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.
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.
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…
The CMA in UK have indicated to owners that they are due to have a teleconference with the DGCCRF and their Irish counterparts (CCPC). It seems the DGCCRF investigation has not yet concluded…
8th Jan 2020 – Update from CCPC:
Please be advised that the CCPC is waiting on a communication from DGCCRF in relation to their investigation of the issues experienced by Irish property purchasers. As soon as DGCCRF provide the CCPC with a communication for Irish complainants, the CCPC will advise complainants accordingly.
Mairead McGuinness, Irish MEP and VP of the European Parliament, requested an update on the investigation of consumer complaints from the DGCCRF in France. These complaints are from Irish and UK citizens and relate to consumer issues, potential fraud, and possible breaches of EU Consumer directives, and were received by the DGCCRF in France from end 2017 from the CCPC (Ireland) and CMA (UK).
The DGCCRF replied to say that they expect the investigation to be complete by end 2019. Given that they likely close shortly for Christmas, it would seem the investigation should have now reached a conclusion. See below for the response from Virginie Beaumeunier, La Directrice of the DGCCRF to Ms McGuinness:
I am pleased to confirm that the DGCCRF is currently investigating on several
undertakings which are related to the complaints lodged by Irish and British
This investigation is due to be completed by the end of this year. Should it establish
any breach of law, the DGCCRF would then draft a statement (“procès-verbal”)
and send it to the Public Prosecutor’s office (“Procureur de la République”), in order
for the latter to decide in light of such statement, whether a case ought to be brought
before a criminal court.
Please note that we are very regularly in contact with the Irish authorities, i.e the
CCPC, and will keep them informed of the follow-up of this investigation.
There was no reference to the fact that one of the substantive complaints related to the ‘hidden term’ in the lease contract presented to consumers whereby the contract in fact goes on forever (unless significant eviction compensation is paid). Such hidden terms would seem to be a breach EU Consumer Directives. And this contract is the only type allowed by the French authorities for the tax incentive. Note also that the DGCCRF is part of the same Department of Economy and Finance as those who created this tax incentive to begin with.
But I don’t suppose they will be instigating a criminal investigation in to themselves…
Meanwhile re-possession proceedings continue for many owners caught up in this kafkaesque situation.
The TV documentary for RTE (Irish national broadcaster) we mentioned back in June is now going ahead and they are planning film in Nov and Jan 2020. The program, which will be a 2-parter, is due to air in Mar 2020. The producers are primarily interested in the experiences of Irish purchasers.
This is a opportunity for owners to talk about their experience and illustrate the potential fraud, failures of consumer protection and failures of regulation in relation to the sale of these properties.
This can get the attention of the relevant authorities.
See below from the makers:
Burnt by The Sun is a two part documentary series for RTE, Ireland’s National Broadcasters which may potentially be screened by other broadcasters.
It is due for transmission in March 2020. Filming will take place between November and January. The main locations will be Spain, France, Bulgaria, Ireland, Dubai, Turkey, Portugal and Cape Verde.
Irish people share their stories of buying property abroad during Celtic Tiger times and the road they’ve travelled since. The programmes reveals how over fifteen years later, some buyers are still struggling to escape what has become a never-ending nightmare, others are resigned to the ongoing cost of their investment while many continue to battle on to recoup their losses. Each of our stories will focus on a different dilemma – those who bought property off-plans that were never completed, buyers still paying hefty mortgages today on their unrealised dreams, illegal built homes some demolished or awaiting the arrival of the bulldozers, many without access to basic utilities like water and electricity and as a result uninhabitable and unsellable. Some buyers have discovered their leases are virtually perpetual and selling-on involves fines and penalties often greater than the value.
Our overseas owners continue to wrestle with difficult decisions in the face of, in some instances plummeting value with uninhabitable or unsellable homes. Experts will offer insights into those who took the plunge and those who are still thinking of investing or buying their dream holiday home today. We will update on recent developments whereby old laws have been dusted off, enforced but also amended and reveal new laws that have been put in place.
Archive material will remind us of the economic climate of the time and the lure of easy return and ‘risk free’ investments.
