Some leaseback owners are finding themselves in a situation where the lease comes up to its term and, having repeatedly had to face late rents and lack of communication from the French leaseback company, they are considering non renewal.
Many of these are aware of the potential eviction fee, but are unsure as to how much advance notice is to be given, how the break notice should be served and how much the leaseback company is likely to claim.
It obviously is crucial to carefully review the lease and ascertain what the exact notice period is, as well as when exactly is the lease coming up to its contractual term or for renewal. Moreover, break notices called 'Congé' should be served in a legally-suitable manner, failing which the contract continues to run, albeit for an undetermined time-period.
Unless they issued a special waiver, in respect of the eviction indemnity, after the lease came into force, French leaseback companies are statutorily entitled to keep the keys and continue managing owners' properties until such time a settlement is reached on what the eviction fee is and such fee gets paid, or until when a judge rules over the issue. The principle derives from Article L145-28 of the French Commerce code.
Where the French leaseback operator has repeatedly been in breach of contract, by failing to pay rents on time for example, this can allow owners to obtain a cancellation through French Courts. Whether the breaches in question are or not serious enough to justify cancellation remains at the judge's discretion however. To stand a good chance of getting the lease cancelled on a compensation-free basis, owners are expected to previously have had several payment notices called 'Commandement de Payer' (CDP) served, without success, on the leaseback company.
In my experience, except where numerous blatant breaches of contract occur, or where the leaseback company is no longer entitled to invoke those protective rules set out in the French commerce Code, it can be worth trying to agree the terms of a settled cancellation. It is best to consider this well ahead of the time-limit set out in the contract, or by statute, for serving a non-renewal notice.
Some leaseback companies apply a dissuasive policy, by expecting owners to pay up to nearly 4 times a pro-rated share of the net annual turnover the resort generates as a whole, as opposed to how much income the company is losing in respect to the relevant leaseback apartment/property. Such a high ratio is unlikely to stand before French Courts. There are instances where, in an out-of-Court settlement context, the 4X ratio can be lowered down to about 2, which is more consistent with French case-law on the subject. Part of the rent due up to cancellation can sometimes be offset from the eviction fee, by allowing the leaseback company to rent owners' properties over the remainder of the season. Where cancellation can be mutually agreed, the settlement should be recorded in a formal Settlement Agreement duly signed by both parties. Owners then safely pay the balance on the agreed date and are being given back their keys. Beware of the VAT clawback however: Unless other qualifying management arrangements are being put in place, a pro-rated share of the initial VAT-exemption, which applied to the purchase price, may be claimed by French Tax Authorities.
The above reflects how urgent it becomes for the French Government to help those investors, mainly from the UK and Ireland, who became trapped in these contracts.