Investment Questions And Answers

Last Updated 18/06/2008

Question - "My husband and I are in our mid sixties. We wish to keep our UK house but to purchase a holiday home in France. As we don’t have much money we are considering sharing a purchase with friends who are in a similar position. Preferably we will buy a largish house with barns or other houses around that can be converted (our friend is very good at renovation) and we will have one of them. As long as we do it at the time of the initial purchase, can we split a purchase agreement in some way so that if we decide to sell or to leave our house in a will to my son there is no problem in the future (and in this case should we use a French or English will?)"

Answer - Generally speaking, under French Law children cannot de deprived of a “réserve légale” (a defined proportion of the estate) of your French estate when you die. One child takes 50% of your French estate, two children take two-thirds and three or more children take three-quarters equally between them. By making a French will you may leave the disposable estate (“quotité disponible”) to the surviving spouse, or leave the usufruit (life interest allowing the survivor exclusive use and possession of the property)

Therefore, on your death, with or without a will, your children will inherit your French estate.

What could cause difficulties is when two or more individuals acquire a French property in their individual names (you intend to purchase the property with friends). In such situations, the Notaire will usually structure your legal ownership of the French property in the indivision method (joint ownership), either equally or in the proportions to which they contributed to the purchase price.

The “indivision” ownership can cause some difficulties.

For instance each co-owner could decide to sell the French property because no one under French law can be forced to remain en indivision. A co-owner who wishes to sell his percentage of French property must first offer that percentage to the other co-owner who must accept or reject the offer. If they cannot agree on a particular course of action, any co-owner can apply to the French court for what is in effect a compulsory sale and partition of the proceeds of sale among the indivisaires against their wishes.

Another example would be that your friends with or without your consent, order and pay for an extension to the French property enhancing the property’s value. When you subsequently agree to a sale of the French realty, your friends claim exclusive entitlement to that increase in value.

The procedures involved in court are lengthy and expensive, and can produce unexpected results. For example, the French courts could order that the French realty be sold (without the consent of the other co-owner) at a price well below its true market value.

To avoid these problems the co-owner can enter into a legally binding convention d’indivision (agreement between the indivisaires) which, if properly drafted and registered (and registered every 5 years) legally regulates the use, management and devolution of French realty on death.

This agreement will enable the survivors to have the possibility of purchasing the share of the deceased party. It can also include other useful clauses such as appointing a manager or preventing one of you from selling without the consent of the others. The other option proposed purchase is to be made by a number of people who are not all members of the same family, is to make the purchase in the name of a company called SCI (Société Civile Immobilière / civil company).

The SCI is a separate legal identity distinct from its members, so that the property is owned by the SCI and no by its members personally. This has the advantage that in case of a group purchase, the departure of a member does not cause any change in ownership. In contrast with the regime of “indivision”, the SCI gives the members a lot of flexibility as they can transfer the shares freely between themselves and to others (usually with the agreement of all members only).

The disadvantage is that the SCI will incur additional expenses. The setting up of the SCI costs on average 3,000 Euros. Furthermore, as a company, there is a certain amount of annual paperwork that must be completed. While one can delegate this to an accountant, there would still be his fees to consider. A minimum amount of declarations/reporting requirements might be required each year. Yearly accounts should be kept, which are approved by the members in a general meeting.

Loic Raboteau
Joint Head of the French & Moroccan Law Department
The International Property Law Centre LLP Direct Dial: +44 (0) 1482 385603