Leaseback contracts

I own a leaseback in Paris bought in Sep 2005 and now run by Suites Etudes and on 30 October received a letter asking me to sign some modifications to my lease. My lease provides a rent review every 3 years in line with the INSEE construction cost index. The letter stated that due to the INSEE rising beyond expected levels I was being asked to agree to capping each 3 year rent revision to a max of 4.5%. Also I was asked to agree to pay an additional annual property maintenance charge of approx 20 euros per square meter which would rise with inflation.

I checked the INSEE figures for construction costs and found that for Jan 2006 the index was 1278 and the Oct 2007 index is 1435. This looks like an increase of 12%.

I replied stating that I did not agree with the proposed revisions and got a response stating that if I did not sign up to the lease modifications and the additional maintenance charge then this would challenge the economic balance, running and pursuit of the lease. The response also stated this proposed capping applied to all residences run by Groupes Suites Residences (Oceanis, La SIT and Suites Etudes).

So what to do? Is the company bluffing or will it force me to accept the 4.5% cap and invite me to take them through the courts for the difference?

The commercial lease I signed seemed watertight but this situation where the management company just wants to change things to its favour has shocked me. I thought leaseback was under French Govt control but maybe rent reductions or non-payments are left to the individual to try to resolve.

There seem to be precedents to arbitary action on the part of this management company. When I originally purchased my appartment in September 2005 the management company was Oceanis Gestion. On 31 December 2005 I received a letter informing me that the group had reorganised and a new subsidiary called Suites Etude would be taking over and inviting me to return a signed authority to transfer my commercial lease. I did not return the authority but the tranfer took place anyway according to a letter from Oceanis on 24 March 2006.

I am wondering where this rate cap is going. It's interesting that Suites Inn have increased their offer but it's hardly generous as the INSEE rise is around 12% over that last 3 years and France inflation has been 2.3%, 1.7% and 1.5% (estimate) for 2005 -2007. With compound interest 6% is borderline break even so the 3 year revision just about keeps pace with inflation whereas 4.5% certainly does not.

I'm sure your solicitors are right that Suites cannot legally implement a new contract without consent. I only hope Suites do not simply renege on the contract agreement forcing owners to chase them through the courts if we want to claim what is legally due to us.

I shall be having futher correspondence with Suites about their latest letter as I have no intention of swapping 12% for a 4.5% cap so I'll let you know what happens.

Regards,

Derrick

derrick_allen@hotmail.com

(derrick_allen)

One of the most disturbing aspects of this situation is that on the last page of the agreement they want us to sign is a clause stating that "the Lessor undertakes not to divulge any information regarding the above understandings". Suspicious ne c’est pas? The group concerned seems to be Oceanis Gestion/Suites Etudes/Suites Inns and La SIT (who may all now be part of another group called Groupe Equalliance!!). If any owners read this article who have been receiving correspondence regarding rent capping, extra charges and gagging clauses, then please post your comments on this forum so that we can make direct contact with you.

Paul & Ann

Duke

You say on one of your posts that the Insee has risen by 12% from Jan 06-Oct 07.On a later post you say the Insee has risen 12% in the last 3 years.

On my own leaseback in the cote d'zur i have just a recieved increase in rent from 1517 to 1558 euros per qtr an increase of 2.7%. for the last 3 year period(what index was they using?)

Could you please clarify the above and perhaps post the Insee web address.

Best regards

John

We did a search on the INSEE yesterday and found it difficult to find the information we wanted under the English version. So we tried the French version under http://www.insee.fr/fr/indicateur/indic_conj/indconj_frame.a sp?ind_id=31

Using the English version it merges the dwelling rents index with the construction index, but using the French version it lists them separately. We also gather than the dwelling rents index has replaced the construction index from 2006, except for commercial leases, which leasebacks are we believe.

The construction index is higher but the dwelling rents index is still around 2.5% per annum. Does your lease indicate which index it follows. The normal inflation rate index is only about 1.5% per annum.

Mudds

Mudds : in one of your previous post you said that eveything is ok and that you are happy with your investment. What happens now ?

Concerning INSEE : there is indice de la construction (generaly it governs the rules fo increasing the Loyer as mentionned in your Bail ans is generaly around 1-2 ) and other index (indice). Thus there is confusion between them.

I have only limited access to internet since I am in New Zealand for 2 weeks. I will send a summarized translation of all that things asap. In case, never sign a new contract, its not normal to change the rules after one or two years.

I will also try to translate some infomative technical pages in our goup site:

http://groups.google.com/group/Invest-RT?hl=fr

Jaward,

The INSEE figures I quoted were from Jan 2006 (1278) to the latest available for Oct 2007 (1435). It was a slip of the keyboard to describe them in one of my posts as 3 year's worth - it's really 7 quarter's figures.

I calculated 12% as being an increase of 157 (1435-1278) on the Jan 2006 index of 1278 This gives 12.28%.

The INSEE figures are for Indice du coût de la construction and the link below takes you to a history of the index since it's start in 1953.

http://www.insee.fr/fr/indicateur/indic_conj/donnees/histori que_icc.pdf

Have I miscalculated? Maybe somebody could check my assumptions and maths.

Regards,

Derrick

French Owner

Have just done an online translation of your petition and it is of interest to us. Don't understand what to enter in the last column though. Also think it would be useful if you had a column for the management company name, not just the name of the residence.

Hello I am new on this forum but got some experience in the French leaseback as I am a owner of a flat in a Residence de Tourisme in France and also a member of IRT-investisseurs résidences tourisme and I would like to share my experience and help out.

Mudds: the last column refers to your leaseback contract, different status and tax benefits exist. So for example: ZRR refers to Loi Demessine, the Residence should be built in a special area called in French: Zone de Revitalisation Rurale.

LMNP stands for Loueur Meuble Non Professionnel.

It should be mentioned on your lease back contract. I agree with you about the addition of a new column. It would help for statistics as well as to get to know the management companies...

I note from elsewhere on this site that you are with Oceanis Gestion/La SIT/Suites Innes. We are with Suites Etudes. We have not had this correspondence as yet regarding the rent. Our property is on the outskirts of Paris. Where is yours? The one thing I am not happy about with this organisation is that they don't respond to correspondence (trivial matters so far, but a concern).

Ann & Paul Mudd

STOP INVESTING IN French leaseback ! The french government must clear the situation. There is a too much swindlers in french management companies. Recently the big transmontagne was in bankrupt and more then 2000 owners were not payed since two years and there contract were transfered to other companies with a decrease of the rent.
As said by Mudds, these companies did'nt answer to letters email or phone calls and do what they want : they rent our property and they don't pay !! or they reduce the rent.

These last years many owners, both french and foreigners, have problems
with these residence management compagnies. A lot of them don't pay their
rent as it was contracted. Some people were never payed since the
begining. We are doing many actions in direction to french and european
authorities in order that they change the law.

you can see our e-petition in http://groups.google.fr/group/Invest-RT

Sorry if it's in french for the moement we are doing our best to translate this group site and the petition asap.

regards

Our rent has been paid more or less on time (one month late in the worst case). We have not had any reductions in rent. Our concern was not having correspondence answered over trivial matters but our management company does not have many English speakers and the ones that do speak English do not speak it very well. But that is what we should expect when we buy property abroad. Overall we are generally happy with our leaseback property so far.

The Mudds