nergy Life sciences and healthcare A guide to investing … · A guide to investing in commercial...

Financial institutionsEnergyInfrastructure, mining and commoditiesTransportTechnology and innovationLife sciences and healthcare

A guide to investing in commercial property in France

Norton Rose Fulbright

Norton Rose Fulbright is a global law fi rm. We provide the world’s preeminent corporations and fi nancial institutions with a full business law service. We have more than 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: fi nancial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offi ces and to maintain that level of quality at every point of contact.

Norton Rose Fulbright US LLP, Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP and Norton Rose Fulbright South Africa Inc are separate legal entities and all of them are members of Norton Rose Fulbright Verein, a Swiss verein. Norton Rose Fulbright Verein helps coordinate the activities of the members but does not itself provide legal services to clients.

References to ‘Norton Rose Fulbright’, ‘the law fi rm’, and ‘legal practice’ are to one or more of the Norton Rose Fulbright members or to one of their respective affi liates (together ‘Norton Rose Fulbright entity/entities’). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a ‘partner’) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifi cations of the relevant Norton Rose Fulbright entity. The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specifi c legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright.

© Norton Rose Fulbright LLP NRF24205 02/16 (UK) Extracts may be copied provided their source is acknowledged.

A Norton Rose Fulbright guide February 2016


Norton Rose Fulbright

Norton Rose Fulbright is a global law fi rm. We provide the world’s preeminent corporations and fi nancial institutions with a full business law service. We have more than 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: fi nancial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offi ces and to maintain that level of quality at every point of contact.

Norton Rose Fulbright US LLP, Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP and Norton Rose Fulbright South Africa Inc are separate legal entities and all of them are members of Norton Rose Fulbright Verein, a Swiss verein. Norton Rose Fulbright Verein helps coordinate the activities of the members but does not itself provide legal services to clients.

References to ‘Norton Rose Fulbright’, ‘the law fi rm’, and ‘legal practice’ are to one or more of the Norton Rose Fulbright members or to one of their respective affi liates (together ‘Norton Rose Fulbright entity/entities’). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a ‘partner’) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifi cations of the relevant Norton Rose Fulbright entity. The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specifi c legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright.

Introduction 04

Offer letter 06

Asset deal 07

Share deal 12

Role of legal advisers 13

Land tenure 16

Commercial leases 18

Financing 25

Taxes 26

Contacts 27

Contents

04 Norton Rose Fulbright – February 2016


Real estate is one of the principal strengths of Norton Rose Fulbright. Through our large network, and our strong team in a number of European jurisdictions, we enjoy considerable industry recognition for our involvement in several of the largest and most innovative development, investment and property finance transactions and infrastructure projects.

Our team consists of experienced, leading practitioners in the real estate sector with extensive knowledge across a wide range of real estate transactions. We work closely with banking, restructuring, corporate, securitisation and tax lawyers and offer a genuine understanding of the real estate market, both nationally and internationally.

We act for clients on innovative development, regeneration and property finance transactions and projects, including joint ventures, leasing structures and outsourcing. We advise on real estate disputes, construction and engineering, insolvency, restructuring and property taxation.

This guide describes the law and practice in France. It does not deal with residential property investments, to which different criteria apply.


Norton Rose Fulbright – February 2016 05

Introduction

Detailed professional advice should be taken from both lawyers and surveyors before any particular investment is made, and this briefing is not a substitute for that advice. Lawyers will deal with commercial issues in a legal context and the technical legal formalities; surveyors will advise on values, location, rents and growth prospects as well as the condition of the property. Norton Rose Fulbright has regular contact with the leading firms of surveyors and is accustomed to working closely with them, on all types of property transaction.

Real estate is one of the principal strengths of Norton Rose Fulbright. Through our large network, and our strong team in a number of European jurisdictions, we enjoy considerable industry recognition for our involvement in several of the largest and most innovative development, investment and property finance transactions and infrastructure projects.

Our team consists of experienced, leading practitioners in the real estate sector with extensive knowledge across a wide range of real estate transactions. We work closely with banking, restructuring, corporate, securitisation and tax lawyers and offer a genuine understanding of the real estate market, both nationally and internationally.

