Lease agreements over a French property: what are your clients’ legal obligations?

 In Tax

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Letting a French property can provide a good return on investment for your clients and meet their management costs, especially when the property was bought with a mortgage.

In a previous article (Letting a French property-what your clients need to know) I had summarised the main French tax rules and reporting obligations that all French property landlords should know.

For tax purposes, France makes a difference between short-term occupation lettings, more specifically furnished holiday lets, which are regarded as commercial activities and usually require the registration of the letting business, and long-term leases, whereby the property is the tenant’s main home and which is treated as mere personal investment management.

This article aims to give your clients some insight in the French laws applicable to landlords of properties let out under long-term leases, or when the property was acquired as a buy-to-let, especially when things go wrong or the landlord wants to terminate the lease.

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  • Long-term leases: legislation giving a strong protection to tenants

French long-term leases are automatically granted for a minimum period of 3 years if the property is let out unfurnished, or 1 year if the property is let out furnished. If the property is let to students, the lease can be restricted to 9 months. The lease is usually renewable tacitly for a further period of 3 years (or 1 year if let furnished), except leases with students.

French law requires that leases be subject to a written contract. They are usually drafted by professionals (Notaires, estate agents) and will provide both parties’ rights and obligations in accordance with French law. However verbal tenancy agreements are deemed valid so long as both parties have clearly agreed on the property and the rent. It is nonetheless highly recommended that your clients sign a lease to prevent any litigation on the parties’ rights and obligations, to give clear  evidence of the agreement. French Courts have ruled that even if the lease is only verbal, the parties are subject to the same rights and obligations as those stipulated in the French legislation for long-term leases. Landlords however will not benefit from the automatic resolution of the contract in case of their tenant’s breach of their obligations ( e.g. failing to pay the rent) and will have to go to Court to obtain the termination of the lease.

Most of the legislation on tenancy agreements is of public order and so cannot be set aside. This is mainly because French law gives a strong legal protection to tenants and more generally the protection of the accommodation that is the family home.

This protection has been recently reinforced by instigating a limit on the right of landlords to increase the rent upon renewal of the lease or upon signature of new lease. If the property is situated in an area designated as being short of rental accommodation (zone tendue), the landlord will only be able to increase the rent in accordance with the rents reference index (IRL – Indice de référence des loyers), unless the original rent was manifestly underestimated for the type of property and its geographical situation. This restriction on rent increase currently applies mainly to big cities where there is a large shortage of long-term lettings accommodation, such as Paris, Lyon, Lille, Marseilles, Strasbourg, Bordeaux or Nice.

As the property is usually the tenant’s main family home, which requires enhanced protection, French law provides for additional safeguards on termination of the lease.

A tenant is entitled to give notice for termination of the lease at any time subject to a notice period  of 3 months if the property is let unfurnished,  and 1 month if the property is let furnished. The tenant’s notice period can be reduced to 1 month if the termination of the lease is motivated by the tenant’s termination of employment contract, his secondment to another geographical area, his poor health or if the property is situated in a designated zone tendue.

Conversely, landlords cannot terminate the lease as and when they wish. The termination of the lease can only take place in specific circumstances:

  • The landlord wants to occupy/reoccupy the property to live in it personally or to provide accommodation for one of his close relatives ( e.g. children) ;or
  • The landlord wants to sell the property; or
  • The tenants have seriously breached their obligations under the lease agreement ( e.g. the tenants have stopped paying their rent, damaged the property, or are carrying on illegal activities in the property).

Except in the last scenario of the tenant not fulfilling their obligations under the lease, the landlord must respect a notice period of at least 6 months for a property let unfurnished and 3 months if the property is let out furnished. Besides, the tenant is further protected as given the guarantee that his lease cannot be terminated during the initial (or renewed) period of 3 years.

For example, your client signed a lease agreement with a new tenant on 1st May 2018 for an initial period of 3 years, terminating on 30th April 2021. On 1st November 2019, your client served notice to his tenants claiming his right to re-occupy the property as his main home. Although the landlord’s 6 months’ notice period ends on 30th April 2020, the tenants will be entitled to stay in the premises until 30th April 2021, date at which the original lease ends.

Likewise, if your client wishes to sell his property without the lease agreement attached, he will have to give to his tenant 6 months’ notice for termination of the lease by the end of the current 3 year period. The tenant is further granted a 2 months’ pre-emption right or right of first refusal to buy the property, failing which in the absence of giving such notice, any future sale will be void.

