All questions

Real estate ownership

i Planning

In France, the rules applying to the construction of a building or to the completion of a development operation are set at both the national and local level.

At the national level, the French Town Planning Code applies, encompassing national town planning rules (which apply in the absence of municipal town planning rules) and rules applying in specific areas, such as sea and lake areas and mountain areas.

At the local level, land use plans (PLUs) apply. A PLU is usually adopted at the city level by the relevant municipal council, but the latest legal developments favour its establishment at the inter-communal level. The PLU sets the specific rules applying in the different zones (i.e., urban zones, agricultural zones, natural zones and zones to be opened to urbanisation) of the territory it covers regarding the type and nature of admitted constructions, service road conditions and network service, setback and volume requirements, design of the buildings, landscape and environmental quality of the buildings, requirements in terms of creation of parking spaces and green surface areas.

Law No. 2014-366 of 24 March 2014 (Law No. 2014-366) has been enacted to promote new principles of town planning with the aim of reducing the surface area used for the construction of new buildings. In accordance with these new principles, the Law prohibits the local or inter-communal authorities to provide in a PLU for a maximum ratio of constructed area to ground area.

Ordinance No. 2015-1174 of 23 September 2015 allowed the recodification of the French town planning code. The recodification included, inter alia, new features in PLU content and provided for a new definition of the various possible uses of a building.

A project's compliance with these rules is assessed by the relevant authority for the building permit.

Planning permission can be challenged by interested third parties before administrative courts for non-compliance with applicable rules. Most recent legislative and regulatory provisions, including Decree No. 2018-617 of 17 July 2018 and Law No. 2018-1021 of 23 November 2018 on the evolution of housing, planning and digital technology (called ELAN), aim at improving the processing of claims against planning permissions. These texts provide for the acceleration of the process of request and the limitation of abuse of process through many measures such as the crystallisation of legal grounds of the claim, the obligation for the claimant to communicate the elements allowing to appreciate his or her interest to file a claim, measures encouraging the judge to allow the regularisation of irregular planning permissions whenever possible and to dismiss improper claim.

ii EnvironmentLegal requirements concerning classified facilities

A real estate asset (such as a warehouse) may qualify as a classified facility or may be served by a piece of equipment (such as an air conditioning system serving an office building) qualifying as a classified facility.

Classified facilities are defined and listed in an official nomenclature that indicates a classification level, according to the potential risks to the environment. Classified facilities are subject to a specific regulation codified in the Environmental Code.

To validly operate such a facility and depending on its classification level, the proposed operator must either file a declaration or a registration or apply for authorisation (the new environmental authorisation), which is acknowledged or granted by the local authority. Moreover, the seller of a property where a classified facility is or has been operated must inform the purchaser of any danger or nuisance resulting from previous operations on site, to the extent that he or she is aware thereof. If the seller fails to provide this information, the purchaser can rescind the sale or obtain the reimbursement of a part of the purchase price. The purchaser may also require that the site be cleaned up at the seller's expense, when such cost remains commensurate with the purchase price.

Under Law No. 2014-366, the seller of a property located in an area identified by a public authority in an SIS (Secteur d'Information sur les Sols, to be established by the Préfet for 1 January 2019 at the latest) as having been exposed to pollution must provide the purchaser with the information pertaining to such exposure collected from the public authority. If the seller fails to provide this information, and if the ground happens to be contaminated in a manner that results in the sold property not being fit for its proposed use, the purchaser can rescind the sale or obtain the reimbursement of a part of the purchase price. The purchaser may also require that the site be cleaned up at the seller's expense, when such cost remains commensurate with the purchase price. This obligation (except for the cleaning up) is also applicable to lease agreements.

If a classified facility is operated without the above-mentioned required declaration, registration or authorisation, or if the operator does not comply with applicable rules and regulations, the operator may be held liable from an administrative, civil or criminal standpoint.

