Guillaume Errard has a piece in Le Figaro on the possible reform of ‘risky’ nature of French leaseback property purchases:
The article features a letter written by Bruno Le Maire, French Minister of Economy & Finance dated April 7 and addressed to Brigitte Kuster, which appears to discuss reform of the leaseback system:
” A reform aimed at improving information pre-contractual […] in order to better warn of the risks associated with this type of investment, is currently under study ”,
Ce type de contrat est assez contraignant pour le bailleur qui doit, dans certains cas, verser des indemnites d’eviction pour ne pas reconduire son bail. Face a cette problematique, une reforme visant a ameliorer l’information precontractuelle des investisseurs en residence de tourisme, afna de mieux avertir des risques lies a ce type d’investissement, est actuellement a l’etude. L’objectif de ce projet de reforme est motive par le constat du caractere risque de l’investissement en residence de tourisme, ce qui requiert une information objective des investisseurs, a l’instar des obligations d’information prevues pour les produits financiers.
This type of contract is quite restrictive for the lessor who must, in certain cases, pay eviction compensation in order not to renew his lease. Faced with this problem, a reform aiming to improve the pre-contractual information of investors in tourist residences, in order to better warn of the risks associated with this type of investment, is currently under study. The objective of this reform project is motivated by the observation of the risky nature of investment in tourist accommodation, which requires objective information for investors, like the information obligations provided for financial products.
Errard goes on to write (Google Translate):
Read more >
The setbacks of investors, engaged in arm wrestling with their manager, pushed Bruno Le Maire to act. ” The objective of this reform project is motivated by the observation of the risky nature of investment in tourist residences, which requires objective information for investors, like the information obligations provided for financial products ” , continues the minister. In other words, we could consider that the process be validated by the Autorité des marchés financiers. A safeguard which would indeed not be useless for an investment whose income is supposed to be guaranteed.
Clare Daly MEP has put a question to the European Parliament in relation to the scandal of French leaseback properties. She specifically focuses on the enduring nature of the lease contract or ‘eviction compensation’ to exit and asks what steps the EC plan to take to ensure that France upholds its obligations under Directive 93/12/EEC.
The scandal of the French ‘leaseback’ scheme is well known.
Since 2017, France’s General Directorate for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF) has been
investigating the matter. Several matters are at stake, including ‘eviction compensation’.
The purchaser of a leaseback property signed a lease contract for 9 (or 11) years, and the seller made
them understand that the contract ended then. However, this was not the case under Article L145-14
of the French Commercial Code, which sets out that these contracts are given to consumers as part
of a tax incentive. After 9 years, purchasers cannot reclaim the property without paying ‘eviction
compensation’: a considerable and prohibitive sum that effectively traps the consumer in the contract
indefinitely. This is not in the original contract, thus constituting a ‘hidden term’. This type of contract
was a requirement from the French authorities under the tax incentive (Demessine law and others).
This would appear to be a clear breach of Directive 93/13/EEC on unfair terms in consumer
contracts(1). Consumers subject to these contracts cannot get a fair hearing in a French court since
rulings are made with reference to the French Commercial Code, and not to EU consumer law as it is
transposed to French law.
What steps will the Commission take to ensure that France upholds its obligations under Directive
The 6 million dollar question.
Or much, much more than that. The building of French tourist infrastructure is financed by a French leaseback tax incentive. It is paid for by individual consumers (not real estate investors and experts) who pay for a French leaseback property.
I use the word ‘pay’ since the word ‘buy’ implies that you get something for your money. With French leaseback it seems to many consumers that they ‘pay’ but somebody else gets the benefit!
Read the full question at https://www.europarl.europa.eu/doceo/document/E-9-2021-001291_EN.htmlRead more >
Peter O’Dwyer reports in the Sunday Business Post that the CCPC has written to the DGCCRF requesting an update on their investigation into the alleged scam involving the French leaseback property purchases by Irish consumers.
The CCPC have stated that an assessment will be made on the information provided by the DGCCRF in order to determine if there was a breach of consumer protection by Irish traders.