The protection of tenants is further reinforced for the older generation of tenants. If the tenant is over 65 years old and means-tested for his income (total income below one of the annual thresholds for the attribution of means-tested Council accommodation), your client will only be able to give him notice to terminate the lease if he is able to offer substitute accommodation which meets the tenant’s needs and affordability, is situated in the same geographical area and can be occupied immediately upon termination of the lease. Finding a substitution accommodation can prove a difficult exercise, especially if the property is situated in one of the designated zone tendue where suitable rental accommodation is rare. The additional protection for the older tenant is, however, set aside if the landlord is himself over the age of 65 or means-tested.

One mistake that often made is to take the age and income position of their tenant at the date of conclusion of the lease agreement. French law provides that the tenant’s age is considered at the date of expiry of the 3 years’ period. Hence, if your client signs a contract on 1st May 2020 when his tenant is aged 63, the rules of protection of older tenants will apply as the tenant will be over 65 at the date of expiry of the lease on 30th April 2023.

Likewise, the tenant’s level of income is the income declared for tax purposes in the previous calendar year. In the example above, the tenant will be means-tested if his income declared for tax purposes in 2022 is below the thresholds applicable in 2022. The last known declared income will be the income of calendar year 2021.

Finally if your client had had to resort to take legal action to evict his tenant, it is worth bearing in mind that no eviction order will be executed during the winter season (trêve hivernale) which straddles from 1st November until 31st March of the following year. This year exceptionally, this grace period has been further extended to July 2020 in consideration of the current confinement obligations.

  • The emergency legislation relaxes the current landlords’ notice deadlines

The French government introduced various emergency rulings (Etat d’urgence sanitaire) on 25th March 2020, due to the Covid-19 pandemic. One significant emergency ruling, the ‘suspension of certain time limits prescribed by the law’, aims at neutralising the negative effects of exceeding the existing legal, contractual or administrative time limits during the “legally protected period”.

The legally protected period runs from 12th March 2020 to one month after the date of expiry of the state of emergency.

Originally, the state of emergency was to end on 24th May 2020, hence allowing the legally protected period to end on 24th June 2020.  At the date of writing this article, the French Parliament has been debating on an extension of the state of emergency to 10th July 2020. If adopted, the legally protected period is likely to be extended to 10th August 2020.

It is worth noting that the emergency legislation does not impact the right of a tenant to give notice  to his landlord at any time subject to the usual 3 months’/1 month notice period depending on the type of lease and the reasons motivating the termination of the lease as explained above.

The emergency laws do however impact on the deadlines in which landlords can give notice to their tenants.

We have seen that landlords must respect a notice period of at least 6 months before the end of the lease’s 3 years’ period to allow valid termination of the contract. The emergency laws provide that if the last day to give 6 months’ notice falls during the legally protected period, the landlord is granted an additional 2 months from the end of the protected period to give valid notice termination of the lease, hence currently until 24th August 2020.

For example, if your client signed a long-term lease (unfurnished property) on 1st December 2017 with an initial 3 year period ending on 30 November 2020, he will have to give notice to his tenant no later than 31st May 2020 if he wants to secure a termination of the lease by 30th November 2020 and avoid an automatic renewal of the lease for another 3 year period.

As the last day to give notice falls within the legally protected period, your client will effectively be able to give valid notice to terminate the lease up to 24th August 2020, or possibly up to 10th October 2020 if the extension of the state of emergency is approved by the French Parliament. However, the extended deadline granted to landlords to give valid notice doesn’t aim to shorten the notice period, which remains a minimum of 6 months. So, if your client’s tenant received the termination notice on 31st July 2020, the lease will terminate on 31st January 2021, hence 6 months after the date of receipt of the notice, albeit 2 months after the expiry date of the original 3 year period.

Recommended actions

The French legislation of long-term leases differs in many ways to that applicable in England and Wales.  Letting out a French property or investing in a French buy-to-let can be an excellent return on investment. However, your clients will want to understand their obligations as landlords before signing any lease agreement and a thorough legal review of the lease in advance of its signing is highly recommended. Knowing the tenants, their age, and financial means, will also be a good precaution if your client intends to give notice at some stage in future.

Likewise, if your clients intend to sell a property which is currently tenanted, they will also want to understand their obligations towards their tenant and respect their right of first refusal to buy the property. The involvement of a specialist lawyer to allow these obligations and procedures to be followed in accordance with French law, is certainly recommended.

If some of your clients are currently giving notice to their tenants, the impact of the emergency laws will have to be considered especially if the property is to be sold, as the tenancy agreement could also be extended beyond the date of sale.

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