We act for clients on innovative development, regeneration and property finance transactions and projects, including joint ventures, leasing structures and outsourcing. We advise on real estate disputes, construction and engineering, insolvency, restructuring and property taxation.

This guide describes the law and practice in France. It does not deal with residential property investments, to which different criteria apply.



Offer letter

Once an investor has found a property to purchase, the first step will often be for the parties to sign an offer letter in the event of purchase of the property through an asset deal or a share deal (e.g. acquisition of all the shares of a special vehicle purpose (SPV) holding a property).

In the event of an asset deal or a share deal, the next step after the offer letter may be to obtain an option over the property by the grant of a unilateral call option (promesse unilatérale de vente) or a bilateral undertaking sale and purchase agreement (promesse synallagmatique de vente/compromis de vente). The option period will depend on the nature of the conditions to be fulfilled prior to title being transferred. It usually varies between three and six months.


Asset deal

Asset deal

A preliminary contractsUnilateral call optionA call option is a contract which binds the promisor but grants the beneficiary the option to decide whether or not to purchase. As consideration for such an option it is usual for the beneficiary to pay a deposit but this is not compulsory and the absence of a deposit will not affect the validity of the contract. This deposit usually amounts to five per cent or ten per cent of the purchase price and is placed in escrow. In the event of acquisition of the property, such deposit placed in escrow is deducted from the outstanding amount to be paid to the beneficiary. In the event that the property is not acquired despite all the conditions precedent set out in the option having been fulfilled, the escrow agent will pay over the deposit to the seller/promisor of the option.

Pursuant to confirmed case law, if a promisor unilaterally terminates the call option before it is exercised, the beneficiary only has a remedy in damages and is not entitled to specific performance of the sale (sometimes with retrospective effect) as of the date of execution of this contract and not at the date of fulfilment of the conditions.

The beneficiary remains free to exercise its option or not, but if, the conditions precedent having being fulfilled, the beneficiary does not exercise such option, it will lose its deposit.

In the event of an asset deal, a call option agreement must be filed with the tax authorities within ten days of its signature by the beneficiary, failing which the agreement is null and void.

Bilateral undertaking to sell and purchaseUnder this contract, both parties are bound to complete the sale of the property. The vendor undertakes a commitment to sell the property and the purchaser undertakes a commitment to purchase it.

Transfer of title will be suspended until fulfilment of the conditions precedent stipulated in the preliminary contract.



Once such conditions precedent are fulfilled, title will be deemed to have passed, in some cases with retrospective effect as of the date of execution of this contract rather than at the date of fulfilment of the conditions.

Contents of the preliminary contractsThe preliminary contracts should not only contain conditions precedent such as Land Registry search (état hypothécaire), town planning requirements, etc. but also warranties as to title, encumbrances, easements, vacant possession and provide for specific performance as well as environmental aspects. It is particularly recommended that the purchaser examine the title deeds prior to entering into a preliminary contract, not only to ascertain the title of the vendor but also to enable the purchaser to review any easements mentioned in the deeds (e.g., rights of way which may exist over the property as well as prohibitions against building on all or part of the land etc,), and also to carry out technical due diligence with a surveyor.

In addition, if the preliminary contract provides expressly that the vendor will grant the final sale and transfer of ownership to the purchaser only once the notarial deed is signed and the purchase price paid, the completion of the sale will be postponed until such events occur.

The French Civil Code provides for conditions applicable to sales of property but these are not mandatory. The parties can waive most of the provisions of the French Civil Code and provide for appropriate conditions as they see fit, except for the guarantee that the vendor has good and valid title to the property (garantie d’éviction).

The main conditions provided for by the French Civil Code deal with guarantees given by the vendor as to the state of the property.

It is possible for the vendor to exclude these guarantees in the agreement. However, a purchaser (if professional in real estate) should attempt not to accept such exclusions, although a vendor will almost always refuse to guarantee the state of an old property (i.e. property built more than ten years ago).


Asset deal

Conditions precedentLand Registry (Service de Publicité Foncière)A condition precedent relating to the Land Registry Search should be inserted in preliminary contracts. Such condition precedent should stipulate that the Land Registry Search will not reveal mortgages of an amount in excess of the sale price. This is important because if no so mention is made, title to the property could pass to the new purchaser and if the proceeds of sale were not sufficient to discharge the mortgages, the property would still be encumbered by the amount of the mortgages not repaid.

