LETTING PROPERTY in FRANCE

LETTING PROPERTY in FRANCE

Introduction

The main approach by property letters has been to let out furnished accommodation on a seasonal basis to the holiday market. Due to the amount of people who have second homes in France, the demand for properties to let has gone down.

Business Registration

Professional Landlord

If you let residential property in French you may have to register as a business in order to do so. The requirement to register as a business only applies to furnished accommodation.

On the other hand there is no need to register if you only plan to let unfurnished accommodation.
The rules changes in 2009, toughening up the criteria on obtaining the business status of ‘professional landlord'. This status can only be used if you are:
Registered with the Chambre de Commerce as a Loueur en Meublé Professionnel (LMP);
If your gross annual receipts from furnished accommodation exceeds €23,000 and;
Your rental receipts also exceeds your total other earnings.

Definition of Landlord of Furnished Accommodation

There is a particular definition of a ‘landlord of furnished accommodation' that is used by the tax authorities, the definition means that only a minimum level of services must be provided, above the basic letting of the property.
If the landlord provides at least three of the following services:
Provision of breakfast;
Regular cleaning of the property;
Provision of linen;
Welcoming of guests.

Auto-Entrepreneur

If you can't meet the criteria to get a business registration, and you want to register a business it is still possible to achieve a status as auto-entrepreneur.

You will pay social security contributions at a rate of 21.3% of your gross rental income, if you own a chambre d'hôte or rural gîte you pay social security contributions at a rate of 12% not 21.3%.

Taxation of Property Income

Rental Income – Non-Residents

If you are a resident in France or not, you still may have to pay French rental earnings. In most countries rental income is liable to income tax in the country where the property is.

In France, there is a basic rate of 20% of tax on the net rental income of non-residents; however you may be able to benefit from a lower rate, depending on the level of your worldwide income. 

Summary of Tax Regimes

There are many different tax regimes for rental profits. With a major difference depending on if you let furnished or unfurnished property.

Furnished Lettings

There are two different income tax regimes for taxation of profits for furnished accommodation. There are micro-entreprise and regime réel.

The main other tax for which a landlord is liable is a social welfare levy called the prélèvements sociaux, at the rate of circa 12.1% on net rental income. This charge is deductible against income tax at the rate of 5.8%.

The basis on which you will be charged social security contributions will depend on your business status:

As a registered micro-entreprise you will pay social security contributions that total around 45% on 50% or 29% of gross rental income, depending on the type of accommodation.
As an auto-entrepreneur you will pay social security contributions at the rate of 21.3% of gross rental income, although chambres d'hôtes and rural gîte owners pay at the rate of 12%.
If you adopt the régime réel you will pay social security contributions that total around 45% on actual profits.

VAT will only be charged where at least three of the following services are provided to the tenant – breakfast, daily cleaning, reception service and linen service.

Unfurnished Lettings

If your tax for rental income from unfurnished property doesn't go over €15,000 a year then you are entitled to be taxed by micro-foncier.

If your costs are greater than 30% of your gross rental income then you should use regime reel. You are made to use regime reel if your rental income is in excess of €15,000 per year.

Lodgings

If you let out furnished rooms in your own home you're exempt from income tax and business rates on the income. The accommodation must be the principal home of the tenant, and the annual rental must not exceed a maximum rate.

Property Taxes on Rental Properties

Furnished Lettings

There are three local property tax rates for which a landlord of a furnished letting may be liable:

1. Property ownership Tax
2. Local Business Rates
3. Residence Tax

Unfurnished Lettings

The landlord is responsible for the local property rates, the taxe fonciere, but the tenant pays the local residence tax, taxe d'habitation, if occupied by them on 1st January in the year.

Finding a Tennant

Decide your Market

Finding a tenant will depend on the type of property you have to offer, what type of tenant you want and the location of your property. A flat in Paris might need to be advertised nationally, while a small village house might only need one local notice board. You will also need to advertise if the property is furnished or unfurnished.
Internet Sites

There are many English sites that advertise property for rent. The cheaper a property is to let the less chance of producing a successful profit.

Marketing focus is generally on more short term holiday destinations so these sites are usually the most successful. If you are looking for somewhere more long term to rent look to newspapers or magazines.

As a general rule most advertisement for properties to let are now found on the internet so look there for this market.

