Information regarding the resale of a leaseback property

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Following much current and on-going research into the legal and other obligations when selling a leaseback property, please find below a summary of my findings so far:

For sellers, the most pertinent information is the following:

  • VAT Repayment. With the introduction of an addendum to one of the laws governing leaseback re-sales, which came into effect in January 2007, when selling a leaseback property on, the seller is no longer required to repay any of the VAT initially saved. The only condition is that the residence must be classified with an official tourism star rating, and that the lease and conditions remain in place. To expand on this, before the new law was passed, the seller had to sell his property for a price including the VAT that he would be asked to repay. So, after two years of ownership, 18/20th of the original amount saved would have had to be repaid. Then the new owner would have had to make a demand for a VAT reimbursement in the same way as regular first-time leaseback purchasers do now. Since the law has changed, the VAT saving can be passed on in the sales price of the property. In this way, the tax benefits can be passed on to subsequent purchasers. So you take a reasonable market value (two ways of doing this – speaking to the notaire who originally dealt with the development in question to establish whether he has handled any re-sales since and asking for details and also by researching similar property prices in the same locality) and then you MINUS the outstanding value of the VAT. So, for three years’ worth of ownership, you would minus 17/20th of the VAT initially saved from the market price and this is the discount handed down to the next purchaser. Please see the attached Profit Calculator to see how this calculates out.

  • TVA Immobiličre. As long as the purchaser retains the existing lease, and the associated terms and conditions, there is no ‘TVA Immobiličre’ to pay by the seller. This is a tax of 19.6% usually levied on the sale of any new build property before it is five years old from the date of delivery. Leaseback properties which continue to operate within a commercial lease when sold on are exempt from this. HOWEVER, the second purchaser must keep the property until at least five years after the original delivery date of the property as this exoneration is only valid one time. After five years, there is no TVA Immobiličre to pay upon a sale.

  • Capital Gains Tax. There will be Capital Gains Tax to pay upon the sale of a second home in France. CGT is paid on the difference between the purchase price and the selling price of your property, MINUS agents’ fees, notaires’ fees and other elements such as certain works you have had performed by registered enterprises (although do not count on this as the formula as to what is permitted to be counted and what isn’t is very complicated). For European residents CGT starts at 16% (33% for non-European residents and 25-27% for French residents), stays at 16% for the first five years of ownership and then reduces by 10% each year for the next ten years so that after 15 years of ownership there is no CGT to pay. The CGT countdown starts upon the signing of the completion papers (the ‘Acte Authentique – the paperwork you probably signed by proxy).

  • Property Checks. You will also have to pay for an ‘expertise’ to be carried out on the property by a regulated company, usually costing a few hundred Euros, depending on the size of the property and how well you have shopped around! This is the legally required check of the property for sale for energy efficiency and the presence of insects (such as termites, woodworm, etc). As you can imagine – it is highly unlikely that these tests will come up negative! Older houses also need lead and asbestos checks, but these are not required in new build properties as these materials will not have been used in the construction.

  • Syndic fees – you may have outstanding co-ownership/syndic fees to pay upon the property sale.

  • Mortgage redemption admin cost. There is a fee payable to the notaire for redeeming your mortgage. This is nothing to do with any early redemption fees that your bank may impose – it is up to you to contact your bank to find out what fees, if any, they will charge for repaying your loan. I have a photocopied sheet here (unscannable due to quality, I’m afraid) which tables the cost for each level of loan repayment – if you let me know how much you will be paying back, I’ll tell you what the charge will be.

  • Agents’ commission. In France it is quite normal for estate agents to charge between 6 and 10% commission to sell a property. This is added onto the price of the property, hence raising the market price. (NB We have decided to charge at the lower end of this scale, at 7% of the price of the property.)

  • Notaires’ fees. Remember, when selling a property in France, it’s the purchaser who pays the notaires’ fees, not the seller, so you will not have these to pay when selling a leaseback (or any other) property.

  • Taxe d’Habitation. Light leaseback property owners will find they are being asked to pay Taxe d’Habitation as well as Taxe Foncičre. This is because the properties are not considered holiday rental units on a permanent year-round basis. The legally-binding lease only covers a max of, for example, 10 weeks a year, the other weeks handed over are not considered to be ‘obligatory’ rental weeks, therefore they are counted as home-owners’ weeks. Note that Taxe d’Habitation for any one year is payable by whoever is in possession of the property on the 1st of January. Hence if the acte authentique (final papers) for the sale of your property is signed on the 2nd of January 2008, you will have to pay the taxe d'habitation for the whole of 2008. You receive the bill for Taxe d'Habitation in the October or November of the year it pertains to, so it is paid retrospectively. Taxe Foncičre, however, is payable on a pro rata (by day) basis, so if your acte is signed on the 20th of January 2008 you would be liable for 20/365ths of the Taxe Foncičre and your purchaser would have to pay the difference.

  • Occupation for next year. Each rental management company (RMC) will have their own policy on whether the new owner will be obliged to keep the holiday occupation pack or dates chosen by the existing owner, or whether they will be able to change them. It seems that the pack chosen may have to remain the same in most cases (depending on the RMC), with actual personal usage dates being flexible from the NEXT season rather than the current one, due to possible reservations etc already in place.

Please see the Profit Calculator page which outlines in a broad sense what the larger overheads will be. Of course, this is just a guide as each sale has been and will be different according to the seller’s particular set of circumstances. The Capital GainsTax liability for instance, once all of the overheads large and small that are allowed to count against this are added into the final equation by the notaire, could well be much less. There are links to downloadable calculators in Excel and Open Office formats on the Profit Calculator page

And points to note for potential leaseback re-sales purchasers:

  • The purchaser will pay reduced notaires’ fees of 2-3% for a property under five years old, rising to 7-8% after that time, making a sale before 5 years of ownership more attractive to potential purchasers.

  • Purchasers should be expected to take up the existing lease and terms and conditions. See the above final point on occupation.

I will add to this information as I learn more, so watch this space.

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