, rather than a spectacular but unsustainable rate.

A certain renovation leaseback scheme in Paris offered just over 6%, but a close inspection of the paperwork showed that not all the renovation needed to bring the properties up to letting standard was included in the base price. The difference was payable by the purchasers, hence knocking the real return down to just under 4%.

This shows the importance of reading all the documents carefully and being fully aware of what you are buying.

To summarise:

1. Location

If the scheme is in a good location (Paris, southern France, ski areas etc) for tourism, the scheme is going to work well for the management firm and for you.

2. Confidence

Choose a developer and management firm with good track records.

3. Be Realistic

Disregard high hopes and inflated promises, as, if these can not be upheld, they will cost you money. Some leaseback development schemes have one-off companies managing their properties, if their promised returns are higher than their received rents, they are going to go bust and you are not going to see your 'guaranteed' return.

4. Finance

These schemes work best if you borrow in Euros from a French bank to buy, rates at the moment are low and some mortgage providers are offering mortgages and bridging loans for the VAT (purchase tax).

5. Check the paperwork

If the paperwork is not available in English, think about investing in the competence of an Anglophone French lawyer to examine, translate and explain the contract and lease documents. As a percentage of the total cost, you are adding on peanuts.

Please note, we sell a lot of leaseback properties, and do believe they are a good investment. However, we have written this page to reflect our belief that our clients should benefit from as much knowledge and impartial information about leasebacks as possible before making an educated decision. We will ALWAYS respond honestly and with as much detail as possible to your questions.

If you would like more information or have any questions please contact our leaseback desk

Here is our selection of French non leaseback buy to lets we have details of developments designed for long term rentals or straight forward owner occupation in many areas of France. Contact us if you would like to know about other developments.

Rob Thorne and Jane Hughes of the French Property Company Ltd

French property:
Join our newsletter:
Contact information:
Telephone: Fr 0467 24 53 59
Fax: FR 0826421562