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Sale or purchase of a property ‘en viager’
What is a
sale ‘en viager’?
This type of sale, which is
available to any buyer regardless of nationality or place of residence,
is an ancient method of sale of property in France. It consists of
buying a property with a lifetime annuity (‘la rente’). The purchaser
becomes the legal owner of the property upon completion. There is
usually a capital sum paid upon completion of the transaction, known as
‘le bouquet’, and then the annuity is paid to the vendor for the
remainder of his or her lifetime. The buyer, the person who pays the
annuity, is known as the ‘débirentier’, and the vendor, the person who
receives the annuity, is known as the ‘crédirentier’. The vendor may
retain lifetime possession of the property or it may be sold with vacant
possession, the annuity payable varying accordingly.
It is effectively a gamble on
the life expectancy of the vendor: the longer the vendor lives then the
more annuities are paid and thus the higher the price. However, if the
vendor passes away sooner then much less is paid and the overall
purchase price thus reduced. If the vendor is a couple then the annuity
may revert to the surviving spouse for the remainder of his or her
lifetime (‘une rente réversible’).
For the vendor, the interest
is that they know how much capital they will be receiving for the rest
of their lifetime and this can be particularly useful in the context of
funding their old age, for example retirement home expenses. They also
increase the pool of potential purchasers as those who could not afford
the full initial capital outlay, but who could finance individual
payments, would then also be interested by the property.
How is the
annuity calculated?
The amount of the annuity is
freely fixed between the parties taking into consideration factors such
as the value of the property, the age of the vendor, his or her life
expectancy etc.
The value also takes into
account rights that the vendor retains over the property. For example,
a ‘viager’ with vacant possession is more expensive than one where the
property remains occupied. If the vendor retains the ‘usufruit’ then
he or she has the lifetime right to occupy the property and could also
rent it. In this situation, the scale of the annuity is freely
established but various tables exist to aid with its calculation.
There also exist arrangements
where the property remains occupied but is liberated for two weeks or
one month (or maybe more) in a year. This makes such a scheme
particularly well adapted for a holiday home where the purchaser will
only be using it occasionally.
The annuity is paid monthly,
quarterly or every six months depending upon what the parties agree.
Can the
amount of the annuity be reviewed?
It is possible to include an
indexation clause. The choice of the indexation is free but generally
that most often chosen is either the cost of consumption index or that
of the cost of construction. If there is a disagreement between the
parties then there is an annual table for these purposes which would be
used.
Who can do
this?
Any physical person who is the
owner of a real estate property can sell it in this manner regardless of
his or her age. However, by its very nature it is better suited to
older people (a young person of 18 will find it difficult to find a
purchaser and the annuity that he would receive would be
infinitesimal!). The vendor must not be suffering from a terminal
illness and if he or she deceases within 20 days of signing the
contract, the sale is annulled.
The purchaser can be a
physical person or a company. Financial guarantees are often requested
(guarantor, security against the property) to ensure that he or she can
pay the annuity regularly. There are a variety of clauses that can be
included to cover non-payment and what these are will depend upon how
the contract is drafted on the basis of what the parties agree.
The normal formalities for the
transfer of a real estate property apply i.e. the purchase must be the
object of an act passed in front of a ‘notaire’ in France. The fees are
at the purchaser’s charge. There are firms which specialise in this
type of sale, although sometimes estate agents will offer such products.
Is this a
method suitable for a foreign vendor or buyer?
Depending upon the precise
circumstances of an individual sale, it may be a suitable method of
purchase. However, it is potentially complex which is why good
professional advice is absolutely essential for this type of
investment. The first, and most important issue, is the fixing of the
price on which professional advice should be sought. Prior to being
definitively committed to the purchase, the buyer needs fully to
understand the terms that are offered i.e. vacant possession or
occupied, possibility of own use and if so for what periods, what
guarantees are required by the vendor, when is the annuity payable and
is it indexed etc. These clauses are, of course, equally significant
for the vendor. Of paramount importance in evaluating the financial
interest of such a deal are considerations which some may find
distasteful such as how old is the vendor and what is his or her state
of health. These factors can put some people off but with an
increasingly elderly population and higher property prices it may be
that this old method is in for a revival and possibly beyond its
traditional local French market.
09/11/2007
- Issue of the week
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