French Property FAQ

Find answers here to the most commonly asked questions on French property.

What is a French leaseback?

What is "usufruit" and "nue propriété"?

What is a French leaseback?

French Leasebacks are freehold real estate developments sold “off plan” (before they are built) that come with a full management contract for 9 to 11 years that guarantees an annual rental income. Do note that since the economic crisis of 2009, many management companies running leaseback properties went out of business so this can be a risky investment. They are rented out short term as fully furnished and serviced apartments and studios. They are often multi-unit student or resort housing and are located in areas the French government wants to develop. As an incentive to this end, the investor can reclaim the 20% VAT paid on the property after construction is complete. An important note, in France off plan projects are paid for by a series of stage payments as soon as construction begins. This is different from many other countries where the buyer pays for the property only upon completion of construction.

Some advantages:

  • You can increase your internal rate of return on investment by using a mortgage to finance your leaseback investment. There are also tax advantages and deductions that apply when you use a French mortgage to finance your property.
  • Many programs allow you to use your leaseback property at a discount.
  • If you hold your French leaseback at least 20 years, you will have reduced capital gains tax to pay in France when you sell.
  • Another tax advantage: leasebacks have 2 years exemption from tax on property (also called land tax or “Taxe Foncière”.)
  • The required deposit is lower than for an existing French property and in some cases no deposit is required.
  • The legal transaction fees are lower (between 3 and 4%) than for an existing French property (between 6 and 8%)

Some disadvantages:

  • The VAT must be repaid on a pro rata basis if you sell your French leaseback property before 20 years time.
  • As the entire building is managed by the same company, you are counting on that company to stay in business for the duration you hold your property so be sure to check out the company credentials or buy from a trustworthy sales agent who has done this for you.
  • Once the 9 or 11 year commercial lease is finished, some clients have reported that management companies will try to renew at a lower rental return or threaten to leave. This can create major problems as all owners must decide to take the lower deal or work together to find a replacement company.
  • Resale of a serviced, furnished leaseback apartment under lease in a resort complex or student area is not as straightforward as the resale of a conventional apartment. The buyer population may not be as large.

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What is "usufruit" and "nue propriété"?

These are French legal terms to describe the two parts of French property ownership.

Usufruct (usufruit) is the legal but temporary right to use or financially benefit from (ex. rent) a French property. The property must be kept intact for the duration of the usufruct, which may last any length of time up to and including the lifetime of the recipient.

Ownership of record (nue-propriété) is the permanent legal right to of ownership of the same property to which the usufruct is attached. The owner of record may do as he or she wishes with the property including sell it but they cannot use it if they have awarded the usufruct to another for the period of time specified.

In most cases, the same person has the usufruct and ownership of record for a given French property however it is possible to buy or gift the elements seperately.

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