EC Commissioner for Justice, Didier Reynders, responded to a parliamentary question posed by Irish MEP Clare Daly on the action to be taken to provide justice for those abused in the purchase of French leaseback properties. Commissioner Reyners’ reply suggests that the European Commission have forgotten just who they represent! The unwillingness for the EC to acknowledge that the French state is in breach of the directive on Unfair Terms in Consumer Contracts is puzzling.
To say the least.
MEP Clare Daly’s question:
In his answer to Written Question E-001291/2021, Commissioner Reynders acknowledged that purchasers of French leaseback properties ‘may have been misled, or insufficiently informed about the effects of the contract […], including for example the applicability of the eviction clauses’ and that ‘such professional contracts would certainly deserve clear explanations given to potential buyers of tourism residencies with rental services included’.
Furthermore, the matter of ‘eviction compensation’, which the leaseback purchaser must pay in order to claim back the property, is a clear breach of Council Directive 93/13/EEC on unfair terms in consumer contracts.
With that in mind, what steps will the Commission take to ensure that purchasers of French leaseback properties are not penalised by hidden terms in their contracts – such as eviction compensation – which breach Council Directive 93/13/EEC?
See the original question put by Clare Daly MEP.
Commissioner Reynders’ reply:
Answer given by Mr Reynders on behalf of the European Commission
The Commission confirms its answer to written question E-001291/2021. The contracts in question, which concern the renting of holiday properties via service companies, are considered as contracts between professionals under French commercial law. The EU Directive on unfair contract terms (1) only applies to contracts concluded by sellers or suppliers with consumers and excludes contracts between persons acting for purposes relating to their trade, business or profession. Moreover, such contracts seem to reflect mandatory statutory provisions under French law which are applicable to the parties to the contract independently
of their choice and hence they may not be subject to the above-mentioned Directive pursuant to its Article 1(2).
The Commission does not have the power to assess individual private disputes related to the qualification of a contract as a consumer contract and the existence of unfair contract terms, which need to be dealt with by national courts taking into account all the factual and legal circumstances of the case.
(1) Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, OJ L 95, 21.4.1993, p.29.
To recap, the unfair term being referred to is the fact that the contract indicated, and purchasers were told, that the duration of the lease contract they were about to sign was 9 (or in some cases 11) years. But, under the French commercial law governing these contracts they go on forever unless the other ‘landlord’ party ends it. These landlords are typically large companies operating in the Résidence de Tourisme sector and well versed in French real estate law. The tenants are typically individual consumers who are not operating in this sector and not cognisant of the complexities of French real estate law. They must pay an eviction compensation to get out of the contract. This can run to thousands (figures of €50k have been mentioned). Indeed even when the owner becomes aware of this enduring nature of the contract, it is never clear what this amount is (it is based on a gross turnover figure supplied by the landlord).
In summary, what actually happened in many cases is that consumers paid over the odds for holiday properties since they were told they had a lease contract which provided for ‘guaranteed’ rent, they signed this lease contract which they believed was for 9 years, then the companies reneged on the ‘guaranteed’ rent, but the consumer was not able to get possession of their property. As ‘owner’ of the property, the consumer continued, and continues, to be stiffed by mortgage repayments to French banks, French council taxes (Taxe Fonciére), syndic maintenance charges etc. But he can’t end the contract, and in many cases has no access to the property.
Commissioner Reynders states that the lease contract signed by purchasers of French leaseback properties, known as a ‘Bail Commercial’ or Commercial Lease, is governed by French Commercial law. This is true. Those who signed these contracts discovered this to their detriment. He also states that this law considers these contracts as only signed between professionals.
The use of this specific type of contract is mandated by the French state to be used in the French tax investment scheme, commonly known as French leaseback. However the tax incentive is aimed at individuals, not professional French real estate entities. The scheme was devised to encourage individuals to effectively pay for creation of tourist infrastructure in France. And it has been successful in doing so. The individual gets some tax breaks (in France) and does not have to pay TVA (VAT) on the purchase of the property. That is the scheme.
It is marketed at individuals, at consumers.
The tax mechanism used by those consumers in France is known as LMNP, which is non-professional furnished rental.
The EC has been provided with all of these details. The national consumer authorities in Ireland (CCPC) and UK (CMA) have been given complaints by consumers who were mis-led on this contract. The DGCCRF have investigated. But the DGCCRF is part of the French Ministry of Finance, the same government department that devised the tax scheme in the first place – the same department that consistently refuses to make any effective changes to the scheme to make it transparent and protect consumers.
So, why is the EC Commissioner for Justice pretending that Irish purchasers of French leaseback holiday homes are French real estate professionals, when they are in fact Irish farmers, IT professionals, doctors, postmen (you get the gist) who knew nothing about French real estate when they were sold these properties?
Could it be because:
- he is an imbecile? unlikely – he is an EC Commissioner after all
- he was poorly briefed? unlikely – owners and national consumer authorities have been in constant contact for years with the EC on this issue, and he has assistants/researchers to provide such briefings
- he is corrupt? unlikely – it is doubtful that someone gave him a ‘brown’ envelope (though who knows – these are large French companies who have a lot at stake, and such a thing is not unheard of here in Ireland, particularly involving real estate development)
- he is politically motivated? possible – maybe he doesn’t want to antagonise French politicians, maybe he’s pals with Bruno le Maire etc, maybe they vote in some alignment
- the EC operates to a default position (that civil servants are long accused of) of doing the least possible? hopefully not
- from a political perspective, the EC is happy to go after US tech giants (and rightly so), but not so happy to go after the second biggest member of the club? perhaps – and if so, is this where the EU project fails?
Note that back in 2004 the ECJ ruled against Spain in a judgement in a case on this same directive. Why not France?
What do you think?
Constructive replies please to Commissioner Reynders at email@example.com or firstname.lastname@example.org
Many thanks to Clare Daly MEP for progressing this on behalf of over 6 thousand people who signed a petition seeking justice.