“When they have completed their investigation, the DGCCRF will provide to the CCPC, information on any potential concerns or infringements with respect to Irish agents identified during the course of their investigation,”
Read Peter O’Dwyer’s full report from 6th April 2021: French consumer watchdog probes holiday home scamRead more >
Tánaiste Leo Varadkar (former Irish Prime Minister) was questioned in the Dáil (Irish parliament) this week on progress made by the CCPC on the 150 complaints made to them by Irish consumers in relation to French leaseback purchases. The question was posed by Catherine Connolly TD.
Mr. Varadkar replied:
“The CCPC received complaints from Irish property purchasers and provided an initial preliminary assessment to the DGCCRF for over 150 complainants,” he noted.
The sale documents from the Irish buyers have been transferred to the French authorities. “The CCPC has and continues to provide significant time and resources to this matter and to support the DGCCRF investigation,” he added.
“In order to protect the integrity of the investigation and comply with relevant French criminal procedural codes, the DGCCRF requested that the CCPC refrain from commenting or communicating on the investigation other than providing updates,” said Mr Varadkar.
“When DGCCRF has completed its investigation it will provide to the CCPC information on any potential concerns or infringements with respect to Irish agents identified during the course of their investigation.”
“At that point, the CCPC will assess the information provided by the DGCCRF in order to determine whether there was any breach of consumer protection legislation by Irish traders,” the Tánaiste said.
Note that the CCPC received over 200 complaints from Irish purchasers in 2017. They stated at that time that the matter was immediate priority issue for their Consumer Enforcement Division. The issue has been raised in the European Parliament and European Commission. However, the French DGCCRF have not provided any reassurance to Irish consumers.
The first round of comprehensive complaint details were sent from the CCPC to the DGCCRF before the end of 2017. Given we are now in Q2 2021 and there is no visibility of any useful or just conclusion, it seems that EU Directives to protect consumers may not be worth the multi-lingual paper they’re written on…
Where is EU Justice and Consumers?
There has been no assistance to those faced with large mortgage repayments on properties that many owners believe were over valued at the time of sale and fraudulently sold on the basis of ‘guaranteed rent’ and trapped in a never ending leaseback contract. This contract is of the French governments design, a scheme designed to promote French tourism, basically a scheme to have individual consumers pay for tourist infrastructure.
Read the full report by John Mulligan in the Irish Independent on 27th March 2021: Irish authorities are aiding probe into French property
The CCPC have also responded to request for an update from Clare Daly MEP:
Read more >
This matter is a DGCCRF criminal investigation and the CCPC have been requested to comply with the requirements of Article 11 of the French criminal procedure code and not comment or communicate on the investigation unless permitted to do so by the DGCCRF. In order to protect the integrity of the DGCCRF investigation, the CCPC has strictly adhered to this requirement. In April 2020, the CCPC was advised that due to COVID-19 the DGCCRF investigation had been disrupted and that this had delayed progress on the matter. However, we have continued to engage with them and to seek updates on progress. Although the COVID-19 crisis has impacted their investigation, we are assured that work has continued and the matter is being progressed. The CCPC appreciates that the French legal system confidentiality requirements may be considered difficult and frustrating for the complainants affected. However, please be assured our priority in the CCPC is to continue to support the DGCCRF investigation and to ensure that we comply with the legal procedural requirements of the French criminal investigation process.
The purchaser of a French leaseback property, in believing that he was deceived at the time of purchase, took a legal action in France against the promoter and his commercial partners in the sale. The owner lost the initial action and the Court of Appeal at Aix-en-Provence subsequently also ruled against the owner. However, on September 4th 2020 the Court de Cassation overruled this Court of Appeal judgement and found that the
Following the judicial liquidation of the first tenant (the initial operator of the tourist residence), the investor had to accept a reduction in rents in order to retain the benefit of the tax exemption.
The Court of Appeal had ruled on the one hand that the commercial brochure provided to the buyer indicated “only that profitability was ensured by the fact that the investor will take out a firm lease of eleven years with the operating company” , so that she had committed no fraud.
The Court of Cassation rejected this interpretation and quashed the judgment of the Court of Appeal on the grounds that it should have sought ” if the commercial brochure did not present the investment as having guaranteed profitability”.
See the judgement at https://www.legifrance.gouv.fr/juri/id/JURITEXT000042397923
Read more >
From Martine Denoune:
Leader in holiday clubs in France, the Belambra Clubs group has just sold to Atream, an independent real estate and private equity fund management company, the common areas of the “ Domaine de Mousquety ” in L’Isle-sur-la-Sorgue (84 ).
