DEALING WITH PROPERTIES IN FRANCE
The EC Regulation on Insolvency Proceedings 2000 (‘the Regulation’) (see Chapter 41) generally provides that the law applicable to the bankruptcy is that of the Member State in which the bankruptcy order was made [note 1] (see paragraph 41.51).
There are, however, exceptions to the general rule in the Regulation, which exceptions include special provisions in the case of property. In particular, the opening of the proceedings does not affect the ‘rights in rem’ (see paragraph 43.4.3) of a creditor of third party in respect of assets belonging to the debtor which are situated in another Member State at the time of the opening of the proceedings [note 5].
As outlined at paragraph 43.4.2, the Regulation provides that ‘rights in rem’ are subject to an exception to the general rule regarding choice of law.
Broadly speaking, ‘rights in rem’ include security rights such as a mortgage, and the Regulation provides that it is the law of the country in which the property subject to security that would take precedence when considering the effect of the proceedings on those rights.
For those reasons, the official receiver will have to follow French law when dealing with the rights of chargeholders. Paragraphs 43.4.15 to 43.4.16 contain information on how the system of charges against property operates in France.
As with any other asset the official receiver, as trustee, should ensure that the value of the property to the estate justifies any action taken or expense incurred in relation to the protection or realisation of the property.
It is accepted that this may be something of a circular matter, in that it may be necessary to incur some expense to find out that the property has no value.
Where there is no prospect of the property achieving sufficient proceeds to make realisation worthwhile, the official receiver, as trustee, may cease to take any active steps in dealing with the property – effectively ‘abandoning’ the property to the chargeholder. If there is some onerous obligation relating to the property, the official receiver should consider if a disclaimer (see Chapter 34) would be more appropriate. If a disclaimer is issued, the notice of disclaimer served on the interested parties should be accompanied by the document at Annex I, which explains the purpose and effect of a disclaimer, in French. Annex J is an English translation of Annex I.
Where this position is established prior to the process of registering his/her interest at the land registry (see paragraph 43.4.13), the official receiver may discontinue that process. The official receiver should, though, ensure that his/her interest is noted by the mortgagees in the event of a surplus arising.
In simple terms, the calculation of the value of a French property to the estate involves the same process as would be required for a property in England and Wales (that is, the value of the property less any charges). What may be more difficult is obtaining accurate information regarding the value of the property and the amount and level of any outstanding charges.
The most likely source of information regarding the value of the property will be from the information or documentation provided by the bankrupt, for example:
In France, as in the UK, there are websites that give the prices of properties that are for sale and examples are given here:
Alternatively, it is possible that a local estate agent may be willing to offer an opinion regarding value. An estate agent may be located using the following website:
The official receiver should use the French version of the name of a town or area, where there is a difference (for example, Normandie for Normandy or Bretagne for Brittany) when using the search facility on this web-site.
Where it is necessary to obtain an accurate valuation of the property, the official receiver, as trustee, may consider appointing the French equivalent of a surveyor. As this service is likely to attract a fee, the official receiver should consider the necessity of the valuation against the likely benefit to the estate. A surveyor may be located on the following website:
It is likely that, as with a UK property, the official receiver, as trustee, will be able to establish what charges there are against the property from information or documentation provided by the bankrupt. Alternatively, a search of the land register (see paragraph 43.4.18) may be required.
Assuming the identity of at least one of the chargeholders is known, a letter can be sent in the normal way (see paragraph 43.4.12) to obtain details of the amount outstanding under the charge and the identity of the other chargeholders.
In the first instance, the official receiver should contact any chargeholder and request that they note the official receiver’s interest in the property (see paragraph 43.4.12).
In addition to informing the chargeholders of the making of the bankruptcy order, it will be necessary to register the official receiver’s interest in the property at the land register office (see paragraph 43.4.13).
Annex A is an MP2 letter (seeking information from a chargeholder) that has been amended to be more relevant in respect of a French property.