Town planning certificate (Certificat d’urbanisme)This condition precedent is often stipulated but not always.

The town planning certificate will give the purchaser information about the possible uses of the land and any planning restrictions with which it may be burdened. The information set out in the town planning certificate will be valid for eighteen months as from the date on which they are delivered and may be extended for periods of one year.

It would be advisable for the investor to have seen the town planning certificate before entering into the preliminary contract, as it will give him an immediate idea of the development possibilities of the land.

Mandatory condition precedent: Pre-emption rights – pre-emption right of local authoritiesLand is divided and subdivided into different zones in order to indicate those plots on which buildings can be erected (e.g., urban zone, rural zone, forest zone, etc.). In some of these zones, whether urban or rural, the local authorities have a pre-emption right on most sales of property, including transfer of shares, (with some exceptions).

If the planning pre-emption right of the town applies to the property, a declaration of intent to sell (Déclaration d’Intention d’Aliéner) (DIA) must be lodged by the owner of the property with the local authority in order to allow the local authority to exercise or waive its right of pre-emption. Failure to make such a declaration results in the sale being null and void. Therefore, the DIA is a compulsory condition precedent to the sale of a property. From the date of receipt of the DIA, the local authority has a two-month period to answer (i.e. to exercise or waive its pre-emption right). If the local authority remains silent during these two months, it is deemed to have waived its right.



If the local authority exercises its pre-emption right it can either agree to purchase the property at the price stated in the DIA or propose an alternative price.

If the vendor disagrees with such alternative price, it is fixed by the judge responsible for expropriation matters (compulsory purchase). The vendor is not, however, obliged to sell to the local authority if the vendor disagrees with the price fixed by the judge nor is the local authority obliged to purchase if it disagrees with such price.

A few other mandatory pre-emption rights must be highlighted:

• in the case of a share purchase (please see ‘Share deal’ below), regarding which some municipalities set out such pre-emption right on the sale of shares of a company which owns properties (‘SCI vehicle only’)

• going concern (cession de fonds de commerce).

Other usual conditions precedentCommercial use – office buildings: the purchaser should ensure that the necessary consents have been given in connection with the proposed user of the building;

Building permit – demolition permit – lay-out permit (permis d’aménager): if the property consists of land on which a building is to be erected or on which a building is to be demolished and rebuilt or renovated, a demolition permit and/or a building permit will have to be obtained. If the property consists of land to be divided into several plots with a view to erecting constructions on these plots, a lay-out permit will have to be obtained.


Asset deal

CompletionContents of the deed of saleThe deed of sale describes the parties, the property and sets out the previous owners of the property so as to identify a thirty-year root of title. The conditions of sale are those stipulated in the preliminary contract (i.e. either the option or the bilateral undertaking to sale and purchase with conditions precedent). Usually when we act for a vendor to speed up the process, we recommend to draft the call option or the bilateral promise which will be signed together with the deed of sale, to avoid any new negotiation on the transaction.

Transfer of titleTransfer of title usually takes place on execution of the deed of sale. The deed of sale does not constitute a title deed as such. Possession of the deed of sale is not, in itself, proof of ownership (in any event the original remains with the notary); this is evidenced by the Land Registry search showing publication of the deed of sale and the root of title contained in the deed of sale.



Share deal

Share purchaseIn the event of an asset deal through a share deal, the SPV remains in existence and all its assets and liabilities (known and unknown) are transferred to the investor as purchaser.

Contracts are automatically transferred to the purchaser (except when they contain a ‘change of control provision’), which allows for continuity of the business. Real estate property belonging to the SPV is also transferred without the need for the intervention of a notary.

Representations and warrantiesFrench law imposes on the parties an obligation to negotiate and perform contracts in good faith.

Purchasers typically aim to protect themselves by carrying out due diligence and by obtaining warranties.

Claims are usually made under the warranties in the case of inaccurate representations, upon the occurrence of specified events and upon the non-performance of contractual obligations.

