Buying a luxury property in France – Purchase Process
The first step is the signature of a preliminary contract (promise to sell and to purchase) which the notary draws up once received the needed paper work (title of ownership, report on asbestos, termites, electrical wiring, etc., information on the building license delivered for the constructions, etc.).
This contract includes all the conditions of the sale and specifies a period of completion which is subject to the realization of several conditions precedent (justification of the lack of mortgages on the sold property for which the release could not be obtained from the creditor, etc.).
At this stage, this contract is usually signed in the own name of the buyer with a substitution clause.
Once signed by all parties (seller and buyer), the buyer benefits from a 7 days cooling-off-period after having officially received a copy of the preliminary contract (the seller doesn’t benefit from this cooling-off-period who protects only the buyer). If the buyer decides to withdraw, he must be refunded of 100 % of what he would have transferred on the notary’s account.
In accordance with the preliminary contract the buyer must transfer a 5 to 10 % deposit in the seller’s notary office (escrow account).
The period between the preliminary contract and the final deed is roughly 2/3 month</strong> but this period can be accelerated with the agreement of all parties: during this period the notary checks all the details of the property and especially its legal situation (town planning, mortgage situation, etc.).
It is usually the occasion to think about the right way to purchase and about the opportunity to set up or not a Company: trust are not recognized in France and French or Monaco Company with the buyer as shareholder are often used (some other and more sophisticated structure can be used).
Once the conditions precedent of the preliminary contract are all completed, the notary draws up the final deed “acte authentique de vente” which must be signed in front of the notary. The balance of the price (95% to 90% depending on the deposit paid at the stage of the preliminary contract) must be paid through the notary account in the same time. In addition the buyer must pay the “notary cost” of roughly 6.9% on the price (including the legal notary fee of 1% on the price and the purchased tax of roughly 5,9% on the price).
Once this deed is signed, the buyer owns the property and the price is transferred to the seller’s account under the responsibility of the notary who guarantees to the buyer the lack of any mortgage from the seller’s side.
If a company is used to purchase the property, the buyer who has signed the preliminary contract on his own name substitutes his/her company on the benefit of that contract free of any tax.
If you own, at the 1st of January, assets in France for a net value of more than 1.3 million Euros, you are liable to <strong>Wealth Tax</strong>.
Regarding this tax:
- The rates are, under current Law, 0.50% from 0.8 million Euros up to 1.3 million Euros, 0.70% between 1.3 and 2.57 million Euros, 1% between 2.57 and 5 million Euros, 1.25% between 5 and 10 million Euros, 1.50% beyond 10 million Euros
- It is possible to deduct from the value of the assets owned at the 1st of January a mortgage loan granted to finance the purchase price. It is very usual for a non-resident purchaser to borrow money from a Bank located in Monaco who grants “back to back loan” (the client invests a percentage of the price at the bank, usually a minimum of 50% of the price, which grants a loan up to 100% of the price).