Annex B is an MP3 letter (requesting the chargeholder to note the official receiver’s interest in the property) that has been amended to be more specific in respect of a French property.
The official receiver should take steps to ensure that his/her interest in the property is recorded at the relevant local land registry (see paragraph 43.4.17).
He/she can achieve this by registering a notice with the land registry that bankruptcy proceedings in England and Wales have commenced. This is provided for in the EC Regulation [note 6].
The most common form of joint ownership in France is called ‘En Indivision’. This form of joint ownership is most like the English law concept of tenants in common. En Indivision is a form of joint ownership where each owner holds the property in separate (not necessarily equal) shares.
The key difference, so far as the official receiver is concerned, is that unlike a jointly owned property in England and Wales, which is normally held on the basis of a joint tenancy, each share may be dealt with separately – there is no concept of the legal title and beneficial interest being separate things.
French law does provide some protection for joint owners to avoid the property being sold ‘underneath them’ and this is that the sale must have the consent of two-thirds (by value of share) of the owners of the property.
The most common type of charge on a French property is known as a Privilège de Prêteur de Derniers (a ‘lender’s privilege’), which arises from the loan provided to purchase the property. The charge is registered at the land registry (see paragraph 43.4.17) [note 7] by the notary (see paragraph 43.4.24) within two months of conveyance and takes priority over other charges.
A secured chargeholder has the power to force the sale of the property of a defaulting borrower. On application to the court, the lender obtains an order for the sums due (a ‘commandement’) which is registered with the local land registry to prevent any unauthorised dealings in the property. A ‘cahier des charges’ is then drawn up setting the conditions for the sale – with which the debtor must comply. The sale will be effected through an auction process (‘aux enchères’) unless the borrower can introduce a buyer who will purchase the property at a price to satisfy the court.
The system of Land Registration is two-pronged – one register (called the Cadastre) records information regarding the size, description and boundaries of the property. It is possible to conduct an on-line search of this register (www.cadastre.gouv.fr/.../changeLangue.do?lang=en&cty=EN) but this is unlikely to be of any practical use to the official receiver as the Cadastre does not record details of ownership or charges.
The other system (called the Bureau de Conservation des Hypotheques) records details of ownership, registered rights (such as charges) relating to the property, along with any restrictions or rights relating to the ownership of the property. Each Bureau de Conservation des Hypotheques is responsible for the registration of properties within the district (‘arrondissement’) in which it is located.
It may be necessary to conduct a search of the French land register (the Bureau de Conservation des Hypotheques - see paragraph 43.4.17) where, for example, the nature of the bankrupt’s interest in a property is uncertain.
To locate the correct Bureau de Conservation des Hypotheques for the property being dealt with, the official receiver will first have to locate the arrondissement (see paragraph 43.4.17) in which the property is situated. To do this, he/she may make use of the website www.insee.fr/.../default.htm, entering the name of the town in which the property is located in the first box. The first ‘drop down’ box should be left as ‘commune’. The second box allows the search to be conducted using the beginning, end or portion of the town name. An accurate search requires the use of the correct pronunciation symbols. From the information returned by the search, it should be possible to locate the address of the arrondissement’s Bureau de Conservation des Hypotheques using a ‘Google’ search, or similar.
Once the correct Bureau de Conservation des Hypotheques has been ascertained, the official receiver should complete the form attached at Annex H1, and send it under cover of the letter attached at Annex G with a cheque for 12 Euros made payable to ‘Tresor Public’ and certified copies of the bankruptcy order and notice of no meeting. Annex H is the letter at Annex G translated into English for reference purposes.
As with a property in England and Wales, the official receiver should seek to transfer dealings in relation to the property to the appropriate RTLU as soon as possible after his/her interest in the property has been protected (see paragraph 43.4.11).