Warranties are usually guaranteed by an escrow, bank or holding company guarantee.

Warranties which are enforced by French courts are typically: (i) limited by a threshold and/or a franchise, (ii) capped and (iii) limited in time (usually 18–36 months).


Role of legal advisers


LawyersLawyers fulfil a number of different functions when acting for property investors. Most obviously, they will act for investors in dealing with the legal aspects of acquiring a suitable property through an asset deal or a share deal. At each stage they will make certain that all necessary matters of contract and title (with the assistance of a notary) are resolved. Of course, the due diligence process is crucial and sometimes includes vendor due diligence (VDD).

In the course of acquiring a property, lawyers and notaries make numerous enquiries about the property, asking questions of the seller and his managing agents (if any), the local authority and the local planning authority, and other public bodies during the legal due diligence period. They will report on title to investors before contracts are exchanged, confirming that the title is valid and marketable, or giving details of defects. They will also scrutinise construction works and in particular the contractor’s compulsory one, two or ten year liability and the corresponding insurance.

Our reputation in the Paris market is based in part on the strong quality of our due diligence (in relation with our litigation practice). In addition, lawyers and notaries will draw attention to any matters of environmental and planning risk based on the information received from an environmental survey and/or an evaluation of relevant planning documents such as planning consents. Often such risks, if not properly addressed, can delay, or potentially halt, property transactions. Areas of risk for investors may include the land they intend to invest in being contaminated or polluted (resulting in potential liability), located in a flood risk area and/or that planning permission cannot be obtained to use the property for its existing or intended use (affecting the investment value of the property).

Lawyers will also report on the leases including repairs and management of the property, on the terms and enforceability of rent review provisions in occupational leases and on other matters of importance relating to the return achievable on the investment.

In the event of acquisition of an SPV, the lawyers (with the assistance of a notary if necessary regarding the title) will carry out legal due diligence with respect to the SPV and the property holding by this latter. Where due diligence has been carried out by



investors’ advisers mentioned above, the lawyers will negotiate and draft the terms and conditions of the share purchase agreement/warranty agreement but also other related contracts as well as a financial escrow agreement if any, etc. All other related legal documents will be negotiated and drafted by the lawyers as well as PoAs, legal opinions, guarantees, comfort letters and other security documents, amendments to existing leases, etc. While such documents are under negotiation, depending on the investor’s situation, other contracts as well as a property management agreement and an asset management agreement can be drafted and negotiated by the lawyers. Lawyers therefore play a key-role from the commencement of the legal due-diligence until the closing of the transaction.

A number of law firms have wide experience of property investment matters and will make that experience available to their clients. Lawyers in France do not usually limit their advice to purely technical and legal points but are sometimes expected by their clients to make their own views known on commercial matters.

After an investment property has been acquired, the investor’s lawyers will document leases to new occupiers and advise on other property management matters relating to occupiers, acting on the instructions either of the investor or of any managing agents who have been appointed by investors.

NotariesTraditionally whether in the context of an acquisition or a sale of a property, notaries are in charge of the following aspects: title of ownership, easements, mortgage situation, town planning, insurance relating to the construction of the property or major works carried out in the property.

Notaries are also in charge of the drafting, with lawyers, of the sale documentation which needs to be in the French language for the purposes of the registration at the Land Registry (Service de Publicité Foncière). Only ‘authentic’ documents may be filed at the Land Registry for publication. Such publication is necessary for a transfer of title of immovable property to be binding on third parties (opposable aux tiers). Lawyers usually assist clients in the negotiations of the sale documentation even though it is drafted by the notaries and supervise the translation of the documentation if requested.



The fees of notaries amount to 0.80 per cent (excluding VAT) of the value of the property but are negotiable beyond €80,000. From our experience, notaries fees after negotiations usually amount between 0.40 per cent and 0.50 per cent of the property value.

