Description:

Guide2 the Role of the Notaire in French house sales & purchases

Category: Useful Info & Resources

• A French Notaire is both a sworn public official and a freelance professional
• French Notaires are subject to strict professional rules and rigorous controls
• In France, notaires are both legally & financially liable for documents drafted by them
• Like solicitors in English, Scottish & Irish jurisdictions, French notaires deal with probate (confirmation in Scotland), divorce & estate planning,  but, unlike their British & Irish counterparts, Notaires do not plead before Courts.

Description:

The role of the notaire in France is markedly different from that of a notary in the UK, particularly in respect of property transactions. For that reason, in this article, the French word 'notaire' has been used instead of its very approximate UK equivalent 'solicitor' to reflect the different role.

Notaires are well known in France for property issues. Not only do notaires draft the sale agreement between the parties, but they also make the sale legally secure, and do all the necessary formalities after completion. Moreover, notaires can assess the property, negotiate the transaction, and manage the property after completion.

Notaires are also family advisors and can advise on the inheritance tax implications of a property purchase. They can also deal with ancillary matters which may arise like pre-nuptial agreements, divorce, wills and succession law. Notaires can also offer appropriate legal and tax solutions to any changes which may occur in the structure of a family.

As legal and financial advisors to families, notaires help to prevent conflicts which might otherwise result in lawsuits. As consultants to business owners and companies, notaires can advise and draft contracts for business owners on all aspects of business law. Notaires are authorised to organise auction sales for real estate properties.

 NOTAIRES - A GUARANTEE OF SECURITY

1. Notaires play a key role in legal security

Notaires exist to provide legal security. By providing notarised documents, they make contractual relations secure, whether the document records a family agreement, an agreement between neighbours, or a transaction involving incorporeal, corporeal or real (immoveable) property.

By checking the identity of the parties and their capacity to act, the notaire safeguards the agreements that parties may deal with. By checking that the parties have given their real, informed and legally valid consent, notaires ensure that no-one is bound against his or her will or interests. By making the parties’ expressed wishes official, notaires make the parties’ intentions transparent and binding to their commitments, thereby increasing the level of trust. Notaires also ensure that contracts are balanced, that no-one’s interests are harmed, and that French law is strictly complied with.

Notaires create a stable legal environment in which clients can undertake projects, bring their plans to fruition and invest successfully. Notaires reduce sources of conflict and prevent contentious proceedings. Notaires strengthen the trust on which society and social interactions are based. Acting like judges in non-contentious matters, notaires foster agreement and the harmony of life in society.

2. Legal security in the Digital Economy

In the 1990s, the notarial profession began to introduce paperless transactions, while ensuring the highest degree of legal security at each stage in the process. The first step was to set up a secure intranet linking 4,600 notaries’ offices. Subsequently, in cooperation with its partners in the public sector and the Caisse des Dépôts (broadly, the French National Savings Bank), Notaires de France standardized procedures for paperless exchanges between notaires’ offices, the land registries, tax offices and the finance houses with whom notaries interact to manage their clients’ files, using Télé@ctes, an electronic document exchange system. Finally, the profession acquired the technology necessary to ensure totally secure, certified electronic signatures, a first in Europe.
On 28 October 2008, the first completely paperless, notarised document was signed and stored in MICEN (a centralised electronic archive of notarised documents), rounding off this major project.
The profession is now able to provide the same degree of legal security in the digital age as it has provided for generations with documents recorded on paper.

NOTAIRES AS PROPERTY EXPERTS

The Notaire has a role pre-sale or purchase

The notaire assesses:

Thanks to their knowledge of the property market, notaires are in a very good position to appraise the real value of your property. Notaires can advise you from the perspective of selling your property for the right price and within a reasonable timescale.

The notaire negotiates:

Since property negotiation requires professional skills (in valuation, property law, and taxation) it is worth using the services of a notaire to do so. In such a case, the notaire will seek a purchaser for the property that you wish to sell, or look for a property that you wish to acquire.
Moreover, using a notaire will offer you three main guarantees:
• a guarantee of security, because the notaire will act as a public officer appointed by the state
• a guarantee of efficiency, because notaires will use their good knowledge of the market locally, besides which  French notaires have access to a national database listing most of the properties currently for sale.
• A guarantee of costs since notaires’ negotiation fees are strictly regulated by Statute under French law, and are capped at 2.5 % for the part of the purchase price exceeding EUR. 46,000.

The notaire advises:

If you are considering purchasing a property, the notaire can advise you on:
• defining your purchasing project,
• determining its value,
• choosing the best financing,
• doing all the relevant formalities.

If you wish to sell your property, the notaire can advise you on:
• completing your sale rapidly and on the best terms,
• investing the sale price to best advantage,
• doing all the necessary formalities (e. g. capital gain tax declaration, or tax clearance).

More generally, the notaire can give advice about the effects of any transaction on your estate and any tax consequences.

 After finding a purchaser or a property to purchase

The notaire makes the sale legally secure and offers the best legal guarantees to the parties by drafting the pre-sale agreement (called “promesse de vente” or “compromis de vente”). This is a preliminary contract (similar to the concept of Missives of sale and purchase in Scots Law) which binds the future seller meantime pending the necessary documents for the sale being assembled and allowing time for all necessary enquiries to be made prior to completion of the sale at a later date.

For example, the notaire:

• checks the identity, the marital status, and the legal capacity of each party, gathers the planning documents enabling the notaire to identify any potential restrictions affecting the property.

• checks the title deeds and any rights of way and other easements that might affect the property.

• collects the necessary documents and information in order to draft the deed of sale. Bearing in mind that, in France, any property transfer must be notarised, the deed of sale must be drafted by and signed before a notaire, who, as a public officer, must guarantee the efficiency of this contract and give to both parties an absolute security.

