DGCCRF – No news is good news? Or is it…

Lease

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.

Apparently.

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.

You might think that is the sort of thing the European Commission could be helpful about. And Directorate General Justice and Consumers appears to have just that role, if you were to read their mission.

But they’re not saying much.

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.

Wish I’d bought a toaster….

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French Leaseback on France TV Journal

Lease

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.

You can watch it here :

https://www.france.tv/france-2/journal-20h00/1025075-journal-20h00.html

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TV Production for RTE

Press

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.

See attached for more information.

Burnt by the Sun Info

You can contact Oda at odaocarroll@gmail.com

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MEP Elections

News

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 UKDaniel 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: 

general.enquiries@cma.gsi.gov.uk “

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Results of Leaseback Owners Survey

News

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.

Indémnité d’éviction

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.

Inflated prices due to ‘guaranteed’ rent

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.

3. Fraud?

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…

6. Banks

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%
  • Belgium
  • Canada
  • France – 2%
  • Netherlands
  • New Zealand
  • Poland
  • Sweden
  • USA

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).

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French Leaseback Owners Survey

Legal

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.

The survey is on Google Forms:

French Leaseback Owners Survey

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French Court Cancels Lease – No Compensation!

Lease

The Court of Appeal in Montpellier finally cancelled a lease in a case taken by the owner and his wife at the end of the 9 year lease duration.

Many owners purchased their French leaseback property on the understanding that the lease was for 9 years (or in some cases 11 years) and after that they could decide what to do. They were never told about the eviction compensation that would be due, under French commercial lease law (Article L145-14).

Some sellers/operators went further and added a clause to the lease contract stating that no compensation would be payable, while knowing that such a statement was not enforceable under the law, and was potentially fraudulently misleading.

Such was the situation in the Montpellier case (Court of Appeal of Montpellier, January 10, 2017, 14/06714).

The final ruling was that the seller/operator :

  • waived the right to compensation in the lease, knowing that it was invalid
  • devised the lease contract in bad faith, knowing that the purchase was not a ‘real estate professional’
  • The operator of the leaseback property falsely reassured the buyer/lessor in the legitimate belief that his renunciation constituted a real commitment.

This behavior is considered to be a “wilful misrepresentation” (dol in French), meaning a fraud when writing the contract.

Read more at https://frenchrealestatelaw-traesch.fr/leaseback-indemnite-eviction/

In other cases, this false reassurance was verbal. In many cases, knowing that the purchaser did not speak French, or not business French, and would never know any different, the seller/operator told the purchaser that they could do what they wanted at the ‘end’ of the lease, knowing full well that this was not the case. This was a ‘hidden term’ that the purchaser did not know about and constituted a breach of EU consumer law.

And if the Court of Appeal at Montpellier have made such a ruling, then why are people who purchased these properties still stuck in leases that go on forever ??

It’s time for the DGCCRF to provide some guidance here. If it is ‘fraud’ then why is this not an issue of a criminal nature ? And why must each and every owner spend thousands of Euros on legal fees, and years in French courts (the case above took 3 years), in order to arrive at this conclusion ?

Réponse DGCCRF ??

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Is France in Breach of EU Directive 93/13/EEC – Unfair Terms in Consumer Contracts ?

Lease

Contractual ‘hidden terms’ and Eviction Compensation

Is there a systemic failure by the French authorities to protect consumers by devising a tax incentive which was aimed at ordinary consumers, and designed to promote investment in infrastructure in the French tourist sector, but which required a commercial lease contract to be signed by the consumer, a ‘bail commercial‘ ?

One of the main issues with French leaseback properties is the requirement for this type of lease contract since it is a contract with ‘hidden terms’ most notably whereby the lease contract perpetuates even after the end of the contract unless significant ‘eviction compensation’ is paid by the owner to the tenant in order to evict the tenant. This contract ensures that tenant’s rights are protected over the owner’s rights. The owners were never informed of this eviction compensation requirement (indemnité d’éviction). The contracts do not state this and do not need to. The compensation is payable even if the contract says the opposite !

Many owners only became aware of this towards the end of the contract (or what they in their naivete thought was the end of the contract…).