Notaries are responsible for the formalities on transfer of title, such as the prior declaration to the local authority where there is a pre-emption right (DIA), obtaining Land Registry search, etc.

investors’ advisers mentioned above, the lawyers will negotiate and draft the terms and conditions of the share purchase agreement/warranty agreement but also other related contracts as well as a financial escrow agreement if any, etc. All other related legal documents will be negotiated and drafted by the lawyers as well as PoAs, legal opinions, guarantees, comfort letters and other security documents, amendments to existing leases, etc. While such documents are under negotiation, depending on the investor’s situation, other contracts as well as a property management agreement and an asset management agreement can be drafted and negotiated by the lawyers. Lawyers therefore play a key-role from the commencement of the legal due-diligence until the closing of the transaction.

A number of law firms have wide experience of property investment matters and will make that experience available to their clients. Lawyers in France do not usually limit their advice to purely technical and legal points but are sometimes expected by their clients to make their own views known on commercial matters.

After an investment property has been acquired, the investor’s lawyers will document leases to new occupiers and advise on other property management matters relating to occupiers, acting on the instructions either of the investor or of any managing agents who have been appointed by investors.

NotariesTraditionally whether in the context of an acquisition or a sale of a property, notaries are in charge of the following aspects: title of ownership, easements, mortgage situation, town planning, insurance relating to the construction of the property or major works carried out in the property.

Notaries are also in charge of the drafting, with lawyers, of the sale documentation which needs to be in the French language for the purposes of the registration at the Land Registry (Service de Publicité Foncière). Only ‘authentic’ documents may be filed at the Land Registry for publication. Such publication is necessary for a transfer of title of immovable property to be binding on third parties (opposable aux tiers). Lawyers usually assist clients in the negotiations of the sale documentation even though it is drafted by the notaries and supervise the translation of the documentation if requested.



Land tenure

Land tenure is generally freehold although leasehold tenure does exist, but in practice it is very rarely used.

LeaseholdThe main type of leasehold tenure is a ‘construction lease’ (bail à construction) which is a lease for a duration of between 18 and 99 years, under which the tenant undertakes to erect buildings which will remain the landlord’s ownership at the end of the lease or ‘long term lease’ (bail emphythéotique) under which the tenant only occupies the property.

The leasehold regime grants to the tenant a right in rem of possession that the tenant, in particular, can mortgage, transfer or sublet.

Co-ownershipCondominiums (co-ownerships) exist under French law and this is sometimes incorrectly compared to leasehold tenure under English law. A co-ownership will exist where real estate belongs to several owners who do not have separate ownership of their own plots or part of the building.

A specific rule needs to be emphasised which is Article 22 of the modified 10 July 1965 Act under which ‘each co-owner has a number of votes equal to his share in the communal areas. Nonetheless when a co-owner possesses a proportion of more than one half, the number of his votes is reduced to the sum of the votes of the other co-owners’.

VolumesThe basic rule under French law is that, where a person is the owner of the land, it is the owner of any buildings on the land, the owner of the air space above the land ‘up to the sky’ and the owner of the soil and subsoil.


Land tenure

The volume concept (which is similar to ‘flying freehold’ under English law) enables ‘slicing’ to be carried out so that different owners own different parts of the property between the subsoil and the ‘sky’. It follows that one difference between volume and co-ownerships is that the land itself in a volume situation becomes irrelevant. Each volume is independent and does not imply the creation of common areas as in co-ownership.

It only applies to ‘ensemble immobilier’ as defined by article 1 of the modified 10 July 1965 Act, and avoids the reduction of the vote (Art. 22), and the application of the legal constraints of the co-ownership status.



Commercial leases

The property purchased can be leased to commercial companies, principally for office or retail use. A lease agreement for this type of use will be governed by the commercial lease regime (Article L.145-1 et seq and Article R.145-1 of the French Commercial Code). This Code has recently been modified by a recent Act, the ‘Loi Pinel’ dated 18 June 2014 (cf. below).

The aim of this legislation is to grant to tenants security of tenure (propriété commerciale). At the end of the lease, a tenant is entitled either to renew the lease for a further nine-year term or to receive compensation, if the landlord refuses to renew the lease.

Duration, renewal and termination of the leasePursuant to the French Commercial Code, the minimum term of a commercial lease is nine years. This provision of the French Commercial Code is mandatory and accordingly the parties cannot provide for a term of less than nine years except in case of short-term lease (bail dérogatoire) and precarious lease (bail précaire).The parties may agree to a longer term than nine years.

