Lease in Port Minervois

Anyone that bought in Port Minervois complex in Homps under the Leaseback arrangement got the benefit of not paying the 19.5% TVA which is payable to the government on a new build. Under the Lease the buyer/owner also has the right to occupy the property for a period each year, 

The drawback to this VAT saving arrangement is that the investment is not as liquid as any property and there are certain restrictions if you want to resell. The following are the key issues with a leaseback arrangement:  

• Primarily because there is a commercial lease attached to your property the management company is entitled by law, to keep the property for the duration of the lease (each lease is normally between 9 to 11 years).  

• When the lease expires you can decide to renew or not. The management company has the right to renew the lease unless the owner informs the company at least six months before the term ends via recorded post or bailiff.  

• A leaseback is a commercial contract and commercial contracts in France typically include language for automatic renewal. If you do not wish to renew you must notify the management company at least 6 months before the end of the term of the contract.  However, if you do not renew, the management company is entitled to claim an eviction compensation in accordance with the French commercial code. This penalty for non-renewal must be clearly determined in the contract.  

• The management company (Vacanceole in our case) is entitled to compensation if the owner refuses to renew the lease. 

• When your present leaseback period ends (i.e.when the 9 years lease contract expires) you (the owner) can pull out of the leaseback but it's likely the tenant  (Vacanceole) may invoke the normal commercial law conditions which state you have to compensate him. 

• From a VAT (TVA) perspective if during if during the first 20 years following purchase of a new Leaseback property you sell your leaseback property and, providing the new owner takes on the commercial contract and continues to use it as a leaseback you don’t have to refund any TVA previously reclaimed. If the new owner doesn't continue the lease then you will be liable for 1/20th of the VAT due for every year still left of the 20 year period. 

Exiting the Lease

To exit the lease apparently the owner needs to send a Notice (called a 'congé' in French legal jargon). This must be served in the prescribed format and within the timeframe set out in your lease agreement. Generally a Hussier (bailiff) needs to serve the Notice, the bailiff must be in the same town as the address of the management company - not the address of your villa/apartment. 

Notes:  

1.  I understand Vacanceole insist on receiving the Notice “6 months prior to the start of each year’s lease”. So to comply with that requirement a Notice to exit the Lease for your Unit, should be received by Vacanceole in the prescribed format by the end of June prior to the year you propose to exit the lease.

2. When your present leaseback period ends (when the 9 years lease contract expires) you (the owner) can pull out of the leaseback but it's likely the tenant  (Vacanceole) may invoke the normal commercial law conditions which state you have to compensate him.

3. Vacanceole took over the rental management and lease from Coralia sometime around 2016.

4. Vacanceole apparently request: "2.5  years of turnover on housing rentals" as an eviction indemnity. (they pick the highest single year in previous 3 years as a calculation model. The hope for the owner is that most leasing companies will negotiate downward from that and reach a compromise figure that is agreeable to the owner to exit. Obviously the ideal scenario for an owner is to agree an exit from the Lease without a penalty which I understand was achieved by those that exited at the end of the 9 year period in 2015 when Coralia had the lease with owners. Anybody that tries to exit midway through the Lease seems to have no choice but to pay an exit penalty.

5. Even when the 9-year lease contract expires the complexities of French real estate commercial law governing these contracts comes into play. Apparently they can go on forever unless the other party ends it. However, the only way the management company is not entitled to compensation is if it is in serious breach of its obligations under the lease (e.g. not paying the rental amount agreed in the contractt.

6. After the 9 year lease expires  the management company normally notify whether it wishes to renew the lease. On receipt of this Notice, all owners must inform the management by bailiff (or whatever is the prescribed format) whether or not it accepts to renew the lease. If an owner does not do so, he/she/it is deemed to accept to renew the lease.

7. In the event of refusal of the owner, the management company and the owner should agree on the amount of the eviction indemnity. If they do not agree, then the eviction indemnity can be set by a judge. 

8. Important to check your Lease to identify what is written on the Eviction indemnity - despite Vacanceole's request for 2.5 times annual turnover, the Lease terms may be different (a different way of calculation and significantly much lesser amount......) to their interpretation or approach