Reading this thread is quite scary. I own a leaseback in France and have had some difficulties getting rents paid from the leaseback co. In fact the leaseback company have had a couple of judgements ruled against them re non payment to other tenants and are in serious financial trouble.
Despite this I am reluctant to sell the property as it has seen good capital appreciation since it was bought. I would love to break the lease and pay the T.V.A as I feel I could rent it out myself. (I can re-mortgage to raise this finance)

I have a couple of questions:
What are the financial penalties Imposed if you break the 9 year
lease agreement? (am I even allowed to?)
I know that the T.V.A is clawed back in proportion (5% over 20 years)
for every year remaining.
Is there a similar % or formula vis a vis the lease break?

Thanks,

Garrett Begley.

I dont think you can break the lease! You are in contract. Speak to a lawyer and fiscal adviser.

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Thanks for the reply. I'll be in France next month and have arranged legal advice. Before this I am just trying to get a grasp from others in a similar situation. I would love more info specifically on breaking the lease as I understand others have sold out in the development. I'm trying to put a financial figure on this. I assume it can be broken (all rules were made to be broken!) but at what price?

Cheers.

Alan - thanks for the email but your numbers dont seem to work, please retry to be in touch. regards D

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Leaseback is a complex subject. I have worked in the business for 4 years and probably know more about it than anyone in the non French market. I have learned about it the hard way. We have an open forum (the most popular leaseback forum in the world) so our company and the leaseback concept can be discussed openly. I have learned so much from having to answer many comlex questions from both my clients and forum users (the vast majority of whom are not my clients).

There are many points discussed in this thread - too many to address here. But I will try to address some of them:

If you sell a leaseback as a leaseback (i.e. within the lease) then you will make little or no growth. To make growth you must refuse renewal of the lease (subject to French law) and sell it as a normal property. In addition you must pay a fair price (I have seem some which ask twice the current market price), the property must be a reasonable size or comparable to other "normal" properties in the location - this is particularly relevant to leasebacks as they tend to be smaller than normal properties, but you get some which are more suitable than others like ski leasebacks which are often the same size as normal properties as space is resticted in ski resorts. You cannot "break" a lease. You can only "get out" mid lease if the management company breaks its contract as detailed in the lease agreement or in French law. Many leasebacks are bad investments for the non French market if you want to make growth like retirement homes, student residences etc. There is much, much more - too much to write here.

Seamus McConville

Subject,
Classification of Leaseback property

This is a copy of the text from an email I received yesterday from the managemnt company GROUP MONNIER and is probably relevant to people making a purchase of a leaseback.

It appears the problems date back to September 07 and the management company havnt bothered to inform owners of why rent hasnt been paid or of the problem that exists

Question,
Has anybody any experience of dealing with this sort of problem


Text from letter,

Objet : Résidence les Jardins d’Elisa



Juan les Pins, le 17 décembre 2007


Dear Madam, Sir,

Following an unjustified denunciation made to the prefecture of the Alpes Maritimes around the month of May 2007, claiming that the residence “les Jardins d’Elisa” would not fulfil the required conditions for the exploitation of a residence with furniture and services, the prefecture has entrusted the fraud squad in order to check if the residence “les Jardins d’Elisa” comply with the norms or not. This organism does not exclude the possibility of closure of the residence.

The inspector of the fraud squad came to visit the residence. We had a meeting all together. He explained that they have opened an inquiry and he asked us to provide an important list of documents, i.e, rules of condominium, bills of sale, commercial lease, etc……

In this context, you can imagine what a disaster it is on our work conditions, cancellation of the bookings with our different partners who fear the closure at the crucial moment of a congress or a local or an international event.
As indication, since the beginning of October, our turnover is about 10 % of the forecasted turnover.
Today, we are not able to practise our activity due to the obstacle of the free traffic of the persons and the possessions. Consequently, we are sorry to inform you that we have decided to suspend the payment of your rental until an administrative decision has been taken and that there is no more uncertainty on the validity of the lease that you have granted to our company.

Naturally, we will keep you informed about the evolution of the situation.


Christian MONNIER

Le Gérant,

Attika is right on many points: there are major problems in France with the leaseback managment companies, they are claiming money/compensation at the end of the contract... and they should not do as we bought the property to be second home _ Residence secondaire. Once the leaseback contract is over, we should be able to live in the property. However the reality is completely different as we signed leasebacks, which are commercial leases !
Also there are several laws regarding the leaseback properties. The latest information published by the government is the extension of the delay granted to find a new managment company when the first managment company left, dissapeared, did not do its job and so on and you kicked it out... the new delay is 1 year/12 months instead of 1 month...
If you read French several information are available on line, please just type Residence de tourisme problemes... you will find out.

There are many leaseback schemes in France
They are all beneficial to French tax payers
LMNP/LMP is the only product that is suitable for non French taxpayers
the rules have changed since 01.07.08 with regards to selling and the payback of the cashback (TVA)
You now only have to have it for 1 year before you can resell without penalty and without having to pay any of the TVA back.

YOU ARE NOT BUYING A PROPERTY - YOU ARE BUYING A MONETARY INVESTMENT

if you want to have a property, then purchase an appt and let it out - but then you get all the agro and hassle of managing it yourself

Thank your for your reply.

The hassle and aggro Ive had with this leaseback has been more than enough than I would get renting myself,I can assure you of that,however I take on board what you say.

Can you confirm the fact you make about repayment of TVA,is this for all leaseback or just for type you mention

Like any busines or investment there are good and bad avisers as well as good and bad invstments,sadly this is not one of the better ones

Wayne

What the post does not mention is that if you sell within the lease, even though you no longer pay back the VAT, you will make little or no growth. Too make growth you must sell as a normal property and therefore refuse renewal after one of the leases. This will be subject to French commercial law and the particular type of leaseback you have bought, some of which it will not be possible on (e.g. retirement homes) and some of which it will not make sense as there will be no buyers in the normal market (e.g. student residences). Growth also depends on whether you pay a fair starting price. You pay a premium for most and a few are hugely overpriced. Very few are priced similarly to normal properties in the local market.

Seamus McConville