Leaseback in second 9 year lease period - selling

I don't know what's in yur contract but in French law if you, the owner, do not renew the lease then the tenant can claim compensation.This is a very clear in French commercial law.

How much he claims is something that  if you dont agree beteen you can be taken to court.

Its essential that you and other owners study the contract and more important the relevent French code. Get a good commercial lawer asap - I knw its some years away but a bit of sdelf study plus the preliminary advice of a lawyer is worth it.

The second thing is this :- If most owners are happy to stay with the mngr company then you may find that you have to do the samwe. Agin it may be the in the contract.  That is,  as long as ,say 70% or whatver, agree then you must go along with them.+

So - read contract, read law, go to lawyer

It would be great if you could turn your apt into long term apats and charge a proper rent. This is my hope for my complx Res De Parc,Duisney.

Last questioin - so far have you gebnerally been treatd OK by your mngt company. We're all annoyed at our invstment -we wanted rent increases, good sales revalue  etc.

But I'm comparitvely happy with Residenc du Parc and I''m unsure how a general campaign against french leasebacks ,calling it a scam ,will help us sell our properties one day. Any Any thoughts  bard 1?

Am not sure what you mean by "considering your exit".

Do you mean

- exiting from leaseback contract and selling your proeprty.

 - exiting from the property by selling on but the proeprty retains its leaseback contract.

If you have signed a contract for the second leaseback period I can't imagine that the leasee (i.e. the tenant/ mngt company)will easily let you cancel the contract ,regard;less as to whether you are retaining for own use or selling. Did the other person get out of the leaseback before singing the second lease period contract. ?

When your present leaseback period ends in several years you can pull out of the leaseback but its likely the tenant may invoke the normal commercial law conditions which satte you have to compensate him. Could be a few grand -could be more.  Brit/Irish owners seem not to have grasped  the excessive one-sided French laws that benefit both residential and commercial tenants. In France the commercial tenant has the automatic right to extend/renew his lease -or else claim compensation if you refuse.

Even if the tenant is flexible and allows you to back out of the contract or not renew the lease  its possible that there may be conditions that make the ownership of a non-leaseback property on a  complex/building where everyone else is still leaseback very difficult. I especially mean about general community charges. I've heard that even if you exit leaseback you'll pay more than an apartment owner in a "normal" community (normal long term residents) . 

If there really is someone who has got out of the leaseback contract  in your complex then he is the person you must contact.

Believe me,  if it was easy and cheap to exit the leaseback chains then you wouldnt see so many leaseback properties for sale.  they'd be selling as "normal" unencumbured properties and getting better prices.

Although many points in previous post valid it does not take account of 3 law changes over last few years.

1. 2015 change means 55% of apartments must operate under "Residence de Tourisme" RdT rules to comply with TVA rules so need to pay back TVA. Old % was 70%

2. 2010 change means "commercial lease" no longer required and a simple 1 year rental mandat providing 3 of the 4 "Residence de Tourisme" RdT services means owner is still part of the 55% and fully RdT and TVA compliant.

Beauty of 2 above is that owner can remain compliant as long as they wish but sell "freehold" at full market value as new buyer is not taking over 1 year contract as it will have expired

by time sale is concluded.

However if your lmnp leaseback has a good rental yield it has 1 advantage due to a law change in 2012. That change allows you sell on apartment with attached "commercial lease" but owner is not liable to pay back any TVA. Selling freehold as in option 2 above before end of 20 years means you have to pay back TVA purchase pro-rata.

However it is difficult to sell leasebacks 2nd-hand as banks no longer give mortgages for apartments with associated lease for standard buyers. However there are specialist sellersand investors who may buy especially if multiple apartments available with good lmnp yields.

A difference between the 2 types of buyers above is that the investor who buys lmnp leaseback apartment remains part of 55% but new buyer buying is part of the 45% allowed to co-exist with owners but outside leaseback.    

However all owners whether they are in 55% leaseback or 45% freehold camp have to be treated equally in "Syndicat de co-owners" SdC regarding charges.  No owner can be put at financial loss from SdC charged regardless of whether or not there is a lease attached to their apartment

Slightly confused by previous post.

yes, of course one can have a one year rental agreement  and as long it adheres to the rules one need not repay VAT. A long lease is not required by the French authorities.

But OP has a long lease only recently signed. how can he get out of that ?

And,more important for all of us, when a lease expires is it not the case that the tenant can ,under French commercial law, demand an extension/renewal of the lease? I thought -but would be delighted if proved wrong - that if an owner doesnt wish to renew a lease then the tenant can sue for compensation (assuming a market rate rent is in place ).

I didnt think that getting out of a lease was easy. Am i wrong ?

The fatal mistake people make is agreeing to the 50% reduction in rent. The best way to get out of a lease is to refuse and push with a CDP until either you get paid in full or the company is liquidated. We took this route and the leases were cancelled by the liquidator. Signing up for the 50% reduction not only devalues your property by 50% it also give a scamming management company an opportunity to want to renew a lease that costs them 50% less than it used to. NEVER sign up to a 50% reduction...it is a nail in your own coffin.

