The DGCCRF investigation into the complaints submitted by Irish and UK purchasers of French Leaseback properties continues.
Brian Hayes, MEP, contacted the DGCCRF to request an update on their investigation back in July 2018, and the Directrice Génerale of the DGCCRF Ms Beaume’unier, replied in Oct to say that they had received 250 complaints from the CCPC in Ireland and CMA in UK. They informed Mr Hayes that the complaints have been subject to a nation-wide investigation and that this investigation includes also complaints from French people. They didn’t receive any complaints from any other EU member state.
They gave no timescale for a conclusion.
One of the key complaints of purchasers was that the selling price was artificially inflated based on the promise of ‘guaranteed rents’. The allegation is that those parties behind the sale knew that these ‘guaranteed’ rents would never be paid for the full duration of the contract. In fact, there was no guarantee at all. We believe that in many cases a strategy of ‘fonds de concours’ was used to fund the payment of the ‘guaranteed rent’ for the first few years until all properties were sold, and that this funding came from the sale of the first properties themselves.
Such abuses have been well known in France and indeed the French authorities changed the law some years back to prevent such companies cancelling these commercial leases unilaterally after three years.
Tax Incentive – Leaseback
Owners also have issues with the lease ‘contract’ itself and believe that this contract is a breach of EU consumer.
The DGCCRF said :
The fact that the companies involved in this case acted within the context of a tax incentives scheme is totally immaterial to the assessment of the lawfulness of their behavior with respect to consumer protection rules, which is the issue at stake.
Owners believe that the fact that the companies acted within the context of a tax incentive scheme is NOT immaterial to the assessment of the lawfulness of their behaviour with respect to consumer protection rules. On the contrary, the tax incentive serves to trap the consumer. It traps the consumer in 2 important ways:
- If there is no lease (if it is cancelled by the operator or the operator goes bankrupt) then the consumer must repay the TVA. This TVA is a percentage of the purchase price, which we believe was artificially inflated. Thus, the consumer is under pressure to agree to any lease, or any decreased rent offered, in order not to have to ‘repay’ this inflated TVA to the French state. The TVA remains the same while the property value has fallen, and property values dropped by 50% or more in many cases.
- The lease is required by the tax incentive itself and this is a ‘commercial’ lease, or ‘bail commercial’. This contract is totally unsuitable for a consumer, since it has the ‘hidden’ term of being renewable forever by the lessee. This is in direct conflict with EU consumer directives outlawing such contracts with ‘hidden’ terms, or terms to the detriment of the consumer.
The tax incentive scheme is flawed by its very nature.
Criminal Legal Action
The DGCCRF also stated that such complaints may lead them to bring cases before the criminal courts in order for breaches of law to be duly sanctioned. They also stated that such a case had recently been taken, but did not provide any details.
In Dec 2018, the CCPC reached out to many Irish complainants (though not all) to obtain additional information.
The letter also said that they had shared a premliminary outcome with the CCPC and CMA and requested further information to see whether it was possible to take a criminal case. They wanted clarification on dates and indicated that the statute of limitations prior to offences committed before 2017 is 3 years (it has since been increased to 6 years).
Given that the CCPC first engaged with DGCCRF on the matter in Oct 2017, it is disappointing that it took the DGCCRF a year to finally respond to request more information on dates of contracts, and to flag potential statute barring!
Compensation for Owners
If owners want to get any compensation for any criminality identified by the DGCCRF, the owners would need to go to the civil courts. They highlighted that the civil courts have indeed condemned a number of real estate developers for fraudulently over stating the price of leaseback properties.
They didn’t provide details of any cases and did not indicate whether any owner had received any actual financial compensation.
In one Irish case where a group of owners have a legal case going on for ten years now and have spent hundreds of thousands collectively on legal fees. This situation was a clear case of wrong-doing on the part of a notaire. They’re still out of pocket…
Owners are seeking a meeting with the European Commission, DG Justice and Consumers in order to ensure that the rights of EU citizens as outlined by EU Consumer Law are upheld.