Newspapers/Magazines

If you don't have an amazing property to let that's not in Paris, you should advertise in regional or local newspapers not in French national newspapers.

This is because the rates will look a lot cheaper and people will take your property more seriously.

Estate Agents

If you don't want to advertise you could use an estate agent instead. If you choose this a fee is negotiable however you will need to sign a mandate giving the agent the power to find a tenant.

Selecting your Tenant

If you let short term you may not have much choice as to who your tenant is, however when it comes to the letting of property long term it's completely different. The vast majority of tenants meet their rental obligations most of the time, but tenants have strong protection against eviction so you must be careful.

You cannot demand the following documents from tenants:

• Photographic identity card;
• Social security card;
• Bank statements or bank reference;
• Employer reference;
• Authorization to pay rent by direct debit;
• Divorce judgment or marriage contract;
• Medical records.

Tenancy Agreements

A tenancy agreement is called a contrat de location. The tenancy agreement must be made in writing, and each part of the agreement clearly stated.

Three approaches to the preparation of a tenancy agreement are possible:
Use of a one of the standard form of pre-printed tenancy agreements that can be purchased from any good bookshop.
Use of a property professional such as an estate agent or huissier who may themselves have a model contract that can be used.
Preparation of an agreement by a notaire who will provide a tenancy agreement in the form of an acte authentique.

Statutory Surveys

Natural/Technological Risks

Risques naturels ou technologiques is a survey that affects about a third of Frances commune. It is required to prevent risk on a property. The report will say for example if the property is located in a flood zone, or an area prone to major storms or earthquakes for example.

Energy Performance

This survey is used to give the future tenant an idea of how much energy consumption and heating costs.

The report only has informative value, so the tenant cannot turn around and withdraw from the contract as a result of the report.

Lead Survey

If your property was built before January 1949 there is a requirement to give a report on the presence of lead paintwork in the property. This report is called cnstat de risque d'exposition au plomb – CREP.

Property Condition Report

L'Etat des Lieux

Who Prepares the Report?

Together the Landlord and the Tenant prepare the report, which is valid as long as it is signed and dated by both parties.

It is highly recommended that the landlord and tenant use a hussier and split the cost between them.

End of Tenancy

At the end of the tenancy there will be a joint inspection of the property just like there was before the start of the tenancy. The tenant is expected to leave the property just like he found it. Repairs as a result from abnormal use/neglect of the property can be charged.

What Can I Charge in Rent?

New Tenancy

The level of the rent on a new tenancy can be freely determined between a possible tenant and a landlord. The level of rent varies tremendously through out France even on very similar properties. Therefore it might not be easy to determine the market rent for your property.

Annual Increase

It is normal to include in the tenancy agreement for an increase in the rent to take place each year, based on the index price increases.

Accordingly, the math work as follows:
New Rent = (R x Ii) /Iii
Where:
R = the amount of the current rent
Ii = the value of IRL index for current period
Iii = the value of IRL for same period previous year

Improvement Works

The tenancy agreement may also mean the rent should be increased by a certain amount following improvements to the property carried out by the landlord.

A landlord cannot decide to undertake improvements on the property and impose a rental increase on the tenant. Landlords can also apply an increase in the rent for works of energy conservation carried out to the property.

Renewal of Tenancy

If the landlord can show that the rent level if far below the level of rent on similar properties in the area then they are entitles to propose an increase to the tenant.

Service Charges

The landlord can make a charge for any services that may be provided to the tenant. Charges are more likely to be applicable in a block of flats served by communal services.

Duration of Tenancy

Unfurnished Lettings
The minimum time for an unfurnished letting is three years, with a possibility of a further three years if the landlord is a property company. This does not mean a tenant has to stay in a property for at least three years or pay the rent for three years. However the landlord can only let a property for a minimum of three years.

Furnished Lettings
Tenants whose tenancy agreement commenced after January 2005 gain a right to a written tenancy agreement, provided it is their principal residence.
The tenant is also entitled to minimum duration of tenancy of one year, provided the property is the principal residence of the tenant.

Protection against Arrears of Rent

Rental/Damage Deposit

It's normal for a landlord to ask the tenant for a rental/damage deposit which is refundable at the end of the tenants stay.
In the case of an unfurnished tenancy, the amount of the deposit cannot exceed one month's rent, excluding charges. 

