A - Outline of the conveyancing system

Preliminary points

The French system is very different from England.
Firstly there is no system of land registration. Land boundaries and parcels are recorded at a local registry called ‘le cadastre’.
Secondly transactions in land and estates or interests in land (such as sales, mortgages and easements) are recorded at the local ‘bureau des hypothèques’.
Thirdly, transactions in land record which parcels of land are involved and have to be recorded and signed before a Notary, who is a public officer appointed by the Ministry of Justice by Decree.

The Notary’s principal function is to advise and assist clients in relation to real estate and succession matters. They have a legal monopoly for the purpose of authentication of the signatures of the parties to the deed or transaction as required by law. The Notaries are also required to ensure registration of the transaction and to make the appropriate declarations to tax authorities, as well as ensuring collection and payment of the taxes and duties on completion.

1-Property purchase procedure

The legal arrangements, contracts and taxes will be different depending on which type of property is being purchased for example :
- Existing houses or flats
- Houses or flats to be built off plan or in course of construction and recently constructed  properties.(Off-plan purchases are specifically regulated in terms of developer’s warranties and amount and calendar for stage payments).
- Building plot with planning permission
- Land without planning permission
-Farming land

This note concentrates only on existing houses or flats.

2-First steps and professionals involved

i) Searches and survey
The detailed pre-contract searches and enquiries process implemented by English conveyancing lawyers is unknown in France.
However, since the contract and the deed of sale usually exclude all liability of the vendor for hidden or visible defects, sub-soil etc…it is strongly advisable to have the property and building surveyed before any contract is signed and for a Notary to be specifically requested to carry out searches particularly for planning matters.
It is unusual to agree for the sale to be subject to satisfactory survey.
The surveyor, (in France an architect or engineer), should also be asked if the property is in an earthquake zone, or area liable to subsidence due to quarries and other natural and ‘technological’ and pollution risks.
In the Alpes local investigation will show if the property is an area with any avalanche or other special risk.
A visit to the local Town Hall to check the planning position and any plans for major projects is advisable.
Local enquiry of the vendor and the estate agent by the purchaser or his or her representatives is also recommended.
The vendor's contractual warranties will usually be limited to the absence of undeclared material town planning or zoning changes in the immediate vicinity or alignment of roads alongside the property.
Depending where the property is located and type of construction, the vendor may be responsible for providing clear surveys concerning termites.
Recent surveys must also be provided by the vendor from a suitably qualified company concerning lead poisoning, asbestos and natural and technological risks.
Where the property is in a block of flats, the vendors should be asked for copies of the co-owner's general meetings and accounts for the last three years showing maintenance charges and repairs and maintenance decided or carried out recently.
(Assemblées des co-propriétaires et comptes annuels de la co-propriété)


ii) The estate agent
Access to the estate agent’s profession in France is regulated. Estate agents are required to have minimum qualifications and experience and provide financial guarantees and hold insurance.
The vendor is responsible for the payment of the agent's commissions but will usually try to recoup this in the price or require the purchaser in the contract to agree to pay the estate agent's commissions which may be in the region of 10%. This is of course negotiable with the vendor.
If an estate agent is employed to find property they will be entitled to a commission.
Many agents are members of recognised federations such as FNAIM which have codes of good conduct and produce standard contracts and documents.


iii) The Notary
The Notary is a public officer and can act for both parties in relation to property anywhere in France. Their role is therefore different to that of an English Solicitor.
For most transactions the Notary receives a scale fee of between 1% to 1.5% approximately, based on the purchase price and varying with value. The scale fee covers the Notary's legal fees for the conveyancing and legal advice. The fee is payable by the purchaser.
Purchasers are entitled to take another Notary to advise and represent them; and the vendor's and purchaser's Notaries will then split the scale fee between them. However the purchaser is still responsible for paying the full amount.
Notaries operate client accounts through a state bank, the Caisse de Dépôts et de Consignations, or the Crédit Agricole in some areas, for the purpose of receiving the purchase price, scale fees, costs, duties and taxes.
The Notary will need full personal and family details and a copy of passport, marriage certificate, any marriage contract etc…as appropriate should be provided. Money laundering regulations require the Notary to be satisfied as to the identity of clients and origin of funds. Recent utility bills and evidence of profession and employment should also be provided.
The Notary will also need to know the proportions in which the purchases intend to hold the property, and details of any financing. (I attach a checklist).
As regards the our role, we are frequently asked to assist British purchasers and theirs advisors, in order to ensure that, given the significant differences between the two systems and the different role of the French Notary, the procedures are fully explained and understood by the client. The Notaries in France do not generally provide written reports or legal opinions on title, and merely ensure the purchaser obtains title to the property on completion.
Very often it is found helpful for us to liaise between the client and the Notary and the client’s English Solicitors. Since our advice will be limited to French law, we always advise clients to seek advice from English Solicitors on the relevant legal and tax aspects under English law.
Since we have a firm of Notaries in our building, Etude Chaine, whom we work on a regular basis, communication is facilitated if they are involved.
I should add that some Notary’s offices, particularly in the Alps and on the Côte d’Azur, employ English speaking clerks and our intervention may not be indispensable.

