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It is important that prospective purchasers understand the transaction and the pros and cons of this
method of purchase so that an informed decision can be taken.
This method of purchase is an excellent deal for some but will not suit everyone.
French Leaseback Properties
Purchase of a freehold property and granting of a lease to a holiday company who will pay
you a guaranteed rental - the lease will be for a period of 9-11 years on a fixed rental, normally
inflation linked. The rent will be paid by the company regardless of whether or not they rent out
the property at all times.
Refund of the TVA (VAT) which is 19.6% - this is according to a French law instigated to encourage
more people to buy and rent out properties. This only applies if the property is newly built (most of them are).
If it is a refurbishment then the TVA will not normally be refundable.
The TVA is either paid and reclaimed by the developer in which case it is never actually paid over by
the purchaser or the purchaser will have to pay the TVA and then reclaim it. This can take 6-9 months
so the purchaser will need to be able to fund the amount for this period. In most cases the developer
will provide assistance to reclaim the TVA sometimes making a small charge to do so.
The rental will be set out in your lease (bail) normally as a percentage of the cost of the property.
You will need to check:
- What the percentage rental is based on, ie the price including TVA or not (TTC or HT).
- If there are any service or maintenance charges to be paid or deducted from the rent.
- Cost of the furniture package which is provided so that all properties on the development are
the same, which is essential for rental purposes.
- Notaire's (conveyancing) fees.
- There should be no charge to you from the agency you deal with they are paid
by the developer to assist you throughout the purchase.
Bear in mind that although the rental may be lower in some seasons than you could get if you
rented it out yourself, you have no risk, you will receive your rent regardless of whether the property
is rented out or not, the company takes the risk and must allow for this - it is extremely unlikely
that you could rent out all weeks on your own.
You have no concerns as to the security, maintenance and cleaning of the property. It is in
the interests of the holiday company to keep everything in good order so that they can continue to
rent as often as possible.
At the end of the 9-11 year lease most rental agreements will give the right to renew to the holiday
company. However in practice they very rarely insist upon a renewal if it is not wanted. The reason
being that if it became common practice for them to insist, it would make people very wary about buying
a property in this way and they base their business on the continuing availability of properties. It is
possible in some cases to request a letter confirming that they will not exercise their right.
You will pay a deposit of a maximum of 5% then pay in stage payments
To reserve the property you will sign a reservation contract and lease. You will then pay in stage
payments (in exactly the same way as for any new property in France). The first stage payment is
normally around 25% and is payable once the foundations have been laid.
The company can alter the lease prior to completion but should it change to any extent you have
the right to withdraw.
If you decide to use the property or sell it and not renew the lease
At the end of the lease you will have to repay the proportion of the TVA, ie. if your lease was 9
years, you will repay 11/20ths of the amount of TVA. Taking inflation into account this will be a comparably
small amount to pay back in 9 years time. After 20 years of leaseback no TVA is repayable.
If you decide you would like to sell the property within the period of the lease
You can do so but will have to sell it with the lease intact to a like-minded buyer looking for an investment.
The Notaire's fees on purchase will be as for any new property approximately 3%.
If you buy a refurbished property being sold as a leaseback, then there is no TVA element
in the sale and you will normally pay a deposit to reserve the property and the rest of the money
will be due when the property is completed. Notaire's fees will be 7/8% of the price of the property,
but as the price includes the refurbishment cost, the fees will normally reduce to approximately
5% of the purchase price.
Personal use of the property offered in different ways
The amount of weeks and the way it is arranged varies tremendously between developments,
ranging from one or two weeks to several months and in some cases a reduction on the rent being
given whenever you want to use it.
If you choose a development where you have some personal use you should calculate the cost
of using such a property for holidays and add it into the equation of the rental return as you will not
be paying for other holiday accommodation.
If you are working with limited holidays and time, then 3 - 4 weeks is probably as much as
you would have time to use the property. You will not need to take responsibility for the changing
of linen, cleaning etc between renters, you just arrive to a perfectly cleaned holiday home on your
weeks and leave it to the holiday company for the rest of the time.
We do not make any extra charge for our assistance with a purchase. We will guide you through
the paperwork, explain the contracts etc.
Taxable Income
If you receive rental income on a property in France you will require tax representation to declare
the income in France there is a tax treaty between our two countries and you will not pay it twice.
In most cases the companies can provide this assistance or recommend someone to you there will
be a small cost which should be borne in mind when calculating whether it is worthwhile for you.
Investing in French Property
If you are looking to invest in France it is definitely worth considering purchasing a property giving you a guaranteed rental. Latitudes offer a selection of properties that are to be purchased off-plan where an insurance-backed guaranteed rental is offered by a rental management company on a three year lease.
This is a classic purchase where some of the development will be purchased by people wishing to use them for permanent or holiday homes. Therefore if you wish to purchase in order to achieve a good capital increase on your investment they offer excellent potential, as much of the development will be owner occupied and therefore easily saleable on the open market.
Buy To Let - Guaranteed rental
French properties are available with rental returns of approximately between 3.8% - 5% guaranteed. The management company will find a tenant and collect rents etc. The property is let unfurnished. The charges that the rental company will make for managing the property plus the rental guarantee will amount in total to just over 10% of the rental. The guarantee will provide that should the property not be let, or rent not be paid, you will still receive the rental quoted to you. Should the property be let for more than the guaranteed amount, you will receive in full the extra amount whilst the tenant is in situ. The rental is also index linked.
What happens when the lease term is complete
If you wish your tenant to leave at the end of the 3 year term you must write to give him notice 6 months prior to the end of the agreement and you can then use it for your own purposes or sell. If the tenant wishes to leave before the end of his tenancy he can give 3 months notice at any time, and if you wish to relet the management company will do this for you, but in the event that you have a void, your guaranteed rent will be paid. Alternatively, you can take the property for your own use at that time.
After each three year lease is over you can renew with the management company for a further period of three years if you wish. A deposit from the tenant is held by the management agency against dilapidations.
This type of purchase gives you more freedom to sell or move in when you wish but it does not allow any personal use whilst letting. Also of benefit is that the development is lived in by many of the owners, not just renters, so that it may be more saleable on the open market. The properties are generally well priced and have good potential for capital increase due to their location.
See also New Developments / Offplan Property
See our Glossary for more common terms you are likely to come across when Buying or Selling Leaseback Property in France.
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