What is it ? How does that work?
A potential purchaser and investor may decide to purchase a brand new French property (off-plan) with all the legal guarantees attached to new building/property.The purchase price includes French VAT (currently at 20 %).
Under this specific scheme and as soon as purchased, the owner of the property would be expected to enter into a French commercial lease with a company specialised in para-hotel activities, tourism management and rental of these kind of properties.
The duration of the lease is generally for a fixed term of 9 years without the possibility of bringing the lease to end before the expiry date.
In return, the owner receives some annual amounts (rent) after deduction of various costs and charges.
The commercial lease agreement would also specify the number of weeks and period during which the owner would be entitled to spend time in his/her property and use it during said weeks (low and high season generally).
In parallel, the VAT is refunded back to the owner of the property.
Some of the larger developers advance the VAT (TVA in French) to the purchaser (in this case, the purchaser would only pay 80% of the purchase price, instead of 100 % and then claim the 20% back), and they receive the money back from the French Tax authorities.
Sale of the property
As a full owner of the property, the owner/purchaser is fully entitled to re-sell his French property.However and notably if the owner were to sell the property or no longer lease it out as part of a tourism resort, the VAT which was reimbursed to the owner would be reclaimed by the French Tax authorities (1/20th for each unexpired year).
This would not be the case if the property is sold with the existing lease intact.
Termination of the commercial lease
Bringing an end to the commercial lease must be done in accordance to very strict procedural steps.It is important to be aware of the tax ramifications (VAT notably) but also of the fact that the landlord (owner of the property) would require to compensate his/her tenant.
For further information on leasebacks please click here.