Agreeing on an Indemnity Eviction fee

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Agreeing on an Indemnity Eviction fee

We recently got out of our Leaseback arrangement with Eurogroup and I've had lots of queries from other members on this forum about it. Here I'm going to explain what we did and our understanding of the law. Please note, this is only what we understood and many others may have other experiences and better knowledge - please share if you do.

My husband and I bought a villa with private pool off plan in 2005 in the Vendee on a site by a golf course where leaseback apartments and houses sharing a communal pool had aleady been completed. We signed a Bail Commercial which was a leaseback contract allowing the management company (Eurogroup/Madame Vacances) to rent out our property between Easter - Toussaints and we could book 12+ weeks for personal use. We were told we were free to use our property in the closed season, there was no mention of who was responsible for the property in our contract. Since the site was unsupervised for the whole winter period it quickly became apparent we had to take responsibilty for our property over this time. Although the quality of the holiday experience MV gave to renters was never very good, communication with us was poor and rental statements lacked transparency, we tolerated them. Our rent typically was paid a few months late. 

The situation changed in 2015. Our Bail Commercial says that we could give 6 months notice and request to leave the Leasback Scheme after 9 years with no mention of a penalty. In 2015 therefore some owners wrote to MV saying they didn't want to continue with the scheme and gave them the required notice. They heard nothing in reply, so thinking everything was ok they changed their locks thereby taking possession. This was when we all realised that things weren't that simple! Even though it is unwritten in our lease, we are bound by Commercial Law and a 1953 act so we can NEVER leave the agreement without paying an indemnity to the Lessee. They have the right to demand this for damage to their business and they have 2 years to contest the eviction notice and determine the amount of the fine, while still carrying on as usual. Therefore those owners that had changed their locks were acting too soon. Just after this we all received a letter from the Manager of Eurogroup informing us that we were trespassing on our property if we used it during the closed season as they had a right to access all year round.  Anyone found disobeying would have their locks changed. This has thrown up questions about who looks after the properties in the winter as the owners pay for utilities, pool & gardening maintenance, co-ownership charges etc which normally for a year round use the tenant would be responsible for.

Some owners have been to court to challenge MVs right to an eviction indemnity as it does all seem very unbelievable and unfair but as far as I'm aware, no significant judgements have gone in their favour. The court cases drag on, are often put back and delayed. All are costly and in the meantime MV are still occupying the properties. Undoubtably we are all victims of mis-selling and while some MEPs in Ireland and the UK are investigating, this is all going to take time and is not helped for us UK citizens with Brexit. There are also arguments around whether a BC can apply to a holiday letting business anyway depending on the % uptake and the level of services offered but to my knowledge slow progress is being made on these too.

We decided that the whole arrangement was unacceptable and we needed to get out.  We wanted a clean break that we could acheive over a short period of time with minimal stress. In order to do this we had to accept that we would have to pay an indemnity but we would negogiate to get this as low as possible. First, in late 2016, we employed an Avocat to send MV the necessary Conge (break notice) served by Baliffs, saying that we were giving them 6 months notice. In this we challenged their right to claim an Eviction Indemnity as this applies to a full year round Bail Commercial which they don't have as they are not on site for 5 months of the year and we had taken responsibilty for all the losses and damages that had occured when our property was empty. They replied in January 2017 to say that they rejected all our claims and they do have a Bail Commercial, albeit a Seasonal one (Bail Saissonaire) so the full BC rules apply. We had hoped they might at least offer some reduction in the indemnity for all the things they should have paid for but they just ignored this. 

Our Avocat then went back to them to find out what kind of Indemnity fee they wanted. They started off by asking for nearly 4 times our annual turnover. Yes, it is calculated on turnover not on how much income they are losing. Eventually our Avocat got it down to just under 2.2 times, some of which was offset by allowing them to rent our property for the entire 2017 seaason so our rental income due was deducted from the Indemnity fee. Both us and MV signed a Settlement Agreement. We paid the balance in December 2017 and have been given back our keys.

It seems that the amount they ask for is entirely arbitrary but it is going up as more owners want to get out. They argue that the more people leave, the greater the impact on thier business so they are entitled to charge more. We are aware that some owners who got out before us paid less than 2x but now others are being told at least 3x and some have been told more like 6x. Our Avocat told us that if we took it to court, the courts would decide what a reasonable indemnity was, and their guidance is 2-5x so could be higher than we could negotiate. Therefore we saw no benefit in going down this route. As it is our legal fees have cost several thousand euros.

The only other way as we see it is to wait for the Management Company to go bankrupt and walk away. You will probably lose a year or two's rental income but this would be less than any Indemnity. You may be able to accelerate the bankruptcy by all owners sending in a CDP and forcing them to pay you at the same time - however this may not work, they still may not pay and apparently even if they haven't paid following 2 CDPs, this isn't considered a large enough breach to annul the Bail Commercial!!  

I'm sure that like us, you thought that by buying a second property in France, on a French government approved scheme, you couldn't end up in this kind of mess!

We decided on taking this recommended legal path as, under the terms of our Bail Commercial, you can never get out of the contract unless you pay the eviction indemnity that they demand.




Excellent summary Caroline

Well done Caroline.

Thanks for posting, as many are still unclear on the eviction compensation.

You're quite right, while the sale of these is under investigation by the DGCCRF in France it is unclear yet what might be achievable, and what the outcome will be.

If an owner can afford to get out then I think yourself and Wineflair are right, it's the only way to get piece of mind.

The amount they demand is not set, I've seen a figure of €30k mentioned by the operator in our place.

Having said that, I have heard recently that an operator in one Residence de Toursime may be trying to force those with no lease, and who rent the properties themselves, to rent through the operator. There is mention of the requirement somewhere (not sure if this is in a specific lease or ASL Co-proprietaires rules or French law) to have only one operator on the site. 

Hopefully not!!





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