French Leaseback

Leaseback Properties Contract written with wilful misrepresentation (indemnite d’eviction)

Leaseback properties in France. Private individuals agreed to a leaseback scheme in France (buying and renting to an operating company)

Summary

• The operator (tenant) waives the eviction compensation in the commercial lease, knowing that this waiver is not valid (not enforceable).
• The judges cancel the lease. The operator of the French leaseback property (tourist residence) is not entitled to an eviction indemnity (damages called in French : indemnité d’éviction).
• The bad faith of the tenant, who drafted the commercial lease turns against him.
• This case law could be a huge step forward in the right of owners of a French leaseback property.

Abstract

The (tenant) lessee, is a company specialized in the management of leaseback properties.

However, the operator writes the lease with bad faith. Because he pretends to waive in advance his right to damages, if the the lessor end the contract. (eviction indemnity/(damages called in French : indemnité d’éviction).

According to the French law, the tenant (lessee) cannot waive in advance and in the lease his right to an eviction indemnity in case of non-renewal of the commercial lease.

He can waive this right to damages AFTER signing the commercial lease.

But in this case, the operator is a pro of this industry. He waives his right knowing well that this clause has without legal ground. Even if, it was for the lessor a substantial condition of the contract, ie one main reason why the buyer agreed to the leaseback.

The tenant (operator) acted with the intention to willfully misrepresented the content of the lease contract.

The operator of the leaseback property falsely reassured the buyer/lessor in the legitimate belief that his renunciation constituted a real commitment.

This behavior is analyzed as a “wilful misrepresentation” (dol in French), meaning a fraud when writing the contract.

Wilful misrepresentation and statute of limitations

Wilful misrepresentation

The buyer of the French leaseback property signed a leaseback contract with a operating company. However only the tenant wrote the lease contract.

The waiver to an eviction indemnity could only appear as a decisive element of the deal. Most importantly, the buyer of the French leaseback would (or might) not have signed the contract.

If their attention had not been attracted by this financial interest, they might not have contracted.

Indeed, the cost of more than € 13,000 claimed as compensation for eviction weakened the profitability of the operation for the owners.

The legitimate belief in a waiver of the lessee  continued throughout the lease. They served a notice without eviction compensation. It was served in accordance with paragraph 6 of the lease.

Statute of limitations of 2 years

Otherwise, the tenant is claiming a statute of limitation of 2 years to cancel the lease. However, the statute of limitation of 2 years begin to run, when the victim is informed. In this case, it is the date of the registered mail addressed to the  owners by the operating company.

That’s why the wilful misrepresentation (fraud) leads the judges to cancel the commercial lease.

Furthermore, the court decides the paid rents were due for operating the leaseback property without a lease contract. The cancellation of the lease means it is like it had never existed.

Cour d’appel de Montpellier, 10 janvier 2017, N° de RG: 14/06714

Pitfalls to avoid when buying property in a student residence

What mistakes to avoid before buying in France ?

BE ON THE ALERT: Don’t be blinded by the tax benefits

1. The mirage of the “guaranteed” financial investment “without risk”

You are not buying a “financial product” – a “guaranteed investment without risk”. The selling point of “tax exemption” in France should not make you forget that it is a PROPERTY PURCHASE carried out by YOU ONLY. It is the only version of reality which will appear on the contracts and legal documents you sign in France.

The fact that you neither created the documents, nor signed them in person, nor even saw the property is no excuse under French law (actually this is similar to the laws in most countries).

2. Buying property that is much too expensive in medium-sized towns

A common mistakes is believing that the law will protect you against loss incurred when buying such property in France. The tax benefit should not lead to the purchase of a property that will be unsellable (and sometimes hard to rent) in the future.

3. Buying  in a student residence without checking the number of students and the local market

You should invest in a student residence in cities with a strong university potential (Lyon, Bordeaux, Lille, Marseille, Nice or Montpellier) to ensure an occupancy rate that is high enough for the operating leaseholder and the lessor who will be paid only if the company makes a profit. Beware of investments in medium-sized towns already jammed with housing where the developer who approaches you is offering hundreds of accommodations in addition to yours.