Pursuant to the French Commercial Code, a tenant has a right to terminate the lease once every three years subject to a prior notice period of six months unless the parties agree upon different conditions as regards the tenant’s break option such as for example:

• A tenant may agree to waive its break option right for the end of the first three-year period of the lease or for the end of both the first and second three-year periods of the lease so that the lease will then have a fixed-term of six or nine years.

• A tenant may agree to pay the landlord compensation if it exercises its break option at the end of the first three-year period.

Regarding the termination of the lease, the ‘Loi Pinel’ introduced some changes in favor of the tenant. Indeed, the tenant has now the possibility of notifying the termination notice to the landlord, as well as other notices, either by extra-judicial document (‘acte extrajudiciaire’) or by letter with acknowledgement of receipt (‘lettre recommandée avec demande d’avis de réception’). The ‘Loi Pinel’ does not provide the landlord with such an alternative.


Commercial leases

Pursuant to a recent Act called ‘Loi Pinel’ dated 18 June 2014, the cases where a tenant can waive its break option right at the end of the first three-year period or at the end of both the first and second three-year periods of a commercial lease, in order to permit the lease to have a fixed-term of six or nine years, are now limited only to:

• lease agreements with a term of over nine years

• lease agreements for premises which can only be used for a specific activity (locaux monovalents) such as premises for hotel or cinema use

• lease agreements for premises used exclusively for office purposes

• lease agreements for warehouses.

A landlord can terminate a commercial lease at the end of a three-year period only in very limited cases. These are available where significant construction works are to be undertaken in the building in which the leased premises are situated (for example, demolition of the building followed by its reconstruction). In such cases, the landlord must pay compensation for eviction (indemnité d’éviction) corresponding to the loss suffered by the tenant (for example, relocation costs, expenses and taxes paid in respect of the acquisition of alternatives premises, etc.).

As mentioned above, the main feature of the commercial lease regime is the right for the tenant to obtain renewal of the lease at the end of its term. The lease is renewed on the same terms and conditions as the previous lease, with the exception of the rent, and for a term of at least nine years. If the landlord refuses to renew the lease, the tenant is entitled to receive compensation for eviction corresponding to the loss it suffers.

Pursuant to the French Commercial Code, the tenant is entitled to remain in the premises under the terms of the expired lease until the eviction compensation has actually been paid by the landlord. In the meantime, the tenant will be eligible for occupation compensation.

The landlord can, however, terminate the lease without having to pay compensation for eviction in circumstances where there is a breach of the lease by the tenant.



RentInitial rent – securityThe parties mutually agree the initial rent upon execution of the lease.

It is usual to secure the payment of rents, service charges and other monies owed by the tenant pursuant to the lease by either the payment of a rental deposit (dépôt de garantie, generally equal to three months’ rent) or the delivery of a bank guarantee.

Rent reviewRent on renewal or rent review must correspond to the current rental value of the rented premises (valeur locative), subject to certain strict provisions of the French Commercial Code.

If the parties cannot agree on such value, the rental value of the rented premises must be assessed on the basis of the following elements: the features of the premises, the permitted use (i.e. the activities authorised by the lease), the respective obligations of the parties, the local commercial factors which have an impact on the business carried out by the tenant, such as the size of the town, the area or the street where the business is located, etc. and the current level of rents for similar premises in the area.

The French Commercial Code provides that the rent may be reviewed on application by either of the parties every three years, which practically is relatively rare, subject to certain strict provisions of the French Commercial Code.

Rent indexationThe parties are free to stipulate that the rent will be indexed on an annual basis. Under French law, the choice of an index is, however, only valid if the chosen index is directly related to the object of the contract or the activity of one of the parties.

The ‘Loi Pinel’ has suppressed any reference to the construction cost index published by INSEE (ICC) in the provisions relating to the indexation of rents, to the fixing of rents upon the renewal and to the three-year rent review provided under the French Commercial Code.

Depending on the use of the leased premises, references to ICC in the aforementioned provisions of the French Commercial Code must be replaced, for leases of retail premises, by the Commercial Rents Index (Indice des Loyers Commerciaux or IRL) and


Commercial leases

for lease for offices or logistic activities by the index of tertiary activities (Indice des Loyers des Activités Tertiaires or ILAT).

