BUYING / SELLING or RENTING a real estate in France can be tricky

You want to buy or sale a French Leaseback or a property.

Many issues arise when you buy and sell or rent real estate in France :


There are specific considerations for French lease back investments :

  • Termination of a Commercial Lease due to unpaid rents
  • Termination of a Commercial Lease in France
  • Charges and Commercial Lease in France
  • Obligations of the managing/operating company
  • Responsibilities for lease hold repairs.
  • Selling a Commercial Lease in France
  • Legal solutions and Litigation in France
  • The notice period under the French Law
  • What should I do if my tenant in France is not paying rent ?
  • 4 pitfalls to avoid when investing in a student residence
  • Trap: serviced residence rents which are too high
  • Service premises in a co-ownership

French leaseback problems

Since the 80’s and the 90’s, several thousand of owners bought leaseback property in France. The operating company states the return profit would be 4 % to 5 % per year. Sometimes the builder sells himself the real estate.

During the 2000s, the operators marketed the French Leaseback overseas and especially in the UK and Italy. It was marketed as a risk-free and high return investment.

The leaseback schemes were aimed to put enough renting properties on the touristic areas of France. The government and the big leaseback companies present it as a win-win solutions for operator, investor and the economy. The leaseback companies lobbied the MP’s int the French Parliament.

A lot of buyers thought they will be able to have a holiday home in France after 9 years (or at least 20 years).

Tax cuts, vat refund and rental income

The purchaser benefits of a VAT refund, because his deal is funding a new build in France. The operating companies and/or the construction company doesn’t has to finance with costly bank loans.

The french tax agency does not collect VAT on these sales. This tax cut comes from the french law voted by the Parliament. The French government wants to boost the real estate industry. Construction and tourism are creating a lot of jobs in France. The idea is to put on the market enough holiday homes and flats to rent for few days or a week.

The leaseback scheme works around an operator, who rents to tourists or students. The operating company has to paid guaranteed rent. It means the yearly rent is the same, even if the flat isn’t rented during the low-season. The leaseback owners are supposed to be paid every year without having to care about the daily business of the tenant.

Tax cuts, vat refund and rental income are the main reasons for buying a leaseback scheme.

Why is there a problem with French Leasebacks?

Why are so many owners are trying to sale by publishing on real estate websites specialized in french leaseback resales ?

Many buyers have been misled by the leaseback companies.

The purchasers and future owners think themselves as consumer. But under the French law, they are more merchant and professional, regarding the lease (and not the buying of the real estate). So, the owner is a commercial lessor and the lessee (tenant) is supposed to be the weak party, like a consumer ! Yes, it is outrageous !

But why? The buyer of a French leaseback property signs a commercial lease, when buying the real estate.

The year lease is a commercial lease. It means that a complicated set of rules applies to this contract. The real estate agent and the notary doesn’t explain it the buyer.

For instance, if the lessee wants to renew the lease, the owner cannot refuse without paying damages (indemnite d eviction). The only way to avoid paying damages is to prove a major breach of contract by the tenant (operator).

Some owners were told they are free to terminate the lease after 9 years. It isn’t true. They can, but they will have to pay some damages. (it can be between 10.000 € to 30.000 € or more)

Under French commercial law, the tenant has right to compensation for loss of earnings, due to the loss of the leaseback property. It is unfair, but legal for now.

The common expenses and fees of the managing company are increasing

After 9 years (or 18 years), the management company raises the fees and the common expenses of the real estate increase.

The guaranteed yearly return is decreasing too.

The operator is looking for a rent drop

A second issues concerns the rent. After the first lease of 9 years usually, the tenant can fill a case in court to ask for a new calculation of the rent. The court will appoint a judicial/court expert in order to decide on the proper rent according to the market of accommodations.

The rent will often decrease. If the yield decrease, the value of the property sinks.

Some owners regroups. Other try to ask to the European Union to intervene.

French Leaseback resale : the second market

That’s why you can see a lot of French leaseback property for sale.

If the operator wants to decrease the rent, owners should take legal action to protect their interests.

Your french properties have value. The real estate market in France is growing each year.

The big question is: should I sell my leaseback with or without a commercial lease ?

It depends. If the local market is strong (renting and selling), you should of course pay the damages to the tenant and sell without the lease.

If the location of your property is nice, but needs an operating company to find tourists or students, better sell with lease.

Legal solutions for French leaseback owners

Our law firm started ten years ago to work in the field of French leaseback issues. Many owners have experienced problems with properties purchased through leaseback schemes in France.

Our firm is proving councel and representation to French leaseback owners:

  • unpaid rent
  • rent drops (negotiation)
  • rent drop/decrease (expertise and litigation)
  • negotiation of the damages (indemnite d eviction) at the end of the lease
  • litigation regarding the end of the lease and the damages
  • the tenant stops the lease and payment before the end of the lease
  • selling the real estate with or without the lease


Annual yield and total rent for the final client (client of the operating company)

Tip 1: Be wary of promised rates of return

Be wary of promised rates of return that exceed the average yield (3.5 % and 4.5 % depending on the city) of real estate properties in France.

Tip 2: Check that the rents established by the operator match the prices of the local rental market

Tip 3: Have a lawyer review the commercial lease

Understand the contracts you sign. A few hundred euros for legal advice can prevent thousands of euros of potential losses in the future. (please see our clients’ review)

Tip 4: Never buy real estate sight unseen! Whether it is tax-exempt or not!

This is neither a financial transaction nor a ” guaranteed tax avoidance plan “, but a PROPERTY PURCHASE, which is subject to the same rules as any other real estate purchases (e.g. main residence, which you would never buy sight unseen).

Tip 5: Never forget the real estate golden rule:  Location. Location. Location.

No, the operator who “guarantees” an annual rental rate does not assume all the risks. If his returns are unsatisfactory, he will not hesitate to stop paying the rent to negotiate a reduction!

Tip 6: When to sell ? Before any major repairs are required, for example 9 to 10 years maximum.

Tip 7: Have an exit strategy: Inquire about the resale market for this type of property, even if it is difficult to find this information.

Have an exit strategy already in place from the moment you invest: Try to think ahead to the resale of the property in France.

The sale of leasebacks is very difficult and time-consuming and we can advice you on specialists in this area.

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