Guide acheteur Immobilier
Investing in a piece of real estate in Paris, or generally speaking in France, is a very exciting project; it can also be a very challenging one though for someone not used to the French legal system and to the way business is done in France.
However, with the proper explanations and advice, the French regulations will reveal itself very protective and transparent for both parties and the sale agreement really balanced thanks to the intervention of the French notaire, making France a very safe place for investing in real estate.
This note is designed to give foreign investors a general picture on how a real estate transaction is dealt with in France, in order to make them feel more confident about this upcoming process.
ISSUING A FIRM OFFER:
Once the dream property found, the prospective buyer has to inform the seller that he intends to buy his place. With the help of the broker, he will issue a financial proposition that includes the purchase price he offers and the precision about whether or not he needs a loan to secure the transaction.
As soon as an agreement is found with the seller on the conditions of the transaction, the negotiation period ends and the legal part of the process begins.
THE ROLE OF THE NOTAIRE
In France, every transaction involving real estate property is handled by a notaire.
Very different from a U.S. notary public, the French notaire is both a lawyer – whose core practice includes real estate, family law, estate planning, etc. - and a public officer who acts on behalf of the state after having been personally appointed by the Minister of Justice. The deeds he drafts are very binding, with the same legal strength as a court judgment.
The notaire is the centerpiece of the real estate process; he intervenes as soon as the deal is closed between the parties in order to advise the clients and to draft the deeds that will enact their agreement and record the transfer of ownership.
His intervention offers a very strong legal protection for both parties as he guarantees that:
- The seller is the real owner of the property,
- No mortgage will remain over the property once the sale is completed,
- The price is fully paid to the seller,
- The transfer of ownership is officially recorded,
- All the taxes generated by the transaction have been paid to the tax authority.
THE PREPARATION OF THE PRELIMINARY CONTRACT
In order to draft the preliminary contract, the notaire has to gather various documents and information regarding the parties, the property itself and the co-owners association of the building.
Regarding the parties
The notaire has to ensure the identity and the legal capacity of the buyer and of the seller. He will require a copy of their valid ID and of their birth certificates.
If one is married, the notaire has to identify his matrimonial property regime and will require a copy of his marriage certificate and of his prenuptial agreement/marriage contract, if any.
Regarding the property
By analyzing the legal title of the seller, the notaire will ensure he is the real owner of the property being sold and may also detect some issues such as some transformation works having been performed without the proper authorization or the irregular annexation of common areas.
The seller is legally bound to disclose to the potential purchaser the results of the technical audits regarding the presence in the property of lead, asbestos, termites, etc.
The notaire will help his client analyzing and understanding the conclusion of those reports.
Regarding the co-ownership association
When the property sold is made of one or more units of a condominium, the Law makes it compulsory for the notaire to obtain and forward to the potential buyer some important elements regarding the co-ownership association.
Thanks to this regulation, the purchaser will be aware of the financial situation of the association and of the renovation works recently decided, which will enable him to figure what his share of the global expenses of the building will likely be.
THE PRELIMINARY CONTRACT
The buyer and seller are often in a hurry to conclude the sale, having in mind that signing the preliminary contract is no great commitment. This is a false perception: despite the name, the preliminary agreement constitutes a genuine contract which imposes major obligations on both parties.
In the promise to sell, the owner takes the commitment to sell to the potential buyer his/her property at a given price. The buyer is being granted an exclusive option for a limited period of time (generally 2 to 3 months) and thus has the choice to buy or not to buy. During this time period, the seller is prohibited from cancelling the sale or offering the property to another buyer.
In exchange, the potential buyer pays to an escrow account, opened by the notaire, a security deposit, which is usually 10% of the selling price. It will have to be paid by wire transfer to the notaire even prior to the signature of the preliminary contract, in order to make sure the escrow account has received it by then.
If the potential buyer decides to proceed with the purchase, the deposit is deducted from the total price to be paid. But if the potential buyer decides he doesn’t wishes to buy the property anymore, outside of the withdrawal period or other specific conditions set forth by the preliminary contract (obtaining a loan agreement for example), the owner retains the deposit as compensation.
According to the French Law, every individual acting in a real estate transaction as a non-professional buyer is granted a 10-day cooling off period during which he will be able to withdraw from his commitment without any financial consequence for him.
This time period starts the day after the potential buyer has been handed a copy of the signed preliminary contract or has been delivered a registered letter enclosing it.
The loan condition
When the purchaser needs to obtain a loan to secure the transaction, the preliminary contract will be signed under the condition for him to be granted one. This is a very strong protection for him, as the contract will be void with no financial penalty if his loan application is denied.
Usually, the preliminary contract will frame this condition and require the buyer to act of good faith and do everything necessary to obtain this loan agreement.
The seller of an apartment is compelled by the Carrez Law to disclose the precise surface area of the property, which represents a very strong legal protection for the purchaser, who would have a legal claim against the seller if the surface area of the apartment appears to be smaller of more than 5%.
THE PREPARATION OF THE CLOSING DEED
Once the preliminary contract is signed, the notaire will use the time period before the signature of the closing deed (usually from 2 to 3 months) to perform some final checks and verifications.
He will make sure there is no mortgage on the property and if one is revealed he will obtain the authorization from the lender to sell the place and the exact amount to be deducted from the selling price to reimburse the bank.
He will also obtain the final documents from city hall and, if necessary, will officially notify the sale in order to obtain the renunciation from the city to exert its preemptive rights.
Meanwhile, this time period will benefit the seller as he will have time to empty the property and move out, and will be necessary for the purchaser to go through the various steps with the banker to be granted his loan.
THE CLOSING DEED
If this deed, most of the time, merely reiterates the conditions of the agreement recorded in the preliminary contract, its signature is nonetheless a crucial stage, as the sale process officially ends with the signature of the closing deed.
The transfer of ownership and of the right to use the property will be officially recorded in the sale agreement, in exchange for the full payment of the price, through the account of the notaire.
Finally, the notaire will pay the various taxes generates by the transaction (purchase tax on behalf of the buyer and capital gain tax on behalf of the seller) and will obtain the publication of the deed at the land registry office, making the buyer the new official owner of the property. The purchaser will receive an official copy of his title of ownership 2 to 3 months after the deed is signed.
TIMELINE OF A PROPERTY SALE
The completion of the real estate transaction requires going through various steps, following a time line that can be synthesized as follows: