Nemea Leaseback- Les nevez Les Contamines

You will have little chance of selling your property with a leaseback in position and yes they will look for an eviction indemnity payment - get a solicitor - send a conge stating you are not willing to renew your lease and see what they ask for, then start negotiatiing

Hi Wineflair,

In response to your advice to serve notice of non renewal of lease and negotiating a settlement, isn't the property still subject to leaseback terms due to being a residence de tourisme in the first place with all of the stipulations such a situation entails?  And wouldn't any buyer be subject to such terms?  Is there a benefit to a potential buyer/seller in such circumstances?

Regards,

Argent

You will have to pay the eviction indemnity demanded by the leaseback company - this negates the leaseback but you will have to pay off any remaining tva as well - I cannot see you being able to sell with the leaseback still in situ 

David Sabatier

1862 Law Office – 01 53 00 22 22

Dear All,

I think you need some clarification.

• What is eviction compensation?

Article L. 145-14 (paragraph 1) of the French Commercial Code defines eviction compensation as follows:

«The landlord may refuse to renew the lease. However, the lessor must, except as provided for in Articles L. 145-17 et seq., pay the evicted lessee an eviction indemnity equal to the loss caused by the failure to renew ».

The second paragraph of the said Article L. 145-14 further provides as follows:

«This allowance includes in particular the market value of the business, determined in accordance with the practices of the profession, plus any normal removal and resettlement expenses, as well as transfer fees and charges payable for a business of the same value, except where the owner proves that the damage is less than ».

Thus, by refusing to renew the lease, the law considers that the operator loses its operating business.

The eviction indemnity is therefore equal to the market value of this business.

To this value is added the cost of relocating the activity in question.

It is therefore the replacement value of the fund in the broad sense that is retained by the legislator.

However, when the eviction of the operator does not lead to the disappearance of his business, and he can relocate without having to buy a business, then he has no prejudice.

If the landlord can prove that this is the case, he must only pay the sums necessary to move the business operated in his apartment. This is referred to as the displacement value of the business.

To determine the value of a business, one must, according to the type of service residence:

- Evaluate the cost to the operator if he wants to operate a new business in a new residence;

- If he can move his business without having to pay for a new business, assess how much it will cost him.

In accordance with Article L. 145-28 of the French Commercial Code, as long as the eviction indemnity is not paid, the operator may remain on the premises and operate them.

As regards the date of assessment, the eviction indemnity must be assessed on the day closest to the actual eviction (Cass. 3e civ., 21 Apr. 1966, No 64-11.175, Bull. civ. III, No 184).

The case law requires judges to give details of their calculation methods (Cass. 3e civ., 5 Dec. 1968, no. 67-10.275, Bull. civ. III, no. 529).

They are therefore required to take into account the practices of the profession (Cass. 3e civ., 16 March 1983, no. 82-10.020; Cass. 3e civ., 17 Dec. 2003, no. 02-12.236, Bull. civ. III, no. 237) without however being required to apply any particular method (Cass. 3e civ., 3 Nov. 1971, no. 70-12.320, Bull. civ. III, no. 525).

• How can I avoid paying eviction compensation?

In accordance with Article L 145-17 of the French Commercial Code, "The lessor may refuse to renew the lease without being required to pay any compensation:

1/ If he can justify a serious and legitimate reason against the outgoing tenant.... " ( C. com., art. L. 145-17). »

A fault on the part of the operator can thus be considered as a serious and legitimate reason for owners to grant leave without payment of eviction compensation.

The serious and legitimate reason:

This ground may arise from a breach of the lease or legal provisions without the need for the breach to be directly related to the lease (Cass. com., Feb. 3, 1958, Rev. rents 1958, p. 206, JCP G 1958, IV, p. 37; Cass. 3rd civ., March 6, 1996, no. 94-12.162).

With regard to tourist residences, sufficient fault was found in the case of an operator who had refrained for more than ten years from requesting the classification of the establishment as a tourist residence, creating a criminal risk for the lessors (offence of misleading advertising) but also a tax risk (CA Pau, 2nd ch., section 1, 15 June 2015, no RG: 14/00091, Rev. rents 2015/959, no 2122).

It should be noted that Act No. 60-783 of 30 July 1960 (OJ 3 August) amended article L. 145-17 of the Commercial Code, which now requires the owner to send the tenant a prior formal notice.

It should first be noted that in the event of a permanent cessation of the operation of the business, then the lessee does not benefit from the right to renewal in accordance with the provisions of Article L. 145-8 of the French Commercial Code.

Work prohibited by the landlord

In the case of works that have not been authorised by the landlord, then in the same way, termination is possible after a formal notice has remained unsuccessful for more than one month (CA Aix-en-Provence, 4 ch. civ., sect. A, 10 Jan. 2002, no. RG: 00/15619, SCI Sophie c/ SARL Saint Marin).

Late payment

The formal notice is essential in the event of delay in the payment of rents and allows termination without eviction compensation if the delays last more than one month after the formal notice (Cass. 3rd civ., 2 Dec. 1980, no. 79-14.225, Rev. rents 1981, p. 156).

Stopping the operation of the fund

The same is true in the case of an operator who no longer personally exploits the business (CA Pau, 20 March 2006, no. RG: 03/02551, Pons c/ Bucci) or in the case of an operator who operates a business without having the necessary legal authorisations (Cass. 3e civ., 23 nov. 2011, no. 10-24.180, Bull. civ. III, no. 200, Loyers et copr. 2012, comm. no. 144, note Brault P.-H.).

Sale of business assets

If the lease contains an approval clause in the event of the transfer of the holding and the operator has not complied with it, such a breach may make it possible to terminate the lease without eviction compensation (CA Versailles, c. 12, sect. 2, 11 Sept. 1997, no. RG: 7689/95, Sté Union des assurances de Paris c/ Sté Stim Batir)

Change of destination

Changing the destination of the residence (from one activity to another) may also make it possible in certain cases to terminate the lease without eviction compensation (CA Paris, ch. 16, sect. B, 22 Nov. 2007, no. RG: 06/17666, Guerin Blin c/ SARL Orbital). In this case, it should be noted that the landlord's silence cannot in principle constitute acceptance of this new activity (CA Montpellier, ch. 1, sect. D, 7 June 2006, no. RG: 05/02043, SCI Colorado c/ SARL No Names's Bar).

Failure to operate the residence

The obligation to operate is a condition for the application of the status of commercial leases, the breach of which cannot result in the termination of the lease in the absence of a clause requiring the effective and continuous operation of the land in the leased premises (Cass. 3e civ., 10 June 2009, no. 07-18.618 and Cass. 3e civ., 10 June 2009, no. 08-14.422). This means that failure to operate should not, unless the lease provides for it, constitute a serious and legitimate reason for refusing to renew without eviction compensation.

Unpaid rent

Delays in rent payments may in some cases be sufficient grounds if the operator has not paid after a month's notice to pay (Cass. 3rd civ., 12 July 1989, no. 88-12.539). With regard to late payments, judges assess on a case-by-case basis whether these delays are sufficiently serious (Paris Court of Appeal, ch. 16, sect. A, 21 Feb. 2007, no. RG: 06/07613, SA Alliance Développement Capital Siic c/ SA Les Nouvelles Résidences de France; Cass. 3e civ., 3 June 1992, no. 90-19.687, Bull. civ. III, no. 182, Gaz. Pal. 1993, 1, pan., p. 35).

Under rental

In the event of sublease, in principle the lessor participates in the conclusion of the sublease agreement (Article 145-31 of the French Commercial Code).

Failure to comply with this obligation is often a serious and legitimate reason (Cass. 3rd civ., 20 Dec. 1976, no. 75-11.633).

• How to resell your lots?

In the secondary market for residential service lots, most stakeholders and intermediaries require that the lease be renewed recently. Indeed, the longer the lease, the more the investor limits his risk of a request from the operator for a rent reduction, a departure from the operator or a request to take charge of the renewal of the furniture or a takeover of the works.

Therefore, the best time to sell a lot in a service residence is in the years following the renewal of the lease and therefore, the renegotiation of the new lease of its rent. It is therefore all the more important when you want to resell your lot to negotiate a firm period with your operator at the time of renewal.

Then, to be able to sell your lot, you can go through intermediaries who are specialized in this market and whose role is to identify buyers either through their website and the advertising they do online, or by soliciting wealth management advisors or possibly credit institutions that market this type of product to their customers. These intermediaries will share the commission with the intermediary you have contacted. It should be noted that many intermediaries also sell simply through classified ads that are published on known real estate sales sites.

The LMP / LMNP investor is often disappointed with the price offered because the price is calculated on the basis of a return that must be offered to the future buyer. To be able to sell the lot, it is necessary to be able to offer the future buyer a rate of return that varies between 4.5%, 5%, 5.5%, 6%. This means that it is necessary to take into account the amount of the rent, the property tax which, if applicable, is paid by the owner, also impact the commissions which are often in the order of 10%-12% to arrive at the final price.

As the sale takes place after the renewal, the rent has often been reduced and as a result, the price offered is often lower than the price initially paid. The profitability of the operation will therefore depend at that time effectively on the amount of rent that has been reduced, if any, on the amount of work and the price of furniture renewal that has been paid, but also on the tax advantage that the investor has enjoyed at the time of his investment.

From a tax point of view, the sale of the lot does not impact the pro rata of VAT that was initially deducted at the time of acquisition, provided that the lot continues to be operated under the conditions required by the tax authorities to benefit from the status of LMP / LMNP.

It is important in the context of the sale to protect yourself from the future buyer, particularly with regard to the problems he may encounter in connection with his investment at the time of the next lease renewal or even during the life of the lease. Consequently, it is not advisable to include in the promise to sell and the deed of sale statements and declarations in which it is specified that the investor is aware of the risk resulting from the investment in a managed residence and in particular of the need to pay eviction compensation at the end of the lease if he wishes to recover his apartment or to possibly have to undergo a renegotiation of the lease or the work to be performed, etc.

Finally, in the event of a sale, the operator must be notified in due form, the lessee having a preferential right to sell the leased property.

Kind regards,

David Sabatier

1862 Law Office – 01 53 00 22 22

Important : We revert to you in the framework of our partnership between our firm and the owner of the website frencheleaseback.net. However, this answer does not constitute a lawyer / client relationship and the firm or the author cannot be held liable for the recommendations which are made as we did not review your lease and your personal situation.