Leaseback information obligation

Legal analysis of the Toulouse Court of Appeal decision of February 28, 2022

1. Background to the dispute :

Mrs Dominique D. invested in a property in a future state of completion (VEFA) in order to benefit from tax exemption under the “De Robien” law. She acquired an apartment in July 2007, which has never been rented. Due to the lack of rental income, the property was finally sold at auction in 2014 for a sum well below the initial investment.

Mrs D. then initiated a liability action against several companies involved in the real estate transaction, in particular SAS Omnium Finance and other entities of the same group, accusing them of breaching their obligations to provide information and advice, and of having acted fraudulently.

2. Ruling at first instance :

In a decision dated November 9, 2018, the Toulouse Regional Court declared Ms. D.’s claims inadmissible as time-barred. The court found that the five-year limitation period, applicable to actions in tort, had begun to run no later than February 2011, the date on which Ms. D. had expressed, by letter, her knowledge of the damage suffered and her intention to seek the liability of the companies involved.

3. Reasons given by the Court of Appeal :

The Toulouse Court of Appeal upheld the court’s decision regarding the statute of limitations, rejecting Ms. D.’s argument that the time limit should have begun to run on the date of the forced sale of the property in November 2014. The Court held that Mrs. D. had been aware of the facts giving rise to her loss since 2010, after attempts to rent out the property had failed, and that she had explicitly expressed this knowledge in her letter of February 2011. Consequently, the five-year limitation period expired in February 2016, rendering her action, initiated in June 2016, inadmissible.

4. Analysis of the statute of limitations :

The central issue of the decision is the calculation of the starting point of the limitation period. The Court applied article 2224 of the French Civil Code, which provides that the limitation period runs from the day when the holder of the right had knowledge or should have had knowledge of the facts enabling him to exercise his right. In this case, knowledge of the lack of profitability of the real estate project from the end of the period covered by the insurance in September 2010, as well as the tax implications from 2010, were considered decisive in determining the starting point of the limitation period.

This analysis is in line with case law, which requires plaintiffs to be vigilant in fulfilling the conditions of the action as soon as they become aware of facts revealing potential damage. The decision also recalls that liability claims must be brought within the time limit, on pain of foreclosure, even if the damage continues or worsens after the initial knowledge of the facts.

5. Consequences of the decision :

If the Court of Appeal upholds the statute of limitations, Mrs D. will be ordered to pay the costs of the proceedings, both at first instance and on appeal, and her claims for compensation will be rejected. The absence of any new elements or acts interrupting the statute of limitations between February 2011 and June 2016 led to the inadmissibility of her claims.

6. Conclusion:

The decision of the Toulouse Court of Appeal is in line with a strict application of the rules of prescription in matters of tort. It underlines the importance for investors to act quickly when they become aware of damage linked to an investment. Rigorous calculation of the limitation period protects defendants against late actions, thus ensuring legal certainty and stability in commercial relations.

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