Rent on renewalThe provisions of the commercial lease regime relating to the renewal of the lease with respect to the determination of the rent are not mandatory. The parties may, therefore contract out of them and provide another way for determining the rent of the renewed lease.

It follows from the provisions of the French Commercial Code that the increase in rent upon renewal of the lease may be limited by application of the rent capping rule, depending upon the activity carried out in the rented premises and the duration of the lease.

No rent capping is applicable:

• to a lease with an initial contractual term of over nine years

• where one or more criteria which have been taken into consideration to determine the rental value of the premises, with the exception of the current level of the rents in the area, have significantly changed in the course of the duration of the lease which comes to renewal

• to land which has not been built on (terrains nus)

• to premises used exclusively for office purposes

• to single function premises i.e. premises which can only be used for a specific activity (locaux monovalents) such as premises for hotel or cinema use.

In these cases, the rent of the renewed lease must correspond to the rental value of the premises, as determined in accordance with the criteria on the date of the renewal of the lease.

Pursuant to the ‘Loi Pinel’, there now exists a new limitation on the increase in the rent of a renewed lease agreement, of ten per cent per year. This limitation, in cases where rent capping is excluded, applies only to:



• rents of renewed lease agreements where rent capping is excluded (loyers de renouvellement déplafonnés)

• rents fixed upon a rent review based on article L.145-381 and L.145-392 of the French Commercial Code where rent capping is excluded

• lease agreements entered into for a term of over nine years.

In these three cases, the variation in the rent resulting from the exclusion of rent capping (déplafonnement) cannot lead to an increase in the rent of the renewed lease, for a year, of more than ten per cent of the rent paid during the previous year.

The rent is fixed in accordance with the then current rental value of the premises upon the date of the renewal of the lease; if this leads to an increase in the rent of more than ten per cent, this increase will be ‘spread over’ the first years of the renewed lease by limiting the increase in the rent to ten per cent per year.

This new legal provision is applicable only to lease agreements concluded or renewed as from 1 September 2014.

If the parties disagree on the rent of the renewed lease, whether or not the rent cap is excluded, the most diligent party must apply to the judge.

In case of turnover rent, the provisions relating to three yearly rent review and to rent indexation do not apply to leases providing for a rent determined on the basis of the tenant’s turnover. This means that if the parties agree upon a turnover rent and fail to provide in the lease how the rent for the renewed lease will be fixed, the lease will be renewed with exactly the same turnover rent.

Service chargesThe tenant usually pays for the consumption of utilities such as water, electricity, etc. and also the service charges relating to heating, cleaning of common areas, employment

1 Pursuant to article L.145-38 of the French Commercial Code, either party may apply to the court for a rent review, three years after the date of entry into the premises by the tenant or the commencement date of the renewed lease.

2 Pursuant to article L.145-39 of the French Commercial Code, if the lease provides for the indexation of the rent, a rent review can be applied each time that, as a result of the indexation, the rent has increased or decreased by more than 25 per cent since its last fixation by the parties or by the court.


Commercial leases

of a caretaker and taxes relating to municipal services such as street sweeping and refuse collection (taxe de balayage et d’enlèvement des ordures ménagères).

The landlord usually pays the insurance premium of the building in which the rented premises are located, the land tax (impôt foncier), the tax on offices in the Ile de France region and the fees of the manager of the building (taxe bureaux).

It is, however, not unusual for the lease to provide that the tenant shall bear all service charges, expenditure and taxes relating to the premises, the landlord receiving a rent net of all taxes, contributions, charges and expenses whatsoever.

The tenant will reimburse the landlord for the costs and fees of the building manager, the taxes owed by the owners of the premises (such as the land tax, the tax on office premises in the Ile de France region, etc.) and the premium of the insurance of the building taken out by the landlord, only if the repayment by the tenant of such taxes and expenditure is expressly set forth in the lease.

Article 145-35, introduced by a decree of the Conseil d’Etat dated November 3, 2014, specifies the service charges and taxes that the landlord is no longer entitled to recover from the tenant ‘due to their nature’. The new legal provisions will be applicable only to lease agreements concluded or renewed as from September 1, 2014.