As outlined in paragraph 43.4.2, the Act gives the official receiver, as trustee, the power to take possession of and sell a property that forms part of a bankrupt’s estate. Under the provisions of the Regulation [note 8] [note 9], however, the official receiver must have respect for domestic (French) law when taking steps to realise the interest in the property. In particular, he/she must follow rules in French law when taking steps to realise the interest in the property. In particular, he/she must follow rules in French law in regards to the conveyance of the property (see paragraphs 43.4.21 to 43.4.22).
Whilst the following paragraphs give an overview of the procedures and processes for dealing with a bankrupt’s property in France, it is not expected that the official receiver should enter into such a procedure without expert guidance from a lawyer (probably based in France) well versed in French law (see paragraph 43.4.25).
Real estate owned by a debtor in formal insolvency is sold under the supervision of the French court. The court may order that the property is sold via a private sale (see paragraph 43.4.22) or a public auction, and may set a minimum price and also conditions relating to any charges on the property [note 10].
The first stage in the conveyancing process is for the purchaser and vendor to agree a pre-sales contract. These contracts come in three types, two of which (‘promesse de vente’ and ‘promesse d’achat’) are effectively promises to sell/buy on which there is the penalty of the loss of deposit for withdrawing from the sale. The other type of pre-sales contract is the ‘compromis de vente’ which binds both parties and withdrawal is at the risk of action for breach of contact.
The preliminary contacts are required by law to be conditional on the purchaser obtaining finance to complete the purchase and will have clauses built in to take account of this. These conditions are important because in France it is customary to sign the preliminary contract and pay the deposit before any enquiries are raised and before a mortgage advance has been agreed,
The notary (see paragraph 43.4.24) will then obtain all the relevant searches and property reports, before the conveyance proceeds to the next stage, which is completion. The notary will draw up the deed of sale (‘acte authentique de vente’) to be signed in front of him/her by the parties involved in the transaction.
It is not expected that the official receiver would be required to travel to France to undertake the procedure required to complete a sale (see paragraph 43.4.22). Instead, it is envisaged that the local legal representation (see paragraph 43.4.25) would deal with this part of the process. For this to happen, the local representation would need to be given a power of attorney (‘procuration sous seing privé’). The local representation should lead the official receiver in this process.
The notary (‘notaire’) is a government appointed official whose role it is to oversee the property conveyancing process. He/she does not act for either side and is interested only to see that the sale proceeds in line with the process set down by the law of France.
It is not envisaged that official receivers should attempt to deal with the sale of a property in France directly, and it is recommended that local legal representation is obtained to deal with the particular aspects of France conveyancing and insolvency procedures – not least the need to be personally present at the signing of sales contracts (see paragraph 43.4.22).
Solicitors engaged by the official receiver in this country may be able to recommend a solicitor in France with which they have some connection or arrangement.
The website of the Law Society has a database of lawyers that may be searched by location and specialism:
Under French succession laws a surviving spouse/partner will not automatically become the legal beneficiary in the event of the spouse-owners death and children still inherit in priority unless specific steps have been taken, regardless of the wishes of the deceased.
In France, an individual’s assets on death consist of the reserved portion (reserve legale) and a disposable portion (quotite disponible). Where children survive a parent the French rules provide that the reserved portion must be shared between the children. The remaining portion may be freely disposed in according to the wishes of the deceased.
A method of purchasing a property is through a specific type of company created under French law for owning property. These companies are known as Societe Civile Immobiliere (SCI).
The SCI is a separate legal entity and the property is owned by the company not by the members personally. Any sale of a member’s interest would be by share transfer by the company and not involve any change in the title to the property.
Ownership of property is often used by UK residents to avoid the French inheritance laws (see paragraph 43.4.27)
French property can be owned by an English Limited company and are subject to capital gains tax.
There are two main taxes in relation to properties in France –
Taxe Fonciere – payable by owners of the property on 1 January each year.
Taxe d’habitation – payable by the occupier of the property.
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