Where possible, we will offer hope, advice and new options to those navigating through difficulties with overseas properties and ask decision makers and influencers what they can and will do to protect Irish and european consumers with property abroad.. As we ask the question – would buying abroad today be any different?
CONTACT: Cornelia Street Productions 16 Fitzwilliam Square E, Dublin 2, D02 H271 00353 1 662 1030
The investigation by the DGCCRF (Direction Générale de la Concurrence, de la Consommation et de la Répression des Fraudes) in France into the mis-selling of leaseback properties to around 200 purchasers is ongoing.
The scope of this investigation has not been confirmed. The timelines for its conclusion have never been given.
The CCPC (Competition and Consumer Protection Commission) here in Ireland, and it’s equivalent the CMA (Competition and Markets Authority) in the UK, have done their part in collating the consumer complaints. And, to be fair to them, they have done quite a bit of work in doing this.
The investigation follows the CPC framework for the investigation of cross-border consumer complaints. So far so good. But perhaps this process is designed for simpler consumer issues, for example buying a French toaster that doesn’t toast evenly. It does not appear fit for purpose to investigate complex cross-border property transactions which have an element of lifestyle enjoyment and also financial investment. These leaseback Résidence de Tourisme purchases, purchased under the LMNP tax status, require a commercial lease contract which can have hidden terms. The requirement for this type of contract is mandated by the French government tax and finance department.
Many would argue that a ponzi-type scheme was used by multiple developers / operators who guaranteed a rental return in this contract (for at least 9 years) which enabled them to sell the properties at an inflated price. One theory put forward by purchasers is that part of the purchase price was used by the developer / operators to pay the rent for a couple of years after which no rent was paid and the resort was put in receivership. Meanwhile, because of the hidden term in this lease contract, the purchaser could not get out of this kind of contract without potentially paying exorbitant ‘compensation’ to the developer / operator. And even if he did, he would have to pay TVA of 19% of the purchase price to the French tax / finance department.
The purchaser would never have purchased if he had known these things.
And yet the DGCCRF have known about these ‘poor’ practices and consumer traps for years…
But this ‘leaseback tax incentive’ does fund French tourist construction on a national scale. Follow the money. So, is protection of the ‘consumer’ really top of their agenda one wonders.
Many owners ask the CCPC what is happening. The reply is the same, and has been the same for the last 18 months, that there is an investigation in progress and they can’t comment and they continue to support the DGCCRF:
…the CCPC has conducted and provided to DGCCRF, an assessment of complaints received in relation to French Leaseback properties. Matters raised by complainants on their completed complaint forms to the CCPC have been notified to DGCCRF. As part of the DGCCRF investigation, copies of documentation containing marketing material/statements provided by estate agents and developers in relation to the properties purchased by Irish complainants, is being examined by the DGCCRF as part of its investigation. At this time the primary role of the CCPC is to continue to support the DGCCRF investigation. Under the European Consumer Protection-cooperation framework, the CCPC will continue to provide the assistance and information requested by DGCCRF in conducting its investigation of the issues experienced by Irish complainants when purchasing properties in France under the Residence de Tourisme Scheme.
The CCPC have committed to sharing news when they receive some:
An investigation is currently being conducted by the French regulator, the DGCCRF. It is therefore not appropriate for the CCPC to comment on matters that are under consideration at this time. When the DGCCRF provides us with information that can be relayed to those affected by this issue we will certainly do so.
This ‘investigation’ has been running for some time. The first formal complaints were passed by the CCPC to the French authorities in Nov 2017, almost 2 years ago.
One could reasonably be concerned about the focus the DGCCRF have on this investigation and how ‘active’ it actually is.
France TV 2 news programme Journal featured a piece on French Leaseback on 17th July 2019.
It featured one owner from a residence de tourisme in Deauville and another owner from Domaine des Fontenelles, operated by Madame Vacances. It seems that MMV are looking for €50k eviction compensation from this owner, while the contract that the purchaser signed explicitly stated that no eviction compensation would be payable.
Is this a breach of a consumers rights ? Is EU Consumer law supposed to protect consumers of member states from this kind of planned abuse ?
There was a contribution at the end from a French lawyer, Maitre Bertrand de Campredon of Goethe Avocats (specialists in leaseback issues).
