11. Get Protection Against the Non-Payment of Rent
If you want to reduce the risk of non-payment of rent then, as we stated in earlier pages, you need to select your tenant with great care.
Nevertheless, even though at the outset you may have made the right choice, things can later change (economic uncertainty, family instability, deterioration in relationships) and a prudent landlord needs to protect against these later risks.
There are four main forms of protection that a landlord can take against the non-payment of rent.
- 11.1 Rental/Demage Deposit
- 11.2 Insurance
- 11.3 Government Rental Guarantee
- 11.4 Guarantor
None of these steps offer complete security, and they do not apply in all circumstances. In particular, the use of insurance cover is going to be more difficult to get in the case of a long-term letting to someone from overseas, and the use of a guarantor in such a case unlikely.
Accordingly, if you let to an international tenant, you are going to have to place greater reliance on your vetting procedures, a larger initial deposit and/or rental payments well in advance.
11.1. Rental/Damage Deposit
It is normal practice for a landlord to ask for a rental/damage deposit from a new tenant, which is refundable at the end of the tenancy.
The deposit is called the Depot de Guarantie.
However, the deposit is not obligatory and neither is it possible to insist on a deposit if the rent is payable two months or more in advance.
In the case of an unfurnished tenancy, the amount of the deposit cannot exceed one month's rent, excluding charges.
There are no regulations relating to the amount of the deposit for a furnished tenancy.
The deposit does not carry interest and cannot be revised during the tenancy.
It must be returned to the tenant within a maximum of two months from the end of the tenancy.
The amount to be returned will be the balance left after payment of any rent arrears or charges, and the cost of justifiable repairs.
The only repairs that are admissible are those for which the tenant was responsible, including any damage or neglect of the property that they should have repaired prior to termination.
If the tenant should give notice to terminate the tenancy, they are not entitled to use the deposit held by the landlord in lieu of rental payments. They must pay the rent as normal and seek a refund of the deposit when they vacate the property.
Disputes about the non-reimbursement of the deposit at the end of the tenancy are one of the biggest sources of litigation between landlords and tenants.
If the landlord unjustifiably withholds refund of the deposit then it carries interest at a rate set by government – about 2%.
11.2. Insurance Against Non-Payment of Rent
One of the most easiest and effective ways of securing the rent is for a landlord to take out insurance against the non-payment of rent.
The insurance is called l’assurance loyers impayés.
The policy also covers the legal costs associated with legal proceedings against the tenant, although with some policies, this may be an optional extra.
The policy will not normally cover the first months arrears of rent but, as an insurer will consider that this is covered by the depot de guarantie.
The cost of the cover is between 3% and 5% of the rental, which is tax deductible.
Cover can be arranged through one of the main banks such as Credit Agricole, BNP/Paribas, Credit Lyonnais, or directly with insurance companies such as Generali or Natio Assurance.
Some of these contracts are only available through managing estate agents, although others are available direct to individual landlords.
In the first instance, try asking your own bank or insurance company because some companies only offer cover to existing clients.
Top Tip!
One of the main conditions of obtaining the insurance is that the rental must not be greater than 33% of the gross annual income of the tenant.
Inevitably, this rule is going to reduce the number of potential tenants capable of accepting the tenancy on these terms, but it may be better to accept a lower rental than take a tenant without the insurance.
The insurance company may wish to see proof of income, so this condition does pose a problem of application if the prospective tenant is unwilling or unable to provide such proof.
It may be a particular problem in relation to prospective tenants from overseas. You will need to discuss with your insurer the information they are going to want to see, before you commit yourself to the letting.
If you are seeking insurance for an existing tenant then, provided they have paid their rent satisfactorily for at least a year, the rule on ratio of rent to income may be waived – check with your insurer.
The insurance company will impose a ceiling on the level of the rent that will be covered, although this ceiling should normally meet most requirements.
The duration of the cover will also be limited to between 18 and 36 months rent, and it may also only apply if the property is the main residence of the tenant.
In addition to insurance against the non-payment of rent the policies also offer additional options, such as assistance with legal costs to take possession proceedings, insurance against loss of rent for a property that becomes vacant, damage to the property by the tenant, and insurance in the event of death of the tenant.
There are also a number of insurance companies that offer insurance to tenants although the conditions are strict – good health, secure job, maximum rent/salary ratio.
The insurance will cover death, incapacity loss of job, divorce.
Top Tip!
We consider that landlord insurance against the non-payment of rent is imperative for anyone contemplating letting on an annual basis in the French market.
However, be prepared to look around to get the best deal and read the conditions with care!