This is a ‘hidden term’, and we believe that an owners rights as a consumer cannot receive any protection in a French court under EU Directive 93/13/EEC – Unfair Terms in Consumer Contracts, since French courts make such rulings under guidance of the French Commercial Code (Article L145-14), and not with regard to the rights of a consumer of an EU member state.

We believe therefore that consumers subject to these contracts (ie. French leaseback owners) cannot get a fair hearing in a French court.

If the European Commission bears the responsibility to ensure that member states do not breach EU consumer law, then what is their view ?

Is there a direct conflict in French law ?

Below is an example of a judgement from the ECJ (European Court of Justice) in a case taken (if understand correctly and all corrections will be applied immediately) by the European Commission against the member state, Kingdom of Spain, in relation to its failure to fulfil its obligations under Directive 93/13/EEC – Unfair terms in consumer contracts. This is an extract, but does it suggest that perhaps a similar case against France is possible, and necessary ?

We have put this to the European Commission and await a response on how they intend to enforce protection of consumers under EU law and in the context of Article 258 of the Treaty on the Functioning of the European Union (TFEU):


“(ex Article 226 of the Treaty establishing the European Community – TEC)

If the Commission considers that a Member State has failed to fulfil an obligation under the Treaties, it shall deliver a reasoned opinion on the matter after giving the State concerned the opportunity to submit its observations.

If the State concerned does not comply with the opinion within the period laid down by the Commission, the latter may bring the matter before the Court of Justice of the European Union. “

Case

Judgment of the Court (First Chamber) of 9 September 2004.
Commission of the European Communities v Kingdom of Spain.
Failure of a Member State to fulfil obligations – Directive 93/13/EEC – Unfair terms in consumer contracts – Rules of interpretation – Rules concerning conflict of laws.
Case C-70/03.

European Court Reports 2004 I-07999

ECLI identifier: ECLI:EU:C:2004:505

 Judgment of the Court (First Chamber) of 9 September 2004. 
Commission of the European Communities v Kingdom of Spain.
Failure of a Member State to fulfil obligations – Directive 93/13/EEC – Unfair terms in consumer contracts – Rules of interpretation – Rules concerning conflict of laws.

Findings of the Court

14

As the Advocate General pointed out in paragraph 7 of his Opinion, it is less the content of the obligation laid down in Article 5 of the directive on which the parties are at variance in regard to the first plea than the form and means by which that obligation is to be transposed into national law.

15

According to settled case-law, whilst legislative action on the part of each Member State is not necessarily required in order to implement a directive, it is none the less essential for the national law at issue effectively to guarantee that the directive will be applied in full, that the legal position under national law is sufficiently precise and clear and that individuals are made fully aware of their rights and, where appropriate, may rely on them before the national courts (see, inter alia, Case C-144/99 Commission Netherlands [2001] ECR I-3541, paragraph 17, and Case C-478/99 Commission Sweden [2002] ECR I-4147, paragraph 18).

You can find the full details at : https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62003CJ0070

 

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Petition Submission and Updates – March 2019

Financial

The petition on Change.org to secure justice for beleaguered purchasers of French leaseback properties has been submitted to the French and Irish authorities. We are awaiting a meeting with the European Commission and hope to present it in the next month to Ms Marie-Paule Benassi, Acting head of Directorate E: Consumers at DG Justice and Consumers, and her colleagues. Ms Benassi is head of Consumer Enforcement and Redress.

French Embassy in Dublin

Three Irish owners attended a meeting with the French Ambassador to Ireland, M Stephane Crouzat, in Dublin at the beginning of Dec 2018. The meeting was also attended by the embassy’s économique conseiller, M Pierre Mongrué. At this meeting, we formally handed over a hard-copy, and soft-copy, of the petition for justice with over 5k signatories, to be passed to the French authorities (DGCCRF – Direction Générale de la Concurrence, de la Consommation et de la Répression des Fraudes).

The embassy had been in communication with the French DGCCRF, and M Mongrué referred to the possibility of a statute of limitations on the issue which might preclude the DGCCRF taking a criminal enforcement case on the original mis-selling.

There was a robust discussion and owners concerns were clearly raised. A subsequent meeting was held at the embassy the following week. Owners requested that the French authorities address the complaints that they had received, as is their responsibility under EU law.

