French Property Law
Promesse de vente - (French Property Sale contract)
French Property Law: Contracts
The documents required for the purchase process are classically as below. The time to complete tends to be between 45 days and 3 months dependant on setting up finance and collation of all necessary information to address the Property Issues.
- Offer Letter ("Proposition d'Achat")
- Preliminary Contract ("Promesse de vente" - Example /"Compromis de vente")
- Sale & Purchase Agreement ("Acte de vente")
If any of the documents are to be signed under a Power of Attorney, the Power must be examined carefully as it will mentions the significant points of the document to be signed.
Offer Letter ("Proposition d'Achat")
Importantly, unlike the UK or US, the French property purchase procedure has no concept of "subject to contract" or "non-binding offer".
Often the negotiation process will be initiated by the purchaser signing a written purchase offer whereby he offers to purchase the property at a given price. Estate Agents offer standard forms of such offers entitled “Lettre / Proposition d'Achat". If the Seller agrees to the proposed purchase of the property and the terms of the letter, the purchaser will be legally bound to sign and execute a preliminary sales contract within a specified time (subject to the standard conditions set out by French standard practice).
Usually the offer stage takes place between the owner of the property and the purchaser, with the possible intervention of an estate agent.
Sometimes upon signature of the purchase offer, the purchaser is expected pay a deposit (for 5-10% of the proposed purchase price). In this event, it is advisable that the purchaser ensures that the payment passes through the notaire to guarantee a bone fide payment receipt. This provision is generally accepted by the seller and estate agent.
Preliminary Contract ("Promesse de vente" or "Compromis de vente")
The Preliminary Contract is considered as the most important stage of the purchase process. This document sets out the terms and conditions of the sale and is fully binding. There are two kinds of contract: a "promesse de vente" and a "compromis de vente". Generally, the former tends to be most common around Paris, whilst the latter form has always been preferred in the provinces.
Individuals purchasing property will benefit from a seven-day cooling-off period for both forms of preliminary contract. The method of dealing with the seven-day cooling period varies depending on how the contract is executed. Once the contract is signed as a "private deed" ("acte sous seing privé") often at the Estate Agents, the purchaser receives formal notice and then has seven days during which it is still possible to withdraw from the deal and have the deposit refunded. If the contract is signed and executed by a "Notaire" ("acte authentique") he will supply the purchaser with a draft seven-days beforehand so the cooling-off period will have elapsed when the parties convene at the Notaire's office to sign the deed.
Both forms of preliminary contract reserve the property for the purchaser and set out all the terms and conditions of the deal. Unless it has already been paid with the offer letter, it is standard for the deposit (usually 10% of the purchase price) to be paid by the purchaser at the latest upon signature of the preliminary contract. Once the preliminary contract is signed, the purchaser is no longer exposed to the gazumping risks which are widespread in the UK.
This contract can be considered as a checklist - once everything is completed (or waived appropriately) the purchase can complete. The checks are called Conditions Precedent ("conditions suspensives") they mostly protect the interests of the purchaser and will include satisfactory conclusion of the Property Issues.
Promesse de Vente
In a "promesse de vente", the purchaser acquires an option to purchase the property within a certain time period (usually two to three months). A deposit of 5-10% of the purchase price is usually taken in consideration of this option. The deposit is forfeited if the purchaser fails to exercise the option for any reason other than the non-fulfilment of certain Conditions Precedent (above). If the purchaser does decide to exercise the option, the 10% deposit will be treated as a part-payment of the purchase price.
To obtain a feel for this document, some General Agreement Terms of a "promesse de vente" have been laid out here.
Compromis de Vente
The "compromis de vente" irrevocably binds the seller and the purchaser, subject only to fulfilment of the conditions precedent. Should any one of the conditions precedent not be fulfilled, both parties are free to walk away from the contract. However, unlike a "promesse de vente", once all the Conditions Precedent are satisfied, the purchaser does not have the option to withdraw from the acquisition merely by forfeiting his deposit. The vendor can enforce the sale by taking legal proceedings.
Post Preliminary Contract
During the interim period the local title and planning searches are requested and gathered. When the vendor and purchaser each have their own notaire acting for them, the seller's notaire is in charge for collating and forwarding all relevant documents to the purchaser’s notaire. The notaire should then systematically address the property issues involved and eventually call a meeting to sign the final sales deed when the purchaser is satisfied with the information provided.
Within this time the purchaser liaises with their bank to raise any required finance. The Preliminary Contract will usually stipulate the terms for the loan application process. Usually this comprises a date to evidence to the vendor that the purchaser has applied for a loan (usually within 15 day from signing of the Preliminary Contract) and then receipt of the formal loan offer (generally 45 days). Purchasers must be careful to adhere to all deadlines in the loan application process and allow a certain time in case of complications in finalising the loan, since the deposit is at stake.
Sale & Purchase Agreement ("Acte de Vente")
When the purchaser and vendor are satisfied that all the Conditions Precedent of the preliminary contract have been satisfied (it is advised that the purchaser arranges to inspect the property beforehand), the sale will be executed by the Sale & Purchase Agreement, called an "acte de vente". This deed reiterates the terms of the Preliminary Contract, and incorporates the conclusions of the searches (regarding title, etc.) required by the Preliminary Contract and any amendment emerging from them. This deed will operate the legal transfer of title.
The purchase funds and other amounts exchanging at this point are as follows:
- The lender will transfer any finance funds directly to the notaire.
- The purchaser will pay the purchase price balance through the notaire to the seller the property.
- The purchaser pays the provision to his notaire, for the transfer costs and taxes. Subsequently, the notaire will subsequently disburse the provisions as appropriate during the title registration process.
At the completion meeting it is customary that the keys are handed over to the purchaser as well as a certificate from the notaire declaring that you are now the owner of the French property. This certificate is adequate for house insurance and other matters. The title deed is only forwarded to you after the registration has been completed along with any remaining funds (within the region of 6 to 9 months after completion of the purchase).