4. Don’t invest in a student residence which is badly located even in a City full of students

Despite all the “guarantees” offered by the sales representative who approaches you, you must not forget the golden rule of property purchase: LOCATION, LOCATION, LOCATION.

THREE TIPS TO AVOID MISTAKES

• Enquire about the rental market (existing studies) and the schools and universities in the proposed town/city,
• Check the exact location of the accommodation (using googlemap, google earth or mappy, for example) to avoid buying property that is too far from the main schools.
• Involve local experts, who know the market. We can help.

RISKS

• Frequent and recurring risk of unpaid rents (for several years sometimes)
• Attempts by the company that holds the lease to renegotiate a lower rent
• Capital loss on the property’s sale, including after 10 years (!)
• Bankruptcy of the company that holds the lease
• Substantial work to be funded after ten years or so, despite low rental income

PLEASE FEEL FREE TO ASK YOUR QUESTION (FREE OF CHARGE)

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• Lawyers members of the Paris Bar since 10 and 13 years
• English-speaking lawyers (we used to live in Sydney and we love to travel)
• Doing Business mainly in Paris and on the French Riviera but able to represent you all over the country

WHY US ?

• We know what it feel like to be a “foreigner” and not understand a word of the situation
• We answer our phones (and phone calls/skype are free!)
• We are small : you case will be taking care of by one the main partner

Me Bruno Traesch on radio FRANCE BLEU:

http://www.francebleu.fr/emissions/les-experts-france-bleu-107-1/maitre-bruno-traesch-expert-en-droit-de-l-immobilier

Related Articles :

• Termination of a commercial lease due to unpaid rents
• Termination of a commercial lease in France
• Selling Real Estate in France
• What kind of contract with the real estate agent in France?
• Eviction of a Tenant: a long process (French Law)
• Buying property in France that needs refurbishing
• Real estate Latent Defects(vice caché)-French Law
• What should I do if my tenant is not paying rent ? (in France)
• Can I terminate the lease ? French Law

FRENCH REAL ESTATE CONTRACT

MISTAKES WHEN HIRING A FRENCH REAL ESTATE AGENT</strong>

Be certain to completely understand the real estate agent</strong> fees. For example, is it a fixed price contract, or based upon a percentage of the sale ?

WATCH OUT FOR OVER-QUOTES TO WIN THE CONTRACT

The initial selling price quoted by the real estate agent</strong> is often optimistic, in order to gain your business.

It is likely that your property will be sold at a lower price and we recommend that you agree to a percentage (vs. fixed fee) contract with the agent.

PITFALLS WHEN SIGNING WITH AN AGENT IN FRANCE

• We recommend that you do not sign a “mandat exclusif de vente” (exclusive agreement)

Legal rules applying to an exclusive agreement signed with a rget=”_blank” rel=”noopener noreferrer”>real estate agent</a>:

• A 3 months contract with 15 days notice,

• If you sell the property yourself during the exclusive contract period, you are likely to be subject to paying all or most of the agent’s fees anyway (100 % or sometimes 50 % (Subject to the Contract).

You could be tied to a real estate agent</strong>, even if you want to terminate this contract.

A non exclusive agreement

If the real estate agent seems to be trustworthy, just sign a <strong>non exclusive agreement with the reaagent.

ADVICE

A word of Advice

• Don’t sign anything before obtaining qualified legal guidance
• Hire a lawyer in France to review the contract (approx. cost: 200 euros).

Worst scenario: the exclusive agreement was a bad idea

Sometimes, the sale of the house/apartment is locked in an exclusive agreement (“mandat exclusif”), even if the real estate agent in France is not looking for new clients.

In some cases, the real estate agent</strong> in France will advise you after few weeks/months to lower the price</a>.</strong></p>

Two possible reasons:

1. The French real estate</strong> agent wants to quickly sell the property without too much effort,
2. The quote was way above the market (in order to win your contract).

Ask your question to our English-speaking lawyers in France (free)