My understanding is that after the 9 years the lease does not expire. It rolls over unless the owner takes specific action to notify the operator and in the timeframe (stated on lease) to end it. Then compensation can be demanded by the operator. If this is not agreed it will be up to a French court to decide.

Yes, Sinead this is what I've been saying and I haven't read anything to the contrary. 

What most of us who bought leasebacks never realised -or were too lazy/careless/stupid to find out - was how tough French commercial law is on owners when a commercial tenant wishes to extend/renew a lease.

And, as regards the warning in this and other threads to refuse to accept a 50% cut in rent there is a problem....

...If the tenant can show that he is paying far above the normal market rent he can request a reduction -not only at the end of the lease period but periodically. The "market rent" is often decided by various national indices .Often reference is made in a lease contract as to what particular index shall be a guide to rental changes. Besides a national rent index there may be other factors that influence a court's/arbitrators decision on what is a reasonable rent -local factors can play a role in a court's decision.

It's more complicated than I'm briefly mentioning but the key thing is -- it is not always easy to refuse even a fifty percent cut in rental income. Telling the tenant to shove off is all very well, but facing a court battle and/or finding new tenants willing to pay more isn't to be taken for granted. 

This is misinformation. You have a legal contract for an amount of rent. If the tenant doesn't pay, you send them a CDP. Our rent was linked to the INSEE index and it does up our down a small percentage, but never 50%. You can of course refuse a 50% reduction. Why should you believe that market trends dictate a 50% reduction and not argue that the management company was fraudulent in the first place by setting the 'market' rent at an unrealistic level to fool you into buying. We refused a 50% reduction and we had our leases cancelled for non-payment. Perhaps if the people here generate enough momentum it will generate enough evidence for judges to see that this is a fraud and the properties should be handed back to their legal owners so that they can use them as holiday homes and rent them out.

O.K.     So maybe every case is different. In the case of my property  at Residence du Park nr Disney we were , a year before end of lease, informed that the tenant could only consider a 50% reduction at lease renewal. The company sent us detailed accounts "proving" they were making a loss.

The owners committee in France (100 french owners) and, seperately me in Ireland ,on behalf of the ca.50 Irish-Brit owners looked for alternaive tenants. A few holiday companies did express interest - but NONE offered more than 50% rent.  So what to do? Other than running it ourselves (my preferred option) we had no choice but to accept the offer.

The fact that there was no other entity willing to pay more than what was offered by the present tenant did in fact "prove" that the new offer of 50% was reasonable or at least in accordance with the present market rate. 

Luckily for us the tenants did in fact increase their horrible 50% offer to ca 64% and paid for full refurbishment of apts. But obviously this was still awful.

 I entirely agree that the developers/sellers offered an original high rent to lure buyers. But whether one can actually prove that was a deliberate scam or wishful hopes on behalf of the developers/sellers is not going to be easy. And to repeat my question - Is the outcome of  taking them to court likely to make money for the owners ?

Anyway,may I ask - what ,after refusing the 50% decrease and getting your contract cancelled, is the situation with your proeprty now ?...

..and what do owners do when faced with a nasty cut if there there is nobody else interested  in renting ?

Our property was handed back to us and we were in the midst of doing many things i.e. applying to the local council for the designation of the building to be changed to a standard poperty, looking to manage the property ourselves etc. In the middle of this a buyer came forward and bought the entire building at the current freehold market price which worked out at 90% of its original value. We were luck...but...had we accepted the 50% we would still be in a nightmare situation with the sent only covering 25% of our mortgage instead of 75%...so we could never justigy that. By the way every owner has an individual contract....you don't have to accept something because the majority of owners do.

with the*rent only covering 25%...

Thanks. I'm asking these questions not only for myself but for benefit of fellow owners on my property, so forgive more questions..

...when you say a buyer bought the property for 90% do you mean they just took over the lease and paid you 90% of the previous rent ,or that they actually bought the place off you and gave you 90% of what you paid for it ? 

They bought the building and are no longer using it as a Residence de Tourisme. I am not sure what their plans are and I don't care. They paid us 90% of what we paid for our apartment.

That sounds great. Did each owner take care of the VAT issue or did the new owner accept responsibility for it. Or did the VAT people even bother? 

I ask this question because some of us are looking at changing use from present to "normal" apartments with no requirements for Residence de Tourism rules and to be used as owners wish -self-use or long-term lets.

Also for those owners considering dropping-out and not paying the banks . Does the VATman also chase the  owners as I gather the banks are trying to ?

That sounds great. Did each owner take care of the VAT issue or did the new owner accept responsibility for it. Or did the VAT people even bother? 

I ask this question because some of us are looking at changing use from present to "normal" apartments with no requirements for Residence de Tourism rules and to be used as owners wish -self-use or long-term lets.

Also for those owners considering dropping-out and not paying the banks . Does the VATman also chase the  owners as I gather the banks are trying to ?