There are no regulations relating to the amount of the deposit for a furnished tenancy.

Insurance Policy

One of the easiest ways to secure the rent is for the landlord, to take out an insurance policy against the tenant for the non-payment of rent.
In any case the rent cannot be more than 33% of the tenant's income.
In 2009, the government decided to try and impose the use of a statutory scheme on all insurers for all tenants.
This means the GRL may become the only rental insurance scheme in the market.
Insurers can still have their own policies, but they will not be able to also offer the GRL alongside these policies.
The GRL policy guarantees the monthly rental and charges, provided they are no greater than €2000 per month.
The scheme is open to all tenants on condition that the rental does not exceed 50% of their income, and provided the property is their main home.

Guarantors

Personal Guarantors

Personal guarantees are more often used for students, when their parents act as the guarantor. There are a number of specific formalities that must be adhered to, failing which the undertaking may be unenforceable. 

The agreement to act as guarantor must be in writing and must be part of the tenancy agreement. The guarantor must also be resident in France, so this option is unlikely to be available if you are letting to someone from overseas. 

Institutional Guarantors

The number of family members willing to act as a guarantor has reduced a lot in recent years so there are two main alternatives:

1. Fonds de Solidarité Logement
The Fonds de Soldarité Logement (FSL) make available grants and loans for the costs of the rental deposit, pay the initial rent or transaction costs, relocation costs, insurance. 

They also act as a guarantor for rental payments and may also give assistance in the form of grants or loans with rental payments, and utility costs. 

The assistance may take the form of either a loan or a grant. 


2. Loca-Pass   
The loca-pass is a separate fund, referred to as 1% logement because it is funded by a 1% housing levy on large employers. 

The aim of loca-pass is to help prospective tenants to obtain access to housing though the provision of an interest free loan for the rental/damage deposit. Prior to 2010 it also used to offer a rental guarantee, this service is now provided through the Garantie des risques locatifs (GRL).

House Insurance in Rental

A landlord in France must get insurance cover for their property to cover liability claims coming from structural defects in the property. There is an obligation on unfurnished tenancy to take out insurance against the risk of fire, water leak, or an explosion ect.

There is no obligation for a tenant of a furnished tenancy to take out insurance, in this case it is clearly important that the landlord has cover, or make the tenant take out insurance as part of the letting terms.

Condition Standards

The law sets the following standards:
Structure of the property prevents ingress of water;
Floors, staircases and balconies are in good condition;
Safe supply of electricity and gas;
Adequate electricity supply for lighting to all rooms;
Ceilings in good state of repair to prevent falling material,
Adequate ventilation;
A permanent and safe means of heating is available;
Adequate supply and pressurization of cold water;
Adequate means for evacuation of waste water;
No risk from lead poisoning or asbestos;
Kitchen with provision to install a cooking facility, and a sink with hot and cold water supply;
Internal toilet which is separate from the kitchen, and shower or bath which allows washing in private with hot and cold water and evacuation;
A letting consists of only one room then there is only a minimum requirement for a toilet, a shower or bath is not obligatory if there is a kitchen sink.

Space Standards

A property for a single person must be a minimum surface area of 9m² and ceiling height 2.20m², or total volume of 20m², with minimum ceiling height of 1.80m. 

The surface area increases to 16m² for two persons and 9m² for each additional person.

Major Works

The tenant must grant the landlord access to the property to make any necessary repairs. There is no right for the tenant to grant the landlord access to the property to make improvements on the property. If any major works take more than 40 days the tenant will get a reduction in the cost of rent.

Disputes

If the landlord doesn't carry out repairing works the tenant has a right to complain to the commission department de conciliation. The tenant is never allowed to withhold the payment of rent.

The tenant can carry out urgent works of repair to bring the property up to a decent standard; the landlord then has two months to respond.