3) Contracts and completion

Determining who is to be the purchaser
Tax and legal considerations such as proper estate planning taking account of the individual situation of the parties and their own family and that of spouses and partners, French wealth tax, capital gains and gifts and estate duties make it essential to consider the question of method of ownership at the outset.

Frequent options are joint ownership in identified proportions, combinations of bare title and life interests, ‘tontine’ (similar to a joint tenancy), civil property company or with a specific French matrimonial property arrangement for the French property. Each has legal and tax advantages and disadvantages which need specific and careful consideration.
Consideration will need to be given to the appropriate legal arrangements for purchase and tax optimisation.
Many factors enter into play which cannot be set out in this brief note.
For example, the possibility of a purchase through a French property holding company (‘SCI’) can be considered with a view to optimising management and succession in relation to a property purchased by several persons or in larger families, but UK and French tax consequences must be reviewed, and there will be additional costs of formation and ongoing company secretarial and accounting costs.
Offshore companies and trusts are generally problematic both for legal and tax reasons.
It should also be noted that all foreign companies owning real estate in France have to file an annual return generating an annual tax of 3% on the market value where the beneficial shareholders are not EU residents, or the company is based in a country which does not have a tax treaty with France..

Reviewing the draft contract
The estate agents may propose a standard contract (typically a FNAIM approved model), or the vendor may have this prepared by a Notary. In all cases it is advisable to have the document reviewed by another Notary or Avocat before signature.

Purchaser’s right to withdraw

7 day right to withdraw
Where the purchase is not for business purposes, the purchaser has a right to withdraw from the purchase contract after signature, within 7 days of receiving the contract by registered post and by giving notice in the prescribed legal manner.

Condition precedent for finance
If the purchaser is seeking finance and specifies this in the contract a condition precedent can be inserted in the contract enabling the purchaser to withdraw if the bank refuses to make an offer of loan on the specified terms (amount of loan and maximum rate of interest).
Purchasers who do not intend to seek finance must declare this in writing in the contract, otherwise they will be deemed to be seeking recourse to finance.
Evidence must be provided of a written loan application to a bank and refusal.
Some British banks operating in France and certain French banks will be prepared to lend to non-residents.
Deposit
The contract will also deal with the deposit usually (5% or 10 %). This should be paid to the vendor's Notary who has a guaranteed client account, (and preferably not to the estate agent).
Once the contract is signed the purchaser is obliged to pay the balance on completion usually through the Notary's client account, and this will constitute the amount declared for taxes purposes.
Failure to complete will result in loss of the deposit and in some cases damages. Depending on the terms of the contract the vendor may apply to court for order of specific performance of the purchase.
Payment for furniture
This should be recorded in a list of agreed items with the specific price being noted in the contract. Since that price is exempt from purchase duties, attempts are sometimes made to increase the price for furniture so as to decrease the purchase price for the property and corresponding duties etc. This has to be carefully reviewed as the tax authorities and the Notary are vigilant to ensure the price corresponds to reality.
Sanctions for inaccurate declarations are dissuasive.

4 - Stamp and registration duties, Notarial scale fees

For existing properties, other than new or certain recent properties, these usually amount to between 6 % to 8% of the purchase price depending on the price and location. These items are due by the purchaser in addition to the agreed price and paid on completion.
As previously indicated the Notarial scale fees included in that amount are between 1%-1.5% (approx.) of the purchase price.
The Notary will request payment on account of the duties etc in good time for completion.
If the property is new French VAT currently at 19.6% is chargeable instead plus the Notary's scale fee.
If the Bank is lending funds, the registration of the mortgage will involve additional duties and specific Notarial scale fees.