Let us hope that this sale will allow Belambra to avoid unpaid rent which seriously penalizes its lessors, the private investors of the holiday homes it manages.
See the comments below Martine’s post for owner’s views and defense groups.
Pierre et Vacance Leaseback
From Martine Denoune:
The leading operator of tourist residences in Europe, the Pierre & Vacances group has just confirmed the importance of the impact of the Covid 19 crisis on the start of its 2020-2021 fiscal year.
On January 28, 2021, the group’s Board of Directors decided to request the opening of an amicable conciliation procedure.
On February 2, 2021, the President of the Paris Commercial Court opened a conciliation procedure with regard to Pierre & Vacances SA and some of its subsidiaries, for a period of 4 months, which may be extended.
Again, see the comments below the post for owner reaction and defense groups.Read more >
The Times reporter Emanuele Midolo reported on Friday on the continuing French Leaseback issues. He reported on the treatment of owners by Madame Vacances (owner Eurogroup).
In June this year Madame Vacances owner Eurogroup, based in Chambéry, sent letters to all owners who had bookings between July and August. Due to Covid-19 the company claimed extraordinary circumstance (or force majeure ), cancelling all owners’ holidays and renting out the houses instead in order to raise money.
Owners tell how when they showed up to use their property for their holidays they found the locks had been changed and they were not ‘allowed’ in to their own house. At least not without paying a full tourist rental rate.
They describe how their lease stated that no ‘eviction payment’ would be demanded by the operator in order to exit the lease. However, as Irish and UK leaseback owners have discovered to their financial and personal detriment, eviction compensation can always be demanded under French Commercial Lease law. Of course these properties were marketed at consumers, not real-estate professionals. Therein lies the trap.
As one owner says:
We feel it’s their property and we’re just paying for it..
A French legal company, Goethe Avocats, which specialises in leaseback problems (or ‘nightmares’ as many owners would have it) and represents around 7,000 clients explains that:
.. under French law these contracts cannot be terminated without paying a fee— not even after the contract with the leaseback operator expires.
The same firm contributed recently to a documentary on the subject made for RTE called Burnt by the Sun.
Eurogroup asked one owner for €64,000. The owner estimated her property to be worth €120,000 to €130,000. As she put it:
You’re basically giving them back everything you would have earned — and more
About 100 owners at the site mentioned in the article are now suing Eurogroup in order to exit their contracts without ‘indemnité d’éviction’ and for damages for lost holidays.
Good luck to them !
Read the full article here. It will be published in the print edition of The Sunday Times (UK edition) on 18th October 2020.
Read more about the DGCCRF investigation into French Leaseback issues.
Richard Green, the manager of Madame Vacances (Eurogroup), also featured in the Victoria Derbyshire program on French Leaseback in Sept 2017.
It seems little has changed…Read more >
Episode 2 of “Burnt by the sun” will air on RTE 1 TV on Mon 18th April at 21:35.
You can see a promotional trailer of the series produced by RTE here – https://youtu.be/7kBWFZ8br1w
Episode 2 of “Burnt by the sun” which was due to air RTE 1 TV on April was delayed due to technical issues and has now been rescheduled for Mon 18th May.
This episode features property in France and the ‘wonder’ that is ‘French Leaseback’. We’re all looking forward to it here!
Diarmaid Condon, an Irish property journalist, has contributed to the series and you can read more about the program on his very helpful property website.
Unfortunately. the program didn’t air as scheduled on 6th April due to some technical issues related to remote working. We are still waiting on a new date from RTE and will post here when we have one.
The TV program ‘Burnt by the Sun‘ is due to air RTE 1 at 21:35 on Mon 30th Mar and Mon 6th April. It will cover the experiences of Irish people who purchased foreign property and subsequently experienced problems.
The 2-part series will feature France in episode 2. The production crew traveled to France to shoot footage relating to the personal stories told.
The program will go some way to illustrating the ‘scam’ nature of many French leaseback sales, the fundamental flawed structure of the French tax incentive, and the unwillingness of the French authorities to take any action to remedy.
Many thanks to those who contributed to the program and to the program makers (Cornelia Street Productions), and of course to RTE (Irish national public service broadcaster) for commissioning.
