A little piece of France

FRENCH property prices slumped during the past decade, but have now recovered. And the recent fluctuations in the exchange rate, with sterling able to buy more francs than at any time in the past 30 years, have meant that French property now looks attractive, either for leisure purposes or as an investment.

In recent years, thousands of British families or groups of friends have bought property in France. Although by UK standards property prices in France are still low and purchase loans are readily available, many potential buyers are discouraged from buying French property for two main reasons.

First, they do not want to feel obliged to go to the same place every year.

Second, their holiday time is often limited to two or three weeks in the summer and, although friends and relatives may use the property, it will otherwise remain unoccupied.

On the other hand, more than 60 million tourists visit France each year.

This is not a passing phenomenon, and with new, improved and cheaper transport links the demand for self-catering accommodation in France continues to grow.

But what factors should you consider before leaping onto a foreign property ladder? Your initial homework should probably centre around the law.

Buyer beware

The French legal system is very different from ours, so caveat emptor - buyer beware. It is the purchaser who is responsible for all French legal fees: not only their own but also the vendor's. Any property purchase in France must be completed through the offices of a notaire in France. And the notaire's fee is much more than in England. The cost is set down by law and so is not, as here, fixed by negotiation: it is a percentage based on a sliding scale depending on the purchase price. For an existing property this can range from 10 per cent to 15 per cent plus VAT which in France is 19.6 per cent.

Take, for example, a property costing 100,000. Depending on where the property is situated, in France this might buy a country mansion, in England a three-bedroom detached house. In England, the cost of legal advice to the buyer might be 350 plus VAT on all of it plus disbursements. In France, the cost might be 10,000 plus TVA (French VAT) on some parts, inclusive of stamp duty and disbursements. In France, this must be paid before any transfer of ownership takes place.

French estate agent's commission varies as in England. However, the variations are in a different league. In England, you usually pay between 1 per cent and 4 per cent; in France the range is between 5 per cent and 20 per cent.

However, in France the advertised price of the property may include the estate agent's commission. You need to check and, if it isn't see if it can be negotiated.

There are further registration fees if the property is being purchased with a mortgage comprising about 3 per cent of the amount borrowed. Furthermore, if you buy a property that has a service charge attached, these can be very high in France. You should check the position before committing to the purchase.

There are three main types of French property contract. The usual form is a compromis de vente. Alternatively, a promesse unilatrale de vente is a one-sided agreement more suitable when purchasing development land.

Finally, there is a contrat de rservation for new properties.

Never book removals or make any commitment based on the completion date. The notaire may not be ready even if the date is given as part of the contract.

He or she will require the results of inquiries and searches, and the authorities in France are notoriously slow in responding. The usual wait is three months.

You will, of course, need to sign the formal transfer of ownership document (acte de vente) which has to be done in France. The actual completion date may not be convenient to you, in which case you are able to sign a power of attorney (procuration) in favour of one of the notaire's clerks so that the formalities can be completed.

The notaire will keep the deeds but will arrange for transfer of ownership to be registered. You should ask for an attestation d'acquisition as proof of ownership and he should supply you with a certified copy of the registered deed of ownership in any event.

Do not proceed to a purchase until you have taken advice on the inheritance position and French taxes. The notaire will not automatically do this. The consequences of getting it wrong could be expensive.

Succession law and inheritance tax French succession law is very different from that in England and Wales and there are a number of expensive traps for the unwary.

With proper advice, however, the effects can be minimised and, indeed, exploited.

For example, did you know that in France children can own property in their own names; there is no such thing as a trust; English executors face great difficulties administering a French estate; you can't dispose of your estate as you see fit.

So, John, after getting divorced buys a French property. Shortly after he meets Carolyne. It is love at first sight and they stay together for 25 years. John is suddenly taken ill and dies. He leaves his entire estate to Carolyne. His will is English and the French estate is administered there.

Not only does Carolyne not receive the house in France but she finds to her horror that John's three children by his first marriage are entitled by French law to a quarter each of the property and there is nothing she can do about it.

The first question an adviser will need the answer to is what country's laws apply to each item of your French estate. The answer is dependent on the country in which you are domiciled. Here are two examples.

If the centre of your economic interest is in France, you are domiciled there in French law. If you spend more than 183 days in France cumulatively, you are domiciled there in French and English law.

If death occurs while French domiciled, French law (and tax) applies to all property in France and all "movable" property elsewhere.

So the old masters adorning the walls of the English mansion, the yacht and the antiques in Florida are all subject to French inheritance tax which can be much more expensive than in England.

If the deceased was domiciled in England, French land and other "immovable property" in France passes by French law. The English will has no effect if it conflicts with French law, and French tax is payable on it. Furthermore, although French "movable" property is not subject to French succession law it is subject to French tax.

In the above example, the second piece of bad news for Carolyne is that not only will she pay French inheritance tax at 60 per cent but also that the tax-free band is only FFr10,000 (approximately 900).

So there are many pitfalls for the unwary and it can be a very expensive mistake to buy French property without taking professional advice. You can, of course, ask your notaire but be warned, this can be expensive (hourly rates could be 200 plus French VAT charged at 19.6 per cent).

How then can these problems be overcome?

Take advice. Use an adviser who is familiar with English and French law, is experienced with the practicalities and who is preferably bilingual.

Decide with him or her the regime by which the property is to be held, taking into account your particular circumstances.

Make a French will (and an English one) and keep them updated - I suggest a formal review every five years

Letting French property

There is enormous demand for self-catering accommodation in France. With proper advice, you can earn good rental income with minimum difficulty.

Regular lettings (locations) are only likely if the property is well maintained, furnished and equipped, and within fairly easy reach of shops, restaurants and other tourist attractions.

Because of the cost of advertising and the trouble and expense of employing local cleaners and gardeners, it is often easier to instruct a local French letting agent (agence locataire) to market and manage your property. Your rights and obligations and the duties of the letting agent should be clearly defined in a written mandat de gestion.

Although beyond the scope of this article, it is important that your legal ownership of the property is structured in the most tax- efficient way and avoids problems of French succession law. To protect landlords against more foreseeable problems, a tailor-made written letting agreement should be executed by the parties.

There has never been a better time to purchase French property, but it is imperative that you are familiar with the pitfalls before embarking on such a transaction. If you decide to go for it, bonne chance!

Stephen Smith is the author of Letting French Property Succession. He heads the specialist French law department at Riddell Croft and Co, solicitors, 27 St Helens Street, Ipswich, IP4 1HH (call 01473 384878; fax: 01473 384878; email sjvs@riddellcroft.com).

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