See below for a transcript of the programme kindly prepared by an owner in a residence in Languedoc.
Now to continue with our summer series we are turning to the question of your holiday money, should you invest in a residence de tourism is the question we are asking ourselves today. You buy an apartment which, while you are not there, is rented out by an operator who looks after everything and pays you rent with significant tax advantages. It is a model that was first conceived in France 50 years ago. But is it such a good idea for your holidays and as an investment? For the answer we are going over to Deauville for a report by our colleagues Hose Laminale, Denise Semoniaire and Pascale Carreau.
By the sea, in the mountains, touristic residences are seducing more and more French people. “When you look at the residence as a whole it is fantastic” says one owner. There are 140,000 owners like him in France. In principle you simply buy an apartment, let it out for most of the year without paying tax on the rental income. But is it really such a good deal? Gary Powers is owner of this apartment which has 62 square meters in Deauville. “We have a view over the swimming pool and the marina”, he says. His apartment is situated in a touristic residence which he only occupies for 8 weeks each year. The rest of the time it is rented out. The operator of the residence pays him a rent which can be as much as 4000 euros a quarter. “It is good because I do not have to go looking for guests or take care of the place while I am away, this solution suits me perfectly.”
It did not exist 50 years ago but today touristic residences account for about a quarter of all professionally managed touristic residences. “It is a model that works well today as it allows individual guests to choose where they want to stay and after that to do what they want”. A booming market, satisfied customers, well not always. Many owners regret having bought accommodation in a touristic residence. Such is the case with Caris Decamile. He is the owner of an apartment managed by an operator. When he signed up he was told he could end the lease after 9 years without paying any indemnity to the operator as stated in his contract. Problem! Notwithstanding what his contract says the law allows the operator of the residence to claim an indemnity, in his case 50,000 euros. “You come to realise that you are caught up in a system which is very costly if you want to get out of it…legal actions, lawyers’ fees, bailiffs charges etc”, says this owner.
According to his lawyer many owners sign a lease without understanding the legislation. “The problem is that owners are not well informed and they simply do not have the legal knowledge to understand properly the commercial lease and the difficulties which can arise from it. On the subject of an eviction indemnity you need to be a technician, a lawyer to understand what an eviction indemnity is”.
Many associations are now asking the government to ensure that the law gives better protection to owners in a touristic residence.
Do let us know of any corrections to the above.
The piece is 26 minutes in and is about 3 mins long.
A TV production company called Cornelia Street are planning a documentary for RTE 1 (Irish national TV broadcaster) called ‘Burnt by the Sun’ due to air this autumn.
This is a fantastic opportunity to bring this issue to the fore and provide for some serious pressure on the consumer protection authorities, in particular the EU Commission and the French authorities.
We had a very promising meeting with the researcher, Oda O’Carroll and the producer. While the production company is based in London, they are both Irish and are well-experienced. They would like to talk to owners with a story to tell and would like to hear from anyone prepared to contribute to the program, ideally to be filmed, but not necessarily.
Since the program is for an RTE audience, they are interested in Irish owners, or owners based in Ireland.
I think this is an chance that should not be missed and I do hope owners get in touch with Oda. While I understand that many owners are reluctant to be in the public eye, we do think it’s in everyone’s interest that the scams and abuses that owners have experienced are documented publicly.
We would like to express our gratitude to Brian Hayes MEP, and also to his team, who supported our campaign. Brian engaged with the CCPC and European Commission on our behalf and helped drive the consumer cross-border complaint resolution process that is currently in train. Now Brian is leaving politics after a long and fruitful career, and we would like to wish him well in his future endeavours.
We are confident that Mairead McGuinness MEP will take up the mantle from an Irish perspective if she is re-elected to the European Parliament in the upcoming elections on 24th May. Mairead is currently the First Vice-President of the European Parliament. We have been in touch with Mairead and she has responded positively. Mairead is running in the Midlands-North-West constituency.
To all owners we would like to remind you that the forthcoming elections present owners with an opportunity to bring this issue to the attention of their own preferred MEP candidates, and we strongly recommend that you avail of this opportunity.
Similarly in the UK, Daniel Dalton MEP has supported owners. In his most recent update he said:
“As of their most recent update in early 2019 the DGCCRF have confirmed they are continuing their investigation, but have not given a definitive timescale to when this will be concluded.