Read more >
Mairead McGuinness MEP, 1st Vice President of the European Parliament, has provided this update from the DGCCRF to owners. The same update has been provided by the CCPC (in Ireland) and CMA (in UK) to owners who submitted complaints to the DGCCRF on the mis-selling of French leaseback properties:
On the basis of the 188 complaints lodged by British and Irish nationals, sent by the CCPC and the CMA until May 2019, the DGCCRF has undertaken an investigation on various undertakings related to several tourist residences.
Given that the vast majority of contracts were concluded prior to 2009, it is doing its outmost to collect as much evidence as possible in order to present cases to the Public prosecutor. At this stage, 3 holiday residences, which have generated the highest number of complaints (66), are subject to an in-depth investigation.
This investigation, which aims at identifying breaches of the legislation on the protection of consumers from undertakings, in order to sanction them, is expected to be closed at the end of the first half of 2020. It is to be kept confidential in accordance with article 11 of the French criminal procedure code. Therefore, no information regarding undertakings or tourist residences can be made public to ensure the regularity of the procedure.
The DGCCRF will keep the CCPC and CMA informed on the progress made on this matter.
The above statement from the DGCCRF comes over 2 years since the they received the first complaints from the CCPC and almost 3 years since Irish consumers first engaged with the European Commission. In their previous statement the DGCCRF stated that the investigation would conclude at the end of 2019. We are now looking at a further 6 months. So it is unfortunate that impacted consumers still await some conclusion. The French authorities have not indicated any change, nor the intention of any change, to materially improve the situation for owners.
In addition, they gave no indication on the status of the investigation of complaints relating to residences other than the 3 mentioned. More importantly, the statement does not mention that consumers/owners continue to be trapped in contracts which had ‘hidden’ terms, a breach of EU consumer law.
Ms McGuinness and the CCPC continue to support the protection of consumers and, at the request of owners, they have responded back to the Ms Beaumeunier of the DGCCRF to query the status of the complaint regarding ‘eviction compensation’.
Response to DGCCRF
The following has been posed back to the DGCCRF:
There were 2 main complaints from consumers regarding these purchases, the first being a potential fraud whereby the purchase price was inflated based on the ‘guaranteed’ rent which the French promoter/seller/developer knew was never realistic from for the duration of the contract (and was typically paid for 2-3 years often from the original gross sales proceeds, in a similar manner to a ponzi scheme).
But the second complaint, which many purchasers made, was in relation to the ‘hidden term’ in the lease contract requiring the purchaser to pay ‘eviction compensation’ to the operator at the end of the contract in order to take back their property. This issue is a common feature of most, if not all, of these purchases. It points to what appears to be a fundamental conflict in French national law.
To summarise, the purchaser signed a lease contract for 9 (or 11) years and was advised through the marketing campaign, and was given to understand by the seller, that the contract ended at that expiry date. The purchaser was given to understand that the contract might be renewed or not at that time, but control was with the purchaser i.e. the owner. However, under the French law (French Commercial Code (Article L145-14)) governing these contracts (‘bails commercial’ – commercial leases) which were given to consumers to sign as part of the tax incentive, this was not the case. It is still not the case. Purchasers who are past the end of the 9 years cannot take back the property without paying ‘eviction compensation’ (indémnite d’éviction) to the operator. And this is a considerable and prohibitive amount which effectively traps the consumer in the contract indefinitely. The contract did not state this, and is thus a ‘hidden term’. Our understanding is that this type of contract was a requirement of the French authorities under the tax incentive (Demessine and others). Furthermore, our understanding is that this is itself a clear and obvious breach of EU consumer protection directive ‘EU Directive 93/13/EEC – Unfair Terms in Consumer Contracts’.
The recent communication from the DGCCRF (2020/01/20) does not refer to this complaint, and refers only to ‘criminal procedure’.
Consumers from multiple EU member states, not least of which French consumers, continue to be harmed by these practices.
As many will be aware, French law regarding marketing materials on the French leaseback properties changed in order to ensure that prospective purchasers of French leaseback property were informed that ‘eviction compensation’ could be demanded. But, this was all too late for those purchasers who now find themselves in difficulty. And too little to really inform anyone of the likelihood of the demand, the potentially significant cost and possible 2 year delay waiting for them down the line…Read more >