5 - From contract to completion

Loan applications
The purchaser will need to activate loan applications within the prescribed time limit. It should be borne in mind that the French banks will require detailed information and documents from their prospective customer and the application will be submitted to a credit committee who will then decide whether to agree the loan or not. This may take several weeks if not longer.
The bank will usually require a mortgage or a registration of their interest as lender. If done on completion the costs are lower than taking a full mortgage.
Searches
The Notary will carry out planning searches and notify any persons or public bodies having rights of pre-emption such as a residential tenants, local authorities or agricultural lands boards.
Completion date
The latest date for completion will be fixed by the parties in the contract and at least two months is usually envisaged to allow for time for searches and bank loans to be obtained.
The actual date for completion will be set by the Notaries by agreement with the parties near to the deadline set in the contract.
The deadline is very often overrun and should not be treated as the actual date that completion will necessarily take place. Removals etc should therefore only be planned once the Notaries and the parties are certain of the date.
Payment of the price, duties, taxes and costs
The price and the sums on account of duties, expenses and Notaries’ fees should be paid to the Notary’s client account in good time for completion by bank transfer.
Alternatively funds can be made available at completion by way of cleared funds through cheques or drafts drawn by a French clearing bank in favour of the vendor and the Notary.
Sufficient time must be allowed for this.
Powers of attorney
Powers of attorney can be given to the Notaries for the purposes of completion, if the parties are not able to attend in person.
The power will need to be signed before a Public Notary.
Property and civil liability insurance
Insurance for the property including civil liability should be taken on completion.
Apportionments on completion
The amount and apportionment of local rates and taxes will be dealt with by the Notary and adjusted following completion.
Registration of title and final account
The registration of the title of the purchaser will usually take several months. The Notary will then render a final account for costs and expenses.
On completion the Notary will provide the purchaser with a certificate of ownership enabling transfer of utility contracts and other formalities.
Vendor’s capital gains tax
The vendor may be liable for capital gains tax on the sale and this will also be deducted from the price by the Notary and declared and paid to the French tax authorities immediately following completion.
Where the vendors are foreign residents a guarantee has to be provided through a recognised guarantee company, for any further capital gains tax (after review by the tax authorities of the price and calculation of the gain). This guarantee involved payment of a fee to the company providing the guarantee.

B. Succession to French property and French wills

It should be kept in mind that French and English Private International Law rules coincide to provide that French real property (as defined in French law) will devolve in accordance with mandatory rules of French law whatever the domicile of the deceased at the time of death.
Children have reserved shares of their parents’ estates the size of which varies with the number of children : one child/one half-two children/two thirds and three or more children/three quarters.
Where lifetime gifts have been made in favour of persons other than children in excess of the portion of legally allowed free estate the children can apply to court for the gift to be cancelled or to exercise rights in international estates to claw back the equivalent of their reserved share out of available French estate.
Surviving spouse will enjoy rights to a varying share of the estate or life interest depending on the number of children and, if there is a deed of gift between spouses or a will in favour of the survivor, they can take precedence over parents in the absence of children.
Those shares cannot be excluded by will although recent rules now enable renunciation of children in favour of gifts made to their children by their grandparents.
Movables of persons not domiciled under French law will devolve on death in accordance with the legal rules of the domicile of the deceased, e.g. English law if the deceased was domiciled in England.

Effect of an English will in France
An English will made in the UK will be recognised in terms of form in France under the Hague Convention, but the content of the will may be inoperative to the extent of any applicable mandatory rules of French law, such as the inalienable shares of French estate reserved by French law to children and surviving spouses.
Trusts do not exist in French law and implementation is problematic and liable to cause tax complications.

The utility of a French will
A French will is recommended firstly to take advantage of the free portion of French estate, particularly to protect and improve the interests of the surviving spouse (compared to the position on intestacy), or of a civil or other partner.
A French will is also highly advisable to facilitate administration of the French estate.
Thus in a typical situation of a married couple where there are children of the marriage, the spouses may leave French wills giving the other a life interest over the whole estate with children inheriting the bare title.
New rules now encourage lifetime estate planning. The government’s plans to reduce estate duties also make this process more worthwhile.

Situation in the absence of a French or English will-intestacy
In this situation the inheritance of French real estate will be governed by French intestacy rules.
In brief summary the French estate will devolve first on children if any, subject to the rights of the surviving spouse, and then successively to the closest blood relations: parents and brothers and sisters. The more distant the relationship the heavier the estate duties will be.
Specific provisions protect the interests of the surviving spouse and civil partners.
The surviving spouse will automatically be entitled to one quarter of the estate or a life interest over the whole estate in the presence of one or more children of the marriage.
In the absence of children of the marriage, but where the deceased left children of a previous marriage or relationship, the surviving spouse’s rights will generally  be limited to a one quarter share of the estate.
Where the couple were unmarried but had entered into the French version of a civil partnership, the survivor is entitled to a statutory right of occupation of the former joint main residence (if in France), but this can be excluded by will. There are special rates of estate duty for civil partners.
The survivor of an unmarried couple not in civil partnership has no statutory protection of occupation of the former joint main residence, and estate duty on any gift by will is currently 60%.