Tenant Repairs and Alterations

The tenant doesn't have any major repair obligations. Only a few minor maintenances:

• External Areas - Day to day maintenance of garden, including, grass cutting, pruning trees and shrubs, replacing shrubs and routine maintenance of swimming pool;
• Canopies and Terraces – clear of mousse and other vegetation;
• Rainwater Goods – keep clear;
• Windows and Doors – lubrication, minor repair of fittings and locks, mastics, replace broken window panes, minor repairs to blinds;
• Internal Walls and Ceilings – maintain in clean order, replace broken tiles;
• Floor surfaces– undertake routine maintenance, and replace where stained or holed;
• Cupboards and Joinery – routine maintenance including repair/replacement of brackets, joints and fixings;
• Plumbing and Drains – clearing pipes, replace joints and collars and floats; routine maintenance of gas fittings and vents, replacement of flexible gas piping, emptying of septic tank, routine maintenance of heating system, replace flexible shower pipes; removal of calcareous stains;
• Electrical Installations – replace switches, plugs, fuses, bulbs, strip lighting and protection covers;
• General – day to day maintenance of household equipment such as refrigerator, washing machine, crockery, dryer, cooker, heat pump, air conditioning, television aerial, mirrors, undertake chimney cleaning.

Tenant Alterations:

The tenant can carry out minor improvements on the property without getting the approval of the landlord. However any major changes require the permission of the landlord.
Sub Letting

The tenant doesn't have the power to sublet any part of the property without the landlord's written permission. If the landlord gives permission for subletting the tenant and sub-tenant can negotiate freely the letting fee.

Transfer of Tenancy

Married Couples

The law acknowledges a joint tenancy for married couples. If one of the tenants dies then the other spouse should inform the landlord and will automatically claim tenancy.

Civil Partnerships

When the tenancy is under a single name and the tenants are in French Civil Partnership then, in the event of the death of the tenant or abandonment of the tenancy the other person has rights of occupation.

‘Free Union' Couples

Where tenancy is in a single name the couple are living in free union, on death of a tenant the remaining party has no right to tenancy.

If they can provide legal evidence of concubine then the property will remain as their main home.

Other Family Members

Descendants and ascendants of the tenant who have been living with the tenant for at least a month prior to their death or abandonment of the property have the right to tenancy.
Where there is possibly more than one person with a claim to tenancy a court of law will decide to whom the tenancy should be transferred.

Termination of Tenancy

Termination by Landlord

The landlord can't terminate the tenancy before the expiry date of the term, without a breach of the tenancy.

The minimum notice period is 6 moths for unfurnished lettings and 3 months for furnished lettings.

Termination by Tenant

A tenant can terminate his or her tenancy at any time and for any reason. The minimum notice time is three months for an unfurnished letting and one month for a furnished letting.

The period of three months notice may be reduced to one month in the following circumstances:
Serious illness of tenant of at least 60 years of age justifying change of accommodation;
If the tenant loses their job, obtains their first job, finds a new job following unemployment, or if they transfer their employment elsewhere.
In the event that the tenant is in receipt of social security supplementary benefits.

Advice and Disputes

Using a Bailiff

If you get into a serious dispute with your tenant then you may be required to take legal action and call a huissier who is a public officer who provides a judicial system. A huissier is the nest person to advice you of your rights and to help you win your case.

Some fees for huissiers are reasonable but some charge up to 300 euros per hour!

Advisory Services

Free advice you can take in the event of a dispute with your tenant.

i. Housing Information Agency (ANIL) a government national housing information advice agency.
ii. County Consumer Protection Dept (DGCCRF) who will be able to advise you on your rights and information on taking legal action.
iii. Legal Advice Centre (CDAD) offer legal advice about whether you should consider using an advocate to defend you in legal matters.
Conciliation Services

Disputes concerning charges and repairs can be sorted by a conciliation panel called the commission department de conciliation. It is composed of landlord and tenant organizations.

Housing Benefits

There are four main benefits available to tenants:
i. Housing Benefit
ii. Moving Grant
iii. Home Improvement Loan
iv. Rental Guarantees

If your tenant gets into trouble with the rent then you need to make sure they are aware of their entitlement to housing benefit.

Legal Proceedings

Injunction

It's possible to apply to a court for injunction against a tenant to pay rent. The procedure is quick and inexpensive to do. However it does not guarantee payment of the rent that's up to the court to decide.

Distraint

You would think using distraint on goods and funds is an easy procedure but it's not that simple.

The tenant may not have the funds and goods against which you can distraint.

Possession Proceedings

The right to a home is part of the French constitution; the Government has adopted a range of measures to minimize the number of evictions that take place. 

If the tenant is involved in bankruptcy proceedings, then eviction proceedings can be suspended.
The Government has also urged all prefectures to ensure that every step possible is taken to protect tenants from eviction. No eviction of a tenant can take place without a court order.