The ambassador was also presented with a printed case study of one resort prepared by owners in Le Petit Lac in Cannes. This particular study illustrated the issues experienced by many owners of these properties.

No response has been received as yet from the DGCCRF.

Irish Central Bank

The petition has also been formally handed over to the Irish Minister for Finance, Mr Paschal Donohoe, in his capacity for responsibility for the Central Bank and financial regulation of relevant entities in this jurisdiction.

The petition stated that entities selling properties such as French leasebacks should be subject to financial regulation. These sales involved promises of ‘guaranteed rental returns’, and consumers made decisions to purchase based on those promises. As we all know to our unfortunate detriment, these were false promises and there was no guarantee.

Some of those selling were making up to 20% commission, or more, on these properties. It is quite possible that many of these sales ‘agents’ did not realise that the ‘guarantee’ was essentially worthless, or that the purchase would result in a lease contract that ran in perpetuity, entrapping the purchaser. But shouldn’t they have known what they were selling ?

It was after all, a large purchase and a complex product.

A number of overseas property companies operated during the noughties, and while most no longer exist today, one of these, Douglas Newman Good, does still operate. They sold leaseback properties after an advertising campaign which included a full-page ad in a prominent Irish Sunday newspaper promising ‘guaranteed’ rents.

Sunday Business Post – Sept 10th, 2006

Therefore, owners are requesting financial regulation of anyone selling a property in this jurisdiction where there is the promise of a ‘guaranteed return’, one in which the purchaser is making his purchase decision based on these returns to finance the purchase.

‘Guaranteed Return’

Note that many of these properties were sold as ‘leasebacks’, they were not sold as a regular holiday ‘properties’, and then became a leaseback. The requirement to have a lease was present from the start and was stated in the deeds. It was all part of the same purchase transaction. The lease itself was a separate contract, but the requirement for it was part of the purchase.

No response has been received from the Dept of Finance as of yet.

CMA and DGCCRF Investigation

The CMA (Competition and Monopolies Authority in UK) have reached out to some owners requesting additional information on their French leaseback purchase, at the request of the DGCCRF. The CCPC in Ireland contacted some owners last Nov and Dec with similar requests. The CMA are looking for:

  • Any information relevant to the identification of the properties and companies at issue.
  • Any documents relevant to the assessment of a possible deceptive marketing practice ie. correspondence between the purchaser and the involved companies and any marketing material sent to the purchaser prior to the conclusion of your contract.  For example, any promotional material the owner received promising “guaranteed rent” etc  and any additional relevant documentation.
  • A copy of the Contract of Sale, Contract of Commercial Lease and of any other contractual documents relevant to the case, signed by the parties.
  • Any correspondence between the parties concerning the financial performance of the contracts, in particular that relates to the rental of the property.

The CMA conveyed a message from the DGCCRF, reiterating what the CCPC has also told owners, namely that the DGCCRF is unable to seek compensation on a consumer’s behalf. Consequently, if an owner wishes to pursue his/her complaint, they might want to see independent legal advice.

However, owners have experienced in French courts that the ending of the lease contract, for example, is not possible at the end of the contract term, since the courts judge under guidance of French commercial law, and not EU consumer law (as transposed to French law).

Independent French legal advice has suggested that the French courts do not consider owners to be ‘consumers’. Though I’m not sure what they do ‘think’ we are…

FNAPRT

The FNAPRT (National Federation of Owners’ Associations in Touristic and Managed Residences) held their AGM in Jan 2019 in Paris and discussed their intention to continue to lobby the French public authorities in 2 key areas:

  1.  A new document concerning the pre-contractual information (risks …). This is a document which would be legally required to be communicated prior to signature of the authentic sales act. The FNAPRT have already engaged with the DGE (Directorate General for Enterprise in France) and the Ministry for Justice.
  2. A lease, or mandate, that would be more suitable and acceptable to co-owners in Managed Residences.

The Irish and UK owners, many of which are members of the FNAPRT through their residences, continue to support them and

It appears to be quite challenging for the DGE. But as they say, “where there’s a will there’s a way“.

Maybe they need more encouragement…

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Update on DGCCRF French Leaseback Investigation (Jan 2019)

Legal

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.

Fraudulent Sale

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:

  1. 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.
  2. 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.

CCPC

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…

Next steps

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.

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