Protecting the survivor
Provisions in the purchase deed can be inserted whereby the survivor is treated as having a right of survivorship as if he or she had owned the property since acquisition (‘tontine’) but the parties are then locked into the arrangement and there is the element of uncertainty as to who may die first.

C. French Taxes
a) During ownership

Income tax
Income tax on lettings will be charged to French tax under the UK/France tax treaty.
Wealth tax
Where the property has a current taxable (market) value exceeding 750,000 Euros after any relevant deductions, French annual wealth tax will be due. A return has to be field each May with payment of the tax.
Local taxes
Annual home owner’s tax (taxe foncière), resident’s tax (taxe d’habitation) and refuse collection taxes will be charged, whether or not the property is the principal residence of the owner. These taxes vary considerably from area to area. 

b) capital gains tax on resale

The non-business seller will need to anticipate capital gains tax unless the property is a principal private residence. The current rate is 27% for French residents including special social security contributions. The rate applicable to EU residents is 16% and 33 1/3% for non-EU residents. The tax is degressive and after 15 years ownership the tax no longer applies.

c) on gifts or death

Duty is charged on lifetime gifts and on inheritance based on market value of the property at broadly similar rates on chargeable bands of the property or estate transferred, ranging from 5% to 60% depending on the degree of proximity and the value of the property or estate transferred.
Duty free allowances where applicable are taken into account before applying the relevant rate for each successive band.
Duty free allowances and rates for the highest band
The government’s latest package of fiscal measures has just been voted by the Parliament and is shortly due for formal ratification. The new allowances which have been considerably increased will be set out in an updated version of this letter very shortly. The rates indicated are therefore those currently applicable.

Specific allowances are then applied (with the top band and rate of duty indicated in brackets) :
GIFT : 76000 € between spouses  and civil partners (40% duty from 1,700,000 €). In many cases the rate of duty is 20%.
DEATH: no taxe
GIFT AND DEATH  : 150000€ for each child or parent renewable every six years (40% duty from 1,700,000 €). In many cases the rate of duty is 20%.
GIFT ONLY: grandchildren : 30000 € each (duty as for children)
GIFT AND DEAH: brothers and sisters: 5000 € each (45% from 23000 €)
DEATH ONLY : persons who are not members of the donor’s family : 1500€ (60% duty) (nb there are other conditions, rates and cases not mentioned here and the duty for the 5 intermediate bands is not indicated).

D . Lifetime estate planning
a) Legal considerations

All estate planning will, amongst other factors, take into account :
the inalienable shares of children in the estate of their parents, with the obligation to account to other children for lifetime gifts.
the rights of the surviving spouse depending on the existence and number of children (to inherit up to one quarter of the estate or a life interest over the whole which can be improved by a specific will) and certain rights over the matrimonial home
the rights of a French law civil partner (right to occupy the joint residence for up to one year but which can be excluded by will)
absence of any specific legal protection (right of occupation) of life partners living with the deceased
new French rules introduced in 2007 now enabling renunciation by a child in favour of a brother or sister as well as ‘trans-generational’ gifts to the benefit of grandchildren, subject to certain conditions as to form and content.
new rules enabling lifetime gifts to ensure equality between children of different marriages.

These measures involve careful case by case consideration or the family situation, the legal rules applicable and estate duty and tax considerations.

b) Tax considerations
For tax and estate duty planning purposes, special consideration should also be given to :

ceilings for tax free lifetime gifts, (and reduced gifts duties) particularly on gifts in favour of children and spouses, and the possibility of renewing tax free gifts within the ceiling every six years.
reduced gifts tax rates depending on the age of the donor with possible reservation of a life interest
where the parties are unmarried, specific consideration needs to be given to the legal and tax position with a view to preserving the interests of the survivor also taking account of the heavy rate of duty on lifetime gifts or inheritance by will. (currently 60%).

There is a double estate duty treaty between France and the others countries, which seeks to avoid double estate duty taxation subject to certain conditions.

The above is only a very limited and incomplete summary of complex provisions of the French legal and tax system.