When a classified facility ceases its activities, the local authority orders the last registered operator to conduct environmental investigations and will issue an administrative order to clean up the site according to the results of these investigations.

Note that when pollution is discovered on a site, the administration will require the last registered operator of the site to clean it up or, if this pollution is generated by a neighbouring facility, the last registered operator thereof. Under Law No. 2014-366, if no registered operator can be identified, the administration can order the owner of the polluted property to carry out the cleaning, to the extent it can be demonstrated that the owner has been negligent in this respect or is to some extent related to the pollution. The level of exposure of the owners to this new legislation will depend on whether the French courts will broadly or strictly construe these new criteria.

If pollution coming from the site's underlying ground generates damages to a third party, the third party would be entitled to initiate a civil action against the current operator or the property's owner (or both) acting as a gardien de la pollution. The property's owner or current operator will nevertheless be in a position to initiate a civil action against the person or operator actually liable for the pollution if identified.

Under Law No. 2014-366, upon cease of operation of a classified facility, subject to approval of the last registered operator of the site and the relevant authority, an interested third party can substitute the former to carry out rehabilitation measures on site.

Legal requirements concerning hazardous waste handling

Contrary to the classified facilities legislation that targets the operator of the facilities, the legislation set out in the Environmental Code governing the holding and handling of hazardous waste may impose obligations upon the owner of a property.

Especially where the owner of land carries out the construction of a building requiring prior excavation of polluted soil, the owner is liable for the proper handling of excavated soil that should then be directed to a special storage centre designed for the treatment of polluted soil (the selection of the storage centre depending on the nature and level of pollution detected in the handled waste). Under Law No. 2014-366, the owner of a polluted property can be held liable if it can be demonstrated that the owner has been negligent to some extent or is to some extent related to the pollution, even if the owner did not actually take part in the construction of a building on the property.

iii Tax

Sales of development land (i.e., land on which the buyer is allowed to erect new buildings under urban planning) and new buildings (i.e., if the sale occurs within five years of completion of the buildings) fall within the scope of VAT (the current rate of 20 per cent has been in place since 1 January 2014).

Sales of land that cannot be considered as development land and of old buildings are exempt from VAT; however, the seller can always elect to pay VAT.

Sales of buildings also trigger a transfer tax amounting to 5.81 per cent of the value of the asset. This rate can in particular be reduced to:

  1. 0.715 per cent if the sale concerns new buildings or development land;
  2. 0.715 per cent if the buyer undertakes to resell the asset within five years of the acquisition; or
  3. €125 if the buyer undertakes to erect or complete new buildings within four years of the completion of the sale.

With effect from 1 January 2016, an additional tax of 0.6 per cent of the value of the asset applies to the sales of offices, business premises and storage premises located in the Ile-de-France region. Sales of new buildings are not within the scope of this additional tax.

In addition, for any sale of real estate property in France, a fee amounting to 0.1 per cent of the value of the asset is due, and the notary charges a 0.814 per cent fee (which can be reduced in certain cases).

Sales of shares in real estate companies (whose assets mainly consist of French real estate) are subject to a 5 per cent transfer tax based on the sale price or, if higher, on the fair market value of the shares.

iv Finance and security

The acquisition of real estate is usually secured through a mortgage, which must be granted under a notarised agreement under French law. Depending on the purpose of the transaction, this security will be in the form of a contractual mortgage or a money purchase privilege. Both securities grant the lender the right to become the owner or resell the mortgaged real estate at public auction if the borrower defaults under the financing.

As regards the income generated by the property, the rents payable to the borrower or the indemnities payable to it in relation to the holding of its real estate (such as insurance indemnities or indemnities due under the acquisition agreement of said real estate) are usually assigned by way of security or pledged in favour of the bank.

Finally, one must stress that when the borrowing entity is an SPV, lenders very often require that the shareholders of the SPV also pledge the shares they hold in the share capital of the borrower as a security.