11.3. Government Rental Guarantee
We saw above that, whilst is is possible to take out insurance against the non-payment of rent, this option is not available where the rental is higher that 33% of the income of the prospective tenant.
Accordingly, in January 2007 a government backed insurance scheme was introduced for those on low incomes, or in insecure employment.
The insurance scheme is called Garantie des risques locatifs (GRL).
Under this scheme, in the event of default by the tenant, it will guarantee the rent for 24 months.
It will also offer insurance against damage carried out to the property by the tenant, up to the value of €7700.
The guarantee can also be used in tandem with the rental deposit guarantee 'Loca-Pass', outlined below in 4.2, so that all your bases are just about covered.
The scheme is offered through the main insurance companies and banks that otherwise offer insurance against the non-payment of rent, and is guaranteed by a government insurance fund.
Main players in the market, as of Winter 2007, are Lloyds, Swisslife, MMA and Macif.
The government have set a maximum limit on the cost of the insurance premium, which cannot be greater than 2.5% of the rental.
It can be used for tenants who would not otherwise be covered by private insurance, on condition that the rental does not exceed 50% of their income.
The tenant will need to obtain confirmation from an insurer that they are eligible to participate through a Pass GRL, which will state the maximum rental entitlement under the scheme.
In order to obtain a Pass GRL, then application by the tenant can be made over the internet with the government agency responsible for the scheme at GRL Gestion 
.
This agency also assumes responsibility for any legal proceedings that may be necessary in the event of default on the rental.
11.4. Guarantor
It is possible to ask a prospective tenant to provide a guarantor for the rent, particularly if the prospective tenant is young, and/or on low income.
The guarantee is called a Caution and may be either 'personal' or 'institutional'.
11.4.1. Personal Guarantees
Personal guarantees are more often used for students, or young persons in insecure employment, when their parents act as the guarantor.
There are a number of specific formalities that must be adhered to, failing which the undertaking may be unenforceable.
The agreement to act as guarantor must be in writing and must be either part of the tenancy agreement or a document annexed to it.
Clearly, the guarantor must also be resident in France, so this option is unlikely to be available if you are letting to someone from overseas.
The guarantee may either be one that is solidaire or simple. It is far more desirable to obtain the former as it allows immediate recourse against the guarantor, whereas this is not the case with a caution simple.
The guarantee may be for a maximum amount and a definite period or it may be for an indeterminate amount and period.
If the latter is the case the landlord is obliged to notify the tenant of the state of the account at least once a year.
If the tenant develops any arrears of rent then the landlord is obliged to advise the guarantor without delay or risk losing the guarantee.
There are standard letters that can be used but you would be best to have the agreement prepared and signed through a notaire as part of the contract procedure.
11.4.2. Institutional Guarantees
As the number of family members willing to act as guarantors has declined in recent years (other than for students), some institutional options have emerged.
There are two main institutional options available:
- i. Fonds de Soldarité Logement (FSL)
;
- ii. Loca-pass
Whilst these institutional guarantees have some merit, they do have their limitations, notably in relation to the period of cover that they offer.
As a general rule, they are only available for the first three years of the tenancy, and for a maximum rental period of eighteen months.
As these guarantees are offered by different organsisations on a decentralised basis, the precise terms will vary as between one and the other.
With the introduction in January 2007 of the new government backed rental guarantee, called Garantie des risques locatifs (GRL), the future of these existing guarantees is uncertain.
- i. Fonds de Soldarité Logement (FSL)
The Fonds de Soldarité Logement (FSL) make available grants and loans for the costs of the rental deposit, pay the initial rent or transaction costs, relocation costs, insurance.
They can also act as a guarantor for rental payments and may also give assistance in the form of grants or loans with rental payments, and utility costs.
The assistance may take the form of either a loan or a grant.
The detailed regulations and availability of funds varies between départements.
You should contact the local mairie or the préfecture for details of the FSL in your area.
- ii. Loca-Pass
The loca-pass is a separate fund, referred to as 1% logement because it is funded by a 1% housing levy on large employers.
The aim of loca-pass is to help prospective tenants to obtain access to housing though the provision of an interest free loan for the rental/damage deposit and/or to act as guarantor against the non-payment of the rent.
The loan for a rental deposit used to be restricted to specific groups of persons, but, since February 2008, is now available to all prospective tenants.
However, the rental guarantee continues only to be available to unemployed young people under 30 years of age, grant-aided students and to anyone employed by a private (non-agricultural) company employing less than 10 people.
The funds are managed by agencies that have been established or mandated for the purpose.
You can also contact the one of the organisations responsible for distributing the funds by visiting Loca-Pass .
You can also make enquiries about the provision of a loca-pass in the first instance to the Chambre de Commerce in your area.
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