Holiday Apartment Owners in Mortgage Difficulties
Tuesday 05 May 2020
Investors in holiday apartment complexes in France urge government intervention over mortgages as rents dry up.
Encouraged by the tax breaks that have been available, since the 1970s many tens of thousands of investors have purchased apartments in holiday complexes in France known as résidences de tourisme.
Most of the developments are in ski-ing resorts, although they have also spawned in cities, seaside resorts and the countryside. There are also many business, student and elderly complexes which have been funded in this manner.
Each apartment in a complex is sold to an investor (mainly individual buyers), who then grants a commercial lease to an operator for a minimum of 9 years to run the complex.
In turn, the operator pays a rental each quarter to the investors, based on the management agreement into which they have entered.
With the enforced closure of holiday and business complexes and student apartments empty as a result of the Covid-19 pandemic, many commercial operators have been unable to pay the guaranteed rental to the investor.
Most owners have received a message from their commercial operator, similar to the one sent by Odalys Group, which manages several hundred complexes in France, who have stated: "As long as we are totally unable to use the property for reasons beyond our control, linked to the current health crisis, we have no choice but to stop paying the rent which is the counterpart of a normal operation", explained Laurent Dusollier, managing director of the company.
As many investors have taken out a mortgage to finance the purchase they now find themselves in a position where no rental income is being received, but with the need to continue to pay the mortgage.
Unlike registered businesses, the French government have granted no mortgage or rental relief to individual investors.
In a letter to the President Macron, Benjamin Nicaise, President of Consultim Group, the French leader in investment in managed residences, has called for suspension of the payment of mortgages for individual investors, stating:
"Individual investors are facing significant difficulties at this stage in obtaining the suspension of financing deadlines related to these investments. These applications are systematically refused when they have invested in their own name, their banks considering that they are not commercial activity, even though the nature of the income generated by this type of investment is classified as business income. As a result, these investors find themselves in difficulty by having to pay off their loans without collecting the usual revenues."
In addition to the loss of rental income, investors also face the threat of their investment losing its tax advantage, as under the law the properties are required to be let.
Jacques Gobert, lawyer for the association 'FNAPRT' (Fédération National des Associations de Propriétaires de Résidences de Tourisme, et Résidences Gérées), which represents individual investors, takes a more robust position regarding the operators: "These are guaranteed rents with firm leases, so the commercial operator has to pay", he insists.
Similarly, Christine Lorenzini, president of FNAPRT states that: "The position of the operators is simple; they want to cancel the rents to be paid to landlords for the duration of the lockdown."
Although in law individual investors are entitled to terminate their lease in the event of non-payment of the guaranteed rent, in practice it is a difficult course of action for any single investor to take.
"Since commercial operators sell their stays in advance, they have already cashed in the revenue," says Jacques Gobert. "And at the same time, almost all the retailers have put their staff out of work and could even be exempt from charges. These companies have cash and have no reason not to pay rent."