A property purchase or sale may be concluded in several ways. Direct sale is the easiest way to do this. The notary drafts the deed of sale taking into account the terms and conditions agreed upon by the two parties concerned. The purchaser deposits the selling price amount on a bank account opened in the notary’s name. The notary will be responsible for transferring the sum corresponding to the selling price to the seller at the date the deed is registered on the land register.
Transfer rights as well as land register fees and notary fees are borne by the purchaser. To ensure these are paid, the notary will record an amount, for the purchaser, equal to 5% of the selling price. The same amount will also be recorded for the seller, which the notary will use to pay the property gains tax. Change of ownership takes place as follows: once the direct sale has been concluded by the two parties and the notary, the latter submits the change of ownership to the land register. Once the land register has validated the deed, it will change the name of the owner on the registration form for the property concerned.
2.1.- Agreement to purchase/to sell
Although a direct sale is the easiest way to change ownership, it may not be suited to the parties’ situation. For example, the seller may not be able to free up the property in time or the purchaser may require time to sell their current property or to terminate their lease. In principle, the agreement to purchase/to sell comes into play whenever a property does not yet legally exist. As such, the parties agree on a future sale. Thus, the agreement to purchase/to sell does not yet result in a change of ownership. It should be mentioned that, for the sale to become effective, the parties must subsequently conclude a notarized deed of sale. The agreement to purchase/to sell must also be notarized. It is not, however, recorded on the land register.
2.2.1.- Forward sale with right of purchase
If a direct sale is not appropriate, in particular for the reasons explained hereabove, a forward sale is recommended. The parties agree on the property price and on the date for transferring it. In this way, and unlike a direct sale, the parties postpone the actual sale to a later date. To ensure the seller does not propose their property for sale a second time and does not prejudice the purchaser and to prevent subsequent recordings on the registration form for the property concerned, in particular as regards easements for example, the forward sale shall include a right of purchase. This right of purchase protects the purchaser, in the respect that this right will be noted on the land register, will take precedence over rights subsequently recorded and will, as such, be enforceable against third parties.
It should be noted that the terms and conditions of sale are identical to that of a direct sale apart from the date at which the purchaser actually takes ownership of the property and the payment of the selling price. Generally-speaking, the purchaser will make a down payment equal to 10% of the selling price. At the end of the period established by the parties, the purchaser will pay the balance owing and the seller will transfer the property to the purchaser. As with a direct sale, the notary appointed by the purchaser and who drafted the deed will submit the change of ownership to the land register using the registration form for the property concerned.
2.2.2.- Further details about the right of purchase
The right of purchase creates the right for an individual to acquire ownership of a property. It must be notarized with an appointed notary. It is worth noting that this right of purchase may be noted on the land register for a maximum of 10 years. The right of purchase is unassignable, unless otherwise agreed by the parties. It is, however, transmissible, but solely by inheritance. As such, during their lifetime, the purchaser cannot, in principle, transfer their right of purchase to a third party. Yet, as this falls under the terms and conditions of sale, the purchaser may modify these through a simple written, signed declaration. As such, there will be no need to conclude another sales agreement or to request permission from the person who granted this right of purchase in order to change the ownership on the registration form of the property concerned.
2.2.3.- Advantages and disadvantages
If a forward sale with right of purchase is concluded, the purchaser is protected against the seller selling the property to a third party under better terms and conditions and against any subsequent recording of a right which may devalue the property concerned. A forward sale with right of purchase protects the purchaser better than an agreement to purchase/to sell, unless the latter also includes a right of purchase; an agreement to purchase/to sell is only an agreement between a purchaser and a seller whereas a right of purchase is recorded on the land register and enjoys public faith – it is therefore enforceable against everyone.
Nonetheless, it is important to remember that the parties agree on the selling price and, as such, defer agreement fulfilment using this forward sale deed. The price is therefore frozen, regardless of whether market prices increase or decrease. It does, of course, provide protection, yet it can also lead the seller and the purchaser to lose money if market prices increase or decrease between the date the agreement is concluded and the date it is actually fulfilled. It is highly-advisable to carry out an expertise to carefully assess the outlook concerning market price evolution when the agreement term is long to fix a selling price that is fair for both parties.
3.- A few alternatives
3.1.- Pre-emption right (right of first refusal)
This right grants preference to a purchaser in the case where the seller wishes to sell the property concerned to a third party. In the event that the seller agrees to sell a property encumbered with a pre-emption right to someone, they must immediately inform the beneficiary of the aforementioned right. The latter must make a decision within three months and inform the seller of this decision. If they decide to purchase the property, then they will become owner at the expense of the initial purchaser with whom the seller had agreed.
There are two different pre-emption rights:
Qualified pre-emption right: the seller and the beneficiary agree on a selling price and on the terms and conditions for exercising the aforementioned right. This agreement must be signed in the presence of a notary and notarized.
Unqualified pre-emption right: the seller and the beneficiary agree so that the latter may purchase under the same terms and conditions as the initial purchaser. A simple written declaration suffices and signing in the presence of a notary is not required.
The pre-emption right may be noted on the land register for a maximum of 25 years.
It should be noted that a pre-emption right cannot be exercised if the encumbered property is bequeathed to an heir or if it is subject to compulsory sale. Like the right of purchase, the pre-emption right is transmissible by inheritance and is unassignable, unless otherwise agreed by the parties.
3.2.- Right of repurchase
This right allows the seller to repurchase the property they sold. In a manner of speaking, it is a right of purchase which the former owner/seller holds. The only difference with the right of purchase is the maximum duration of the right. The right of repurchase may be noted on the land register for a maximum of 25 years. Like the right of purchase and the pre-emption right (right of first refusal), it is transmissible on death, unless otherwise agreed by the parties.
Would you like to find out more about the subject? Do you have any other questions related to real estate? If you do, our expert brokers will be delighted to answer your questions and advise you!