Deciding to buy-to-let in France can be a great way of boosting your income. But, as Geraldine Appert explains, negotiating your way through French legislation can be complex. If you intend to buy a property in France, or already have, you may think of renting it out part of the year for extra income. Or, you may have a pure investment in mind, looking for capital growth and rental returns.

 

Be aware that each option is governed by a different legislation, and bear in mind that French regulations relating to residential lease are not very flexible, and are mostly aimed at protecting the tenant.

1 – « Loi de Robien » Robien Act : Long-lease tenancy

Landlords can choose this scheme, which enables them to deduct 65 per cent of the purchase price with a 15-year redemption, in addition to the usual deductions (fixed rate deduction, loan interests, work and maintenance costs, local tax, insurance premiums, etc).Like in accountancy, you can deduct 65% of the purchase price from your yearly income tax over the next 15 years.

To benefit from this tax allowance, the following conditions must be met :
- Property must be newly built (never been occupied); completely renovated and bought after 1 March 2003; or bought off-plan with work completion after 1 March 20003;
- Property must be rented unfurnished to an individual for his main home (residence principale);
- Within the year of purchasing, a nine-year lease agreement must be signed, e.g. if you buy the 18th august 2005 you will have to sign a 9 year lease agreement prior to 17th august 2006;
- Above all, the rent must not exceed a set euro-per-square-metre “ceiling”, which is legally fixed. For example, for a lease agreement signed in 2005 in Paris or the Côte d’Azur, rent is limited to €19,19 per square metre.

It is highly recommendable that you take advice from a specialist to measure the real tax benefit you may gain from this complex scheme.

The best locations for this type of investment are the usual top cities like Paris, and booming cities such as Toulouse, Marseilles and Bordeaux, with their high-standard developments that present a real chance for capital gain.

Regarding the landlord’s and tenant’s rights and obligations, the 6 July 1989 Act, explained below, is also applicable to the lease agreement signed within the framework of Loi de Robien.


2 – The 6 July 1989 Act : Common Residential lease regulation

This act concerns every lease agreement where the property is rented, unfurnished, as the tenant’s main home (résidence principale). This legislation is comprehensive and most of its provisions are mandatory.

Premises must be “decent” and must induce any danger or risk to the tenant’s health. The 30 January 2002 Act sets out a list of standards to be met, such as providing water, heating, sanitation and electric facilities, minimum heights, minimum square metres, etc…

If the property does not comply with these standards, the court can order the landlord to have the work done, at the risk of significantly reducing the rent and awarding the tenant extra damages.

- Duration : if the landlord is an individual, there is a minimum three-year rental period, whereas if the landlord is a company it ought to be a minimum of a six year tenancy agreement.

- Rent is payable monthly, in addition to service charges (the 26 August 1987 Act strictly defines those which are chargeable to the tenant).

The increase process of the rent is strictly regulated. During the term of the lease, including renewal, the landlord cannot exceed the IRL (indice de reference des Loyers).

Therefore, rent is only negotiable before signing the contract and cannot be substantially increased until the tenant leaves the premises.

- Eviction : Lastly, unless the tenant fails to pay the rent, the landlord is not entitled to evict him, whereas a tenant can leave any time he chooses, subject to a three months’ notice.

The only possible grounds to repossess the property are for :

a) Occupation of the premises for the landlord himself or his family. The premises must be the main home. Occupation as a second home does not allow to evict the tenant and take back the property.

b) Plan to sell the property free of occupation.

However, in both cases notice must be served a minimum of six months before the term of the lease or the notice will be void and the lease will automatically be renewed for the same period of time.

Should the landlord decide to sell, tenants benefit from a two-month pre-emption right, providing them with exclusive rights to buy the property. Therefore, notice of eviction must also include a realistic purchase price.

Once again, to avoid any pitfalls it is highly recommended to be advised by a lawyer and a bailiff (huissier de justice).

3 – Short-let tenancies

Although the common compulsory durations of residential lease are either 3 or 6 years (depending upon the landlord being a private individual or a company), there are some exceptions :

a) The 6 July 1989 Act allows a landlord to rent a property for a minimum of one year, as long as the lease agreement specifies the reason for doing so, such as returning from an overseas employment, retirement, etc. If the event does not happen, the lease returns to its ordinary status.

b) Furnished property for the tenant’s main home must be must also be at least for a year duration. Termination is subject to the same grounds as in the ordinary regulation but the landlord’s notice needs only to be served three months prior to the end of the lease (one month if the tenant serves notice).

c) Where the property let is not the tenant’s main home, the lease is not subject to any regulation. Accordingly, parties are free to agree to any kind of clause.

4 – Holiday accommodation : Extra income to cover the property’s expenses

There is no mandatory rules when the property is rented for holiday purpose. Obviously, the lease agreement must mention the rental period, the weekly or monthly rent, the services possibly included, and the cancellation policy.

In French legal system, there is 2 ways of qualifying a deposit, each one leading to different consequences. When a deposit is qualified as “acomptes” tenant will have to pay the full balance in case of booking cancellation, whereas qualifyed as “arrhes” he would only lose the deposit.

Buying to let for residential lease is a secure investment – but you must act very carefully. French legislations for residential lease are rather restrictive, as opposed to commercial lease (which also protects the business’ tenant but allows much more flexibility in certain aspects and could also be a good way of investing your money).

Géraldine Appert, certified in 2002 by the Paris Bar as a specialist in French property law, is a member of the Paris Bar Property Law Committee and of the International Association of Lawyers. She is now qualified as well as a solicitor in London, and provides advice on all matters involving property such as purchasing, residential and commercial lease, construction, town planning and copropriété.

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Originally published in Home Overseas in 2006

 

Illustration:

 

From Cobalt Capital