The COVID-19 pandemic, the rebound in tourism and increased construction costs have led to the emergence of new models in the hotel industry in France and elsewhere in Europe, revolutionizing market standards and existing offers. For several years now, the hotel industry has been facing strong competition from the Airbnb marketplace, with accommodation offered by apartment owners in major cities. Hotel professionals are even aligning their prices with those offered on Airbnb, which has become a de facto price reference for the market.
Also, due to the scarcity of real estate in French city centers, particularly Paris, investors have created a hybrid offer combining the comfort and location advantages of an apartment with the amenities of a hotel, such as room service, laundry service and chef-prepared meals.
While the concept is alluring to consumers and seems simple to carry out, it presents legal challenges to investors. That is because the proposed apartments are for the most part located in residential buildings and therefore defined as residential under local planning laws as well as under contractual rules of co-ownership.
Hotel activity is a commercial activity that cannot occur in a building marked as residential. Furthermore, if co-ownership terms provide that the apartment be used as residential, this commercial activity will violate contracts.
Unless the investor acquires the entire building and declares that it is for general commercial purposes, the investor must understand the property’s construction and contractual uses – before business operations start.
If the real estate asset is defined as residential under local planning laws, the investor must proceed with a change of use through administrative procedures. The procedure is simple, but the investor must account for the time it takes, because changes of use must be fully approved before business starts, otherwise they could be subjected to penalties and/or criminal sanctions.
In addition, if the property acquired is for residential use under the terms of the co-ownership, the investor has to obtain the agreement of co-owners to change the contractual purpose of the property in order to comply with those provisions. Investors must engage in planning and dialogue with residents during this phase. If not, and without the agreement of the co-owners, the activity cannot continue and the co-owners might take legal action.
Given these complexities, we recommend that investors prepare projects in advance and seek legal advice in order to obtain all authorizations needed to avoid sanctions and penalties.
