Rights of First Refusal on French Property
Tuesday 19 October 2021
Securing preferential rights on the future sale of land or property that is not currently on the market.
During the sale of a property in France not all of the adjacent land or property owned by the seller may be included in the transaction.
This may occur either because:
- Some land may be retained by a seller for, say, continued farming use;
- The owner hopes to obtain planning consent on the land;
- They may not wish to sell at the present time, possibly for tax reasons;
- The land or property may be tenanted by a third party.
Land being held back for planning permission or being separately sold off with consent is the most frequent reason for being excluded, when sellers may well be reticent about voluntarily communicating that information to a seller.
That being the case a prospective buyer needs to ask the question of the seller or make appropriate enquiries with the agent or notaire. We say more about this general issue in our Guide to Pre-Contract Enquiries.
If you wish to obtain an interest in such land you either need to get it included in the sale contract, or you need to enter into an agreement to obtain a right of first refusal when it does come on to the market.
The same circumstances can also arise between long-standing neighbours, when the property in question may similarly be a contiguous field, woodland, barn or other ancillary buildings.
Indeed, if you have got the chutzpah to do it and you think it might pay off, there is no reason why you cannot make an unsolicited approach to a any property owner with a proposition for a right of first refusal if it is likely to come on the market in the foreseeable future.
These agreements are called a pacte de préférence.
Article 1123 of the Civil Code gives the definition as a: 'contrat par lequel une partie s’engage à proposer prioritairement à son bénéficiaire de traiter avec lui pour le cas où elle déciderait de contracter.'
In order words, in such an agreement the owner will give preference to the beneficiary if they decide to sell the property. So it can only be triggered by the owner. As a result, getting agreement on a right of first refusal is not normally difficult to obtain.
Should the seller place the property on the market and obtain a contract for purchase from a third party, they would be obliged to offer the property to the beneficiary before finalising the sale on the same terms. The agreement grants no preferential terms on price, unless it is contained in the contract.
Of course, the beneficiary may waive or disclaim the preferential right granted to them by the agreement at any time, effectively ending it and releasing the seller to contract with another purchaser of their choosing.
Terms of Pacte de Préférence
The terms of a pacte de préférence are entirely at the discretion of the parties.
Particular issues that need consideration are:
- The duration of the agreement; the parties may agree that it will remain in effect for a period of six, ten, or twenty years, after which time it would automatically expire, leaving the seller free to contract with a third-party purchaser without first offering the property to the former beneficiary.
- The basis on which the purchase price will be determined, as the price is unlikely to be stated at the time of the agreement;
- Whether the right of first refusal operates in the event of only partial sale of the land or property;
- Whether a sum is payable for the agreement (not normally);
- The penalty that might apply in the event that the owner sells the land to a third party, and whether execution of the agreement could be enforced;
- Whether successors to the owner and beneficiary will have an entitlement;
- Any conditional clauses that might apply, eg planning;
- Who will pay the legal costs of drafting the agreement.
There is no particular form required for such an agreement, which may even be verbal, but it is strongly recommended that it be prepared through a notaire, as it can be then registered as a charge on the land. That way, no future notaire or prospective third party purchaser can claim to be ignorant of it. The fees of the notaire are a matter of negotiation.
Enforcement of the Agreement
Litigation related to such contracts is abundant, with many such cases turning on the sale of land to a third-party purchaser without the beneficiary being given an opportunity to exercise his or her rights under the agreement. Neighbours fall out and sellers change their mind.
Like most questions revolving around the enforcement and interpretation of contracts, it’s complicated.
The Supreme Court in France, the Cour de Cassation, has previously ruled that a beneficiary of a pacte de préférence could not force the cancellation of a sale unless they could prove that the third-party purchaser had knowledge of both the existence of the agreement and the beneficiary’s intention to exercise their rights under it.
This places a heavy burden of double proof upon a beneficiary seeking to get a sale stopped or annulled. One important reason why a notaire should be used in drafting the agreement.
If a beneficiary is unable to cancel the sale to the third-party purchaser, the Civil Code grants to them the right to initiate a suit for damages in order to compensate them for the seller’s breach of the agreement. Indeed, the law implies that the preferred method of sanction for violation of a pacte de préférence is the payment of damages and not annulment of the third-party sale, although this remains a viable option.
If a beneficiary can meet the double proof standard, not only can they force the cancellation of the sale, they may also petition the court to substitute the beneficiary for the third party purchaser, essentially allowing the beneficiary to step into the shoes of the third party purchaser.
A word of caution is needed about farmer's rights - as always.
A pacte de préférence does not trump the rights of a farmer who may be occupying the land through a farm tenancy.
They will normally have priority rights to purchase it over the beneficiary of a pacte de préférence.
Whether this occurs will depend on the nature of the farmer's rights; if they hold a ‘bail fermier/bail rural’ they have an automatic right over anyone else to purchase the land if the owner decides to dispose of it.
This right is called a droit de préemption du fermier.
In addition, the French rural land agency, SAFER, have an automatic right of pre-emption on all agricultural land and buildings.
Accordingly, if you hold a pacte de préférence your contractual right of first refusal will be subject to the prior statutory rights of a tenant farmer and/or SAFER. In urban areas the local council may also have a statutory right of first purchase, but a pacte de préférence is more common on land in rural areas.