Paul Devaux on Rent Reduction

There is a pattern of behaviour whereby operators of French leaseback properties pressure owners to sign a lease amendment taking a rent reduction. For me, it is too late. But for you, think about what this may mean.

Are you effectively halving the value of your property ? By cutting the yield in half you are instantly making it a less attractive investment. Also remember that this lease automatically rolls on at the end of the lease period and this could leave you in a poor bargaining position and the operator in a very happy one.

See what French lawyer Paul Duvaux has to say:

4 Decline the operator’s rent reduction offers

If the operator doesn’t manage to pay your rent, it may be a sign that you have been the victim of a frequent scam called ” fonds de concours”, related to real estate investments.

This usually happens in the following way: the property developer proposes a very attractive and secure investment package, with so-called guaranteed high rental returns. But the promised rent is actually being artificially increased due to a secret subsidy paid by the property developer to your operator. This contribution is intended to cover the deficit of the first months (or years). In this case, you cannot trust the operator and the best choice would be to pick another operator or to take up by yourself the management of the residence.

If your operator is subject to a “procédure de sauvegarde” or “redressement judiciaire”(bankruptcy proceedings), be wary of the “mandataire judiciaire” (official receiver). Quite often, the “mandataire judiciaire” makes the residence owners believe that they must accept their rent reduction offers. This is completely false. If the rent cannot be paid and even if the operator deals with bankruptcy, you still have the right to terminate the lease. So remember, if you aren’t paid, don’t hesitate to terminate the lease. Of course, such a decision must be taken according to each particular case, eventually after consulting a lawyer and provided that the position is accepted by the largest majority of the owners.

The lease amendment that I signed provided for a profit sharing element in conjunction with a 50% decrease in rent. That was the last that was ever heard of on ‘profit sharing’. The operator went into receivership anyway and the leases were taken over by Docte Gestio. No mention of ‘profit sharing’ there!  I wish I’d read Paul Duvaux on this also:

5. Refuse rents calculated according to the turnover or the results

Lately, it has become very current for the operators to pay rents based on results or on the turnover of the residence.

The clause is conceivable only if the operator is really honest and if a thorough examination of the accounts is intended in the lease contract.

The leases provided for an increase in ‘maintenance charges’ of almost 50% for the year 2013 and thereafter to be negotiated. I never heard any more about that either. They take the amount, do not negotiate and pay no common area Syndic charges!

Read more on Leaseback investments in French residences : welcome to the banana republic


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.