I don't know anything about VAT. My leaseback was a refurbishment and I did not get a VAT rebate and therefore I did not have to deal with this issue. In my opinion people in leasebacks should do the following:

1. Group together and act as one

2. Refuse rent decreases

3. If a management company argues that business is so bad then use this as a case in court to state that a leaseback residence the tourisme is not feasible and apply to the local council for a change in designation of the apartment to residential or if this doesn't work, self-management. There may well be VAT implications but better to deal with that only and have control of your apartment.

A leaseback will only give you a worthwhile outcome if you can get out of leaseback altogether. This is either via self-management or changing the designation of the building to residential and then rent it out yourself or use it as a holiday home. I don't think enough people have gone down this route and too many people have been fooled not only once with unrealistic promises but a second time by accepting 50% rent decrease

VAT/TVA is not an issue.

1. Generally a Commandement de payer claim may put operator/tenant into liquidation or in my case led to negotiation to cancel commercial leases.

2. Other owners have posted to say you can get local bailiff to formally contact operator/tenant 1 year before end of lease to communicate that you do not want to renew lease. I presume use of bailiff is to keep audit or paper trail. However there may be compensation issues.

3. If you have exited lease you do not have to pay back VAT/TVA if you enter a new rental contract which is compliant with original "Residence de Tourisme" RdT regulations. In practice this just means signing a contract with any entity to provide 3 of the 4 para-hotel services ie "Key handover" "Meet+greet" "cleaning + linen provision" "breakfast".

I have just gone through 1 year of this regime where I signed 1 year contract with local but I manage my own tourist bookings. I collect 10% TV/VAT and pay to service d'impots in usual CA12 TVA return. I can keep doing that right up to end of 20 years and and part of minimum 55% leaseback RdT in resort.

4. As mentioned in previous post it is easy to sell freehold as the sale process takes about a year by which time 1 year contract will have lapsed. However "freehold" sales mean you pay back purchase TVA pro-rata(ie in year 10 50% of original TVA etc).  However if you have a commercial lease and rental yield OK then you can sell with lease attached but no TVA payable on that sale.

5. Law changes: 2010-commercial lease requirement removed. 2012-no TVA payable on leaseback sales 2012/15-reduction from 70% to 55% of apts in resort to qualify for RdT status

These all came about after pressure from MEPs European parliment various owners groups in France etc so should be used as of benefit to owners but appreciate you may need cooperation from tenant to cancel leases. 

macdara, are you getting a decent return with this new arrangement?

macdara - I wrote in post 4, that owners of "normal" proeprties may pay more than owners of leaseback properties.

 You replied, correctly, that every property on a developement would pay the same fees -there's  no distinction as to whether one was tied in to the main mngt company/tenants  or if one was ,like you, an independent supplier of Res De Tourisme services.

I had not been clear - what I meant by "normal" rental properties is those that have nothing to do with leaseback or tourist rentals as found outside the elaseback developments.

Some of us in our Res de tourism development have looked at " normal" rental rcvenues in surrounding areas in similar properties, accommodating owner-residents and long-term tenant-residents. We noted that both the rental income plus the resale value of these properties were much higher than the rents and  resale values of our apartments, even though the standard/quality of build seemed the same.  (We are located in a busy commuter area and this rental income/sales price disparity between holiday  and normal homes may not be the case in remote rural areas).

We realise that we would pay the same annual charges as everyone still on leaseback in the complex. But -and this is my point - we would be paying more than those owners of the "normal" properties. This is for several reasons - mainly the quicker wear and tear, structural or decorative, in a holiday complex ,whether inside the actual apartment/villa or more general works - new lifts, outside paving,pool repairs. Some work costs are the responsibility of the holiday company -but many capital costs plus periodic apartment refurbishment costs are the owners

These higher running costs may affect the resale value of properties for buyers looking at properteis to live in or to rent out.

However, we still feel that it is worth looking at releasing ourselves from the leaseback scheme (assuming the leaseback company doesnt make life too difficult) plus releasing ourselves from tourist rentals (which means paying the ever-declining VAT refund.  We reckon that the  cost of  securing"freedom" and getting a normal long-term rental income is worth it. And there'd be no work involved. Some of us already have normal properties that  are reneted out long-term.

Do you , or anyone reading this, know of owners who have done this - get rid of the leaseback company and cease the RDT rules (whilst acting within the law -repaying VAT etc) ??

>Do you , or anyone reading this, know of owners who have done this - get rid of the leaseback company

> and cease the RDT rules (whilst acting within the law -repaying VAT etc) ??

Why do you want to cease RdT rules and repay TVA? I've a rental contract which is RdT and TVA compliant. I can rent all year (tourists in summer and winter lets).

However if you chat to your accountant he/she will advise you re formal longterm contract if you wish to pay back TVA. However there is alot of legal opinion and recent legal cases which suggest that TVA should never have been charged on leaseback apartments originally and therefore no purchase TVA to pay back.  I have gone to effort to sign RdT compliant contract and collect 10% TVA from bookings and pay that in CA12 return but not sure if that is actually necessary. 

PM me for more info but if you are in an RdT resort and have advertised your apartments for rent then TVA should not be an issue but your accountant best to advise.