For as long as I am a Member of the European Parliament I will continue to follow any progress in this matter, and will continue to stress the urgency with which these cases should be looked at, and understand the frustrations of the many affected persons with the speed of the DGCCRF investigation.
In the meantime, if they have not already done so previously, I advise that affected UK citizens send their complaint to the CMA in the UK:
We conducted a survey of owners to build a clearer picture of the problems experienced, the views of owners (with the benefit of hindsight), and details of the agents and operators involved.
346 of you responded – a fantastic response ! So many thanks to all of you for taking the time.
There were multiple residences identified and multiple agents and operators. Read on for what it showed.
1. Eviction Compensation
On the big questions, a resounding 93% of you who said that you did not know about the eviction compensation (indémnité d’éviction) that the operator (ie. tenant) could demand from you if you did not renew the lease at the ‘end’ of the 9 or 11 years, and did not know the enormous, and prohibitive, amount that it could be.
Of course the French authorities have long since received complaints from French consumers on this inability to get out of the contract at the ‘end’. They changed the law to require that all marketing and sales clearly state the requirement. But is this ‘law’ enforced ? Not from what I’ve seen. It does however illustrate that the French authorities are long aware of abuses. This type of contract does not protect consumers and is a breach of an EU consumers rights under Directive 93/13/EEC Unfair Terms in Consumer Contracts. The FNAPRT have been working for some time now to put in place a different kind of contract. But this is passed around from one department to another. One presumes that this is because there is no political will.
These tax incentives (from Robien, Demessine, Duflot, Pinel etc) have been used for years as an instrument of the French state to stimulate tourist housing, and now student and senior housing also.
2. Inflated Purchase Prices
When asked did you think the purchase price was inflated due to the promise of (now illusory) ‘guaranteed‘ rent, a massive 83% of you now believe that the price was inflated, and the properties would never have commanded that price if there had not been a contract which provided (or so one was led to believe..) guaranteed rent for the duration of the 9 (or 11) years.
Again, the French authorities are long aware of abuses. These used to be sold and after 3 years the right of cancellation would be invoked by the operator and off he would go with his large purchase price. The law was changed so that operators of Résidence de tourisme could not cancel after 3 years – the contract had to stay for 9 (or 11) years. All well and good. But in reality the contract doesn’t stay as it is if the operator is telling owners that he can’t pay and might go bust if you don’t agree to a rent reduction. And if he goes bust, and you have no contract, then you will have to pay the VAT (TVA) on the purchase price. An inflated VAT. All while you receive no rent to pay your mortgage.
When asked if you believed that the person who drafted and signed the contract NEVER expected pay this level of rent for the duration, 57% said they thought that was true.
Does this suggest fraud?
4. Problems getting rent
Not surprisingly, almost 300 of you have experienced problems getting your rent paid.
5. Management Companies
And now to the management companies. Take your pick, but MMV / Madame Vacance/ Eurogroup, you don’t come out of it well….. And as for Pierre et Vacances, not too much love there either…
And pretty much all of the main French banks have skin in this game.
7. Nationality of Respondants
Most of the survey responses came from owners in Ireland and UK, with a bunch of other nationalities thrown in. The survey wasn’t translated to French, and thus very few responses from there.
Ireland – 46%
UK – 46%
Australia – 2%
France – 2%
The results will be sent on to the EU Commission, DG Justice and Consumers and to the CCPC and to the French authorities (no personal data will be provided).
We would like to build a clearer picture of exactly who the key players were in the sale of problematic French leaseback properties.
To do this we’re asking people to complete a very short survey telling us who was involved in your original leaseback purchase. By creating a profile of the various parties involved, we believe this will help to further strengthen our campaign in seeking justice for hoodwinked owners.
It will only take a couple of minutes, and if you don’t remember all the names (the notaire for example) just put in ‘can’t remember‘ or something like that and fill in what you can (the more people who fill it in the better – even if its not complete).
We hope to use this data to back up our engagement with the European Commission.
Remember, no personally identifying data will ever be used.
You don’t have to add your name and email address, but if you do, rest assured it won’t be passed on to anyone.