• checks that no issue can weaken the transaction for any reason.

• clears, if any, the rights of pre-emption (e.g. of the tenant, or of the municipality).

• checks the mortgage situation of the property.

• questions, if any, the manager of any co-owned property (syndic de copropriété).

• gathers, if any, the information requested by the lender prior to putting in place any mortgage security

After completion

After completing the sale, the notaire takes the necessary steps to ensure that the sale is enforceable against third parties. In this regard, the notaire, will, if applicable:

• inform the manager of any co-owned property (a block of flats or tenement property, for example)
• have the sale registered at the local land registry, and at the Mortgage Registration Office (Bureau des hypothèques), for updating the property’s file, and entering the new owner’s identity,
• pay the transfer stamp duties due to the tax authorities; and pay any capital gains tax which may be due by the vendor.

The notaire can manage the property

As a specialist in property, the notaire can also ensure the rental management of your property, and deal with all letting and administrative formalities such as:

• finding a tenant
• drafting the tenancy agreement or lease
• collecting the rent
• preparing property income declarations

Furthermore, if the tenancy agreement is drawn up notarially, it will be easier to enforce it under French law. Specifically, a landlord will be entitled to seize a tenant’s assets in the event of non-payment of rent without prior recourse to or authorization from a Court.

SELLING COSTS - Capital Gains Tax

A seller may owe taxes on the capital gain realised on a sale. The sale of a principal residence is exempt from such tax, as are other properties under certain conditions. The capital gain is equal to the difference between the sale price and the purchase price, or the declared value upon receipt of the property by gift or will.

The tax position:

Capital gains are entirely free from taxation after the property has been owned for fifteen years. The gross capital gain is, in effect, reduced by 10% per annum for each year as from the fifth year after the purchase. In addition, a lump-sum allowance of €1,000 is applied to the gross capital gain realised on a transfer. Furthermore, properties whose sale price does not exceed € 15,000 are exempt from capital gains tax.
For properties sold more than five years after purchase, the purchase price may be subject to a lump-sum increase of 15% for work done, without supporting documents. It is possible to replace this 15% lump-sum by actual expenditure, on condition of it being supported by actual invoices.

Payment of the tax:

Tax corresponding to the capital gains made at the time of the sale is no longer payable with your other income taxes. The notaire is responsible, on registration at the Land Registry, for payment of the appropriate sum to the tax authorities, based on the vendor’s declaration.
The application of the rising income tax bands has been removed and replaced by a fixed taxation at 16% for someone who is tax-resident in the European Union. For someone who is not tax-resident in the EU, the capital gain realised on the sale of property located in France is subject to a deduction of 33.33%. The declaration of a capital gain on real estate at the Land Registry must be made by the non-resident or by their representative. Usually, the notaire carries out this formality.

Exemptions:

Various exemptions and rules apply to assessment of Capital Gains Tax depending on whether a seller is resident in France, their tax domicile or an EU or non-EU citizen. A notaire can advise on different exemptions which may apply in different circumstances.

ACQUISITION COSTS ON PURCHASE

In addition to the purchase price, the purchaser must also pay:
• the commission due to the estate agent, if any;
• taxes, stamp duties and transfer tax due to the French Inland Revenue;
• the notaire’s fees;
• any miscellaneous costs.

All these are strictly defined, which makes for the purchaser knowing in advance the additional costs likely to be incurred.

1. Taxes

The most significant part of the acquisition costs comprises taxes and stamp duties to be paid to the French State which total 5.09% of the purchase price. If the property is new, however, or if it was built less than 5 years ago and is sold for the first time within this 5 year period, then the sale is subject to value added tax (VAT) at the rate of 19.6%, which then excludes transfer tax.

2. The notaire’s fees

The notaire’s fees are clearly defined and regulated by Statute and are called “emoluments”. There are three types of emoluments:

• Proportional emoluments: These are the main remuneration of the notaire relating to the sale (except if this has been negotiated by him: see below). They are calculated in proportion to the purchase price at a rate of 0.825% + EUR 290 as soon as the price is over EUR. 15,000. Of course, VAT must be added to these amounts at a rate of 19.6%. At the same time, when the purchaser takes out a mortgage loan, the security for which must, in France, be drafted by a notaire, the notaire is entitled to receive fees at a rate of 0.26% of the amount of the loan.

• Fixed emoluments: These are not proportional to the purchase price and include various steps taken by the notaire before or after completion in order to make the sale legally secure and binding.

• Negotiation emoluments: When the notaire had negotiated the sale, as an estate agent would do, he is entitled to be paid negotiation emoluments, by the seller or by the purchaser, according to the agreement made between the parties. These emoluments equal 5%, of the price, up to EUR. 46,000 and 2.5% over this amount. Bear in mind that VAT must always be added to these amounts at the current rate of 19.6%.

In addition to the above emoluments, the purchaser must also pay other miscellaneous costs, in particular relating to obtaining certain documents such as the cadastral map, information about local planning rules and mortgage statements. Not forgetting that if the sale was negotiated via an estate agent then, in addition to the purchase price, the estate agent’s commission on sale will also be payable by the purchaser.

3. Estimating your likely costs

A handy calculator is available on the Notaires de France website to give you a rough idea of the overall acquisition costs associated property acquisition.

DETAILED STATEMENT OF COSTS

After completion, when the formalities of registration of the deed of sale at the local land registry have been completed, the notaire must send to the purchaser the title deed, with a statement of costs showing exactly which sums have been paid, in particular, to the French Inland Revenue and to the notaire. If the notaire has previously estimated any costs, any re-imbursement due to the purchaser will be made at that stage.