Leaseback – Your Questions Answered

Where are Leaseback properties available?

Leaseback properties are available in many parts of France, including Paris, Normandy, Brittany, the Alps, Cote D’Azur, Languedoc and the Monaco area. The types of locations where leaseback properties are available vary, but often they are built in and around alpine/skiing, coastal or golf/sporting areas.

How many Leaseback properties can I own?

As many as you can afford. You do not have to be a French (or even an EU) resident.

What happens if I sell the property before the end of the leaseback period?

You can sell the property at any time. However, you would have to take into consideration that you would be selling the property with the remainder of the Lease term still applicable, and this would need to be reflected in the sale price. Also, a proportion of the VAT discount would have to be refunded to the Government (5% of the VAT for every year from when you sell up to 20 years after your original purchase date).

Who pays for all the bills during the leaseback period?

The management company that is responsible for the upkeep and general maintenance of the property is generally responsible for paying all the utility bills. However, this does depend on the contract you have with the management company – you may be responsible for a portion of the shared facilities costs depending on the amount of weeks that you use the property and any building or repair costs that fall outside the guarantees of the builder or outside the scope set down in your contract.

Are there any other monthly or annual charges?

You are normally responsible for paying the local rates (Taxe Fonci?re) although generally these do not have to be paid for the first two years following completion of a new property. Occasionally the management company will bear the cost of these for the duration of the lease.

What type of finance is available?

Leaseback property purchases are normally financed on a repayment mortgage basis rather than interest-only, over either 15 or 20 years. As a non-resident in a good financial position you could expect to qualify for 75% – 80% loan-to-value.

What happens if I can’t use all my allocated weeks?

This depends on your particular contract, however many owners sub-let their properties in these situations, although you would have to do this privately. Some leases restrict this.
What happens if I want more than my allocated weeks?
If you wished to apply for extra weeks over and above those allocated you, these are generally available at a discounted rate.

Is my rental income guaranteed?

The rental income is guaranteed throughout the period and is usually paid quarterly in arrears. The rental companies who pay the rent are usually large holiday companies with substantial numbers of clients and assets. The rental is not guaranteed by the French Government.
These rentals are indexed to construction costs (the INSEE Index of Construction Costs). In other words, each year, as construction costs increase, your cash receipts increase as well. If construction inflation is 4%, your rental income should increase about 4%, too. Your return is evaluated each year. The worst case scenario is that you always get your original guaranteed return.

What happens when the Leaseback period comes to an end?

Unless expressly written into your contract, the lease will not automatically renew when it expires. According to French law, unless you choose to live in it or are selling the property, then at the end of the lease, you have to initially try and renegotiate with the same management company, as they have first refusal on a new letting contract.
This normally occurs 6 to 12 months before the end of the lease. Generally the easiest and most common decision is to sign a new commercial lease with the management company as the benefits of the scheme will still outweigh the inconvenience of letting it yourself.

Alternatively you can sell it, live in it yourself or rent it out privately. Bear in mind that this may result in you having to pay some of your VAT refund back to the government, if it is less than 20 years since your original purchase of the property.
If you decide to live in the property yourself or rent it out privately you will also be responsible for paying management fees to a new management company.

Would I make more money by buying a property outright and letting it myself?

Yes, it is possible you could make more money this way. However, your rental income would not be guaranteed (particularly during low-occupancy periods) and you would be responsible for all costs (including maintenance, cleaning, gardening, advertising, changeover costs, etc) as well as being responsible for such things as dealing with any emergencies that may arise. If you wished to use the services of a management company, they can take up to a half of your rental income in their fees. Leaseback properties provide furnishings for your property, this would be unlikely to be the case when purchasing other property.
How long have leaseback schemes operated in France? Will they run forever?
Leaseback schemes have operated successfully for more than two decades. However, the French Government may well close the schemes down if/when they consider that its targets for increasing the amount of tourist accommodation have been met. It is impossible to say if or when this might occur.

Could the management company go bust?

All leaseback companies are required by law to have professional indemnity insurance. This should protect you.

Do I pay French income tax?

Generally the management company will organise this so that you are not liable for French income tax.

Is the lease always for nine years?

No, although nine years is the most common period, the leaseback companies can ask for any period from nine years (the minimum) upwards. Another common length for a lease is 11 years or even 15 years.

Do I have to buy the property furnished?

Yes. All leaseback properties are sold fully furnished and equipped ready for letting. You become the owner of the furniture at the end of the lease. It is not uncommon for the price of the furniture not to be included in the purchase price, so you should check the terms of the individual development.

Are leaseback properties always new builds?

Generally, most leaseback schemes involve newly built apartments, although some major renovations or refurbishments can be included in the scheme. The scheme allows a full VAT refund if the development is brand new but in the cases of refurbishment or renovations, the amount of the VAT refund is substantially lower. It is generally proportional to the amount of renovation/refurbishment that has taken place. (Please note that Notaire fees will be up to 5% higher if the development is not new).

What are the other fees in a purchase?

Notaires fees are 2-3% for a new property, up to 7-8% on refurbished.

How do I get back the VAT on the property?

This will depend on the leaseback management company. Some will absorb the cost, charge you less and get the refund themselves; others can take a year or longer to claim your VAT back for you.

Do I have to apply to get back the VAT?

The management company will usually do this for you.

Do I have to pay Capital Gains Tax if I resell?

Yes, unless you keep the property for at least 22 years. French Capital Gains Tax starts at 25% for residents and 33% for non-residents. It reduces after 5 years until it is zero after 22 years. Tax is payable on the gain less Notaire fees, agency fees and costs of major work carried out.

Can I use a company to buy a leaseback property?

It can be possible to buy a leaseback property through a UK, French or offshore company. However, some developers may have restrictions on this and you would need to get specialist legal and tax advice.

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