Pre-emption right in favour of the tenant in the event of a sale of the leased propertyUnder the Loi Pinel, the tenant henceforth enjoys the benefit of a pre-emption right in the event of a sale of the leased premises for retail or commercial use but not in the following cases:

• a single sale of several premises of a building for commercial use

• a single sale of different premises

• a sale of premises for commercial use to a co-owner of a property complex

a single or global sale of premises for retail use to the spouse of the landlord or to one of his ascendants or descendants or to an ascendant or descendant of his spouse.



This pre-emption right in favour of the tenant is not applicable if the leased premises are for an industrial use.

Information to be provided by the landlordThe landlord must deliver to the tenant upon execution of the lease or its renewal the technical audit file and the following documents/information:

• Natural, mining and technological risks statement (état des risques naturels miniers et technologiques) (dating back less than six months) in zones covered by a risk-prevention plan or an earthquake zone. If the landlord fails to provide the risk-statement and the list of losses suffered which entailed payment of insurance compensation in connection with natural disaster risk, mining or technological disaster risk, the tenant is entitled to either terminate the lease or to apply to the judge for a reduction in the rent.

• Energy-efficiency audit (Diagnostic Performance Energétique) – dating back less than ten years. Such document is issued for information purposes only, the tenant cannot take advantage of the information contained therein against the landlord.

• Environmental schedule for office or retail premises having a surface area of more than 2,000m² comprising in particular energy characteristics of the equipment of the building, undertakings from the landlord and the tenant to assess the evolution of the energy and environmental efficiency of the building, etc.

• As regards asbestos, the supply to the occupants of the building of the (updated) detail design report relating to flocking, laggings and false ceilings and of summary data sheet (fiche recapitulative) of the asbestos technical file relating to hard building materials.


Financing

Financing

Generally the financing under French law of the acquisition of a property includes the following guarantees:

• mortgage (art.2393 and subs. of French Civil Code); or privilege of the lender

• pledge on the shares

• a rent assignment (cession de loyers Dailly) which is the strongest element of the security as it has the greatest chance of being effective in the event of the insolvency of the borrower.

As the mortgage is generally registered at the Land Registry, a notary will work with the attorney on the documentation. The LTV ratio is currently equal to around 70 per cent, and the equity/debt to 60/40 depending on the type of the rent.



Taxes

Acquisitions which do not fall within the scope of VAT bear registration duties at a rate of 5.09 per cent. In addition to the fees of the notary (i.e.; 0,80 per cent), a fee is also payable to the Land Registrar at a rate of 0.1 per cent on the higher of the purchase price and the market value.

The acquisition of a property is subject to VAT if it is the first transfer within five years following completion of the building. Any subsequent sale, even during the five-year period following completion, ceases to be liable for VAT and is subject to registration duties. Transfers subject to VAT give rise to a 0.80 per cent registration tax and to VAT at the rate of 20 per cent. In addition, notarial fees and a land registrar fee are due.

The purchase of a renovated building may also be liable for VAT at the rate of 20 per cent if the renovation was substantial.

The purchase of development land the rate is also subject to VAT at the rate of 20 per cent subject to an undertaking of the purchaser to construct or renovate a building within a four-year period. This period may be extended, especially if the construction or renovation process has commenced before the end of the four-year period.

A specific real estate tax guide will be available shortly.


Contacts

Contacts

Jean-Pascal Bus Partner, Paris Tel +33 1 56 59 [email protected]

Fanny VellinAssociate, ParisTel + 33 1 56 59 52 [email protected]

Arnaud LabouréAssociate, ParisTel + 33 1 56 59 54 [email protected]



Office address

The Paris practiceNorton Rose Fulbright LLPParisEight40, rue de Courcelles75008 ParisFranceTel + 33 1 56 59 50 00Fax +33 1 56 59 50 01

Toque JO39Avocats à la CourSolicitors of the Supreme Court of England and Wales

nortonrosefulbright.com

Law around the worldnortonrosefulbright.com

nergy Life sciences and healthcare A guide to investing … · A guide to investing in commercial...

Documents

Transcript of nergy Life sciences and healthcare A guide to investing … · A guide to investing in commercial...