Tuesday 05 May 2020
Is it possible to get around the right of pre-emption held by SAFER, the French agricultural land agency, over rural land and property?
SAFER (Société d'aménagement foncier et d'établissement rural) is a body few prospective buyers or sellers of rural property in France will be able to avoid.
The agency has the right of pre-emption (droit de préemption) on most rural property that comes onto the market.
This means they have the right to step into the shoes of a prospective buyer of a property and buy it on the same terms. They also have the power to substitute another purchaser, ie, a farmer.
That is why, as part of the sale and purchase process, notaires are required to advise SAFER of the forthcoming sale and give them two months to decide if they want to buy it. In the language of the process, they 'purge' the rights of SAFER.
If they are interested in the property, provided they are willing to buy it on the same terms, there is nothing either buyer or seller can do about it.
Only where they make a counter-offer at a lower price, or on different other terms, can the seller decide to withdraw the property from the market, or challenge their valuation in the courts.
Their purpose in intervening in sales in this way is to regulate the agricultural market, which they do in various ways, but mainly through the consolidation of existing farms.
They have, as one of their primary objectives, the installation of new farmers, although this occurs less in practice than may be inferred from their list of objectives.
They may also pre-empt on behalf of certain other statutory agencies, such as environment agencies.
In practice, for a many of their acquisitions SAFER has become a giant estate agency, selling properties they have acquired, either by pre-emption or amicably. As a result, they have come in for severe criticism from the French National Auditor.
It has to be stated that the vast majority of sales go through without the intervention of SAFER, but in some rural areas, in the sale of agricultural land and estates, they are omnipresent, and the risk of pre-emption is always present.
Indeed, many properties are sold by voluntary agreement to SAFER before the property is even put onto the market, as sellers are only too aware that unless they can cut a deal with SAFER they will be obliged, in any event, to sell to them.
In such circumstances, SAFER may, for instance, agree to buy some of the agricultural land, leaving the seller to sell privately the main house and a few acres of land.
Over the years, buyers and sellers have found sought to find ways around the right of pre-emption, only to be matched by changes to the law to remove or limit any loopholes.
As a result, there are now very few options available to those who want to sign a sale and purchase contract with a guarantee that SAFER will not want to look at it.
Nevertheless, a few limited options remain.
SAFER only have a right of pre-emption on agricultural land which is above a minimum surface area.
However, in most areas of the country the threshold has been set very low, from 1,000m2 to 2,500m2. In some cases, there is no minimum surface area; it will depend on the type of land, the planning zone and the department in which it is located.
The rule on mimimum surface area also only applies where there are no buildings on the land.
Long leases are not common in France, but they do exist. Such leases are called a bail emphytéotique.
They can be granted from 18 up to 99 years, effectively giving the right of ownership to the lessee.
As there is no transfer of property in such a transaction, no right of pre-emption exists for SAFER.
Nevertheless, they do have an entitlement in law to be informed by notaires of such leases, as notaires must advise them of all transfers of rights of real estate.
It would then be open to SAFER to challenge in court the validity of the lease on grounds of fraud. Where they could prove that a long-lease was being granted to get around the right of pre-emption, and that it is effectively a sale, the lease could be declared invalid.
The onus of proof would, however, be on SAFER, and judgements in the past have gone both ways, in which very different circumstances have applied.
For example, the creation of a long lease on contiguous land or property to an existing owner would more easily pass the scrutiny of SAFER and the courts than a long lease created on a farmhouse and land to the benefit of a person with no existing links to the area.
As Benoît Grimonprez, Professor of Rural Law at the University of Poitiers points out: "En effet, la conclusion d'un bail emphytéotique entre 18 et 99 ans ne permet pas le droit de préemption de la SAFER. Le locataire n'est pas vraiment propriétaire, mais il a un droit réel très fort sur le bien pendant toute la location. C'est en effet une solution imaginable pour transférer la maîtrise des parcelles pendant une longue durée."
If the lease stated that the land would transfer to the tenant at the expiry of the term of the lease, it is more likely to be subject to legal challenge, or be open to pre-emption at the expiry of the lease on such a proposed transfer.
Be mindful also that the notaire has a duty to ensure the regularity of the transactions processed by them, so you may need to choose your notaire with care.
Perhaps the most fruitful method of avoiding pre-emption is for the transaction to be for the reversionary interest (nue-propriété) only of the property, leaving the right of use (usufruit) to the existing owner.
SAFER do have a right of pre-emption over such 'dismembered' sales, but only in limited circumstances. The law on such sales states:
'Les sociétés d'aménagement foncier et d'établissement rural peuvent exercer leur droit de préemption en cas d'aliénation à titre onéreux de l'usufruit ou de la nue-propriété des biens mentionnés au présent article. Elles ne peuvent préempter la nue-propriété de ces biens que dans les cas où elles en détiennent l'usufruit ou sont en mesure de l'acquérir concomitamment, ou lorsque la durée de l'usufruit restant à courir ne dépasse pas deux ans.'
As can be seen from the text, they are specifically excluded from buying the reversionary interest unless they already hold the right of use of the property or they are able to buy it, or that the right of use being transferred is less than two years.
The logic of the law on this point is that SAFER would be unable to fulfil their objectives if they purchased a dismembered property, as it would be of limited value to a farmer, although this would be less the case if they had purchased the right of use.
It does then mean that the sale of the nue-propriété of a property, which some years later is followed by the sale of the usufruit, would get around the right of pre-emption.
According to Professor Grimonprez, "il suffit donc d’aliéner d’abord la nue-propriété, puis l’usufruit quelque temps plus tard, pour paralyser le droit de préemption."<
Needless to say, if SAFER considered a dismembered sale was being structured merely to bypass pre-emption they would be entitled to bring an action in the courts to have it declared invalid, although once again they would have to prove the transaction was fraudulent.
Where there was the simultaneous sale of both the bare ownership and right of use to the same person or related persons such a sale would be caught by the pre-emption rules. The same would apply where the bare ownership and right of use were being sold to different persons.
In order to monitor such transfers, the notaire is required to notify for information only SAFER of a sale of either the bare ownership or the right of use.
Clearly, where the seller wishes to retain use of the land or property there may be little point in such a transaction, unless you do not wish to use it yourself, or suitable terms can be agreed on this point, which would need careful consideration.
The other consideration is the risk that the holder of the usufruit (or nue-propriété) later decides to sell it to a third party. Thus, in theory, if you buy the nue-propriété of land, with the usufruit remaining with the seller, they have the right to sell it on to someone else who might wish to use it.
Many agricultural properties are held within a company structure.
SAFER has the right of pre-emption in the event of the sale of the shares of a company holding a property, with the law stating:
'Les sociétés d'aménagement foncier et d'établissement rural peuvent, sous réserve du I de l'article L. 143-7, exercer leur droit de préemption en cas d'aliénation à titre onéreux de la totalité des parts ou actions d'une société ayant pour objet principal l'exploitation ou la propriété agricole, lorsque l'exercice de ce droit a pour objet l'installation d'un agriculteur.'
SAFER's intervention in this type of transaction is, therefore, subject to the following conditions:
It would seem that a Société Civile Immobilière (SCI), although not principally an agricultural company, would be caught by this right, provided the underlying activities of the SCI were agricultural in nature.
All of this means that SAFER cannot pre-empt on the sale of part of the shares of the company. Thus, the sale of 70% of the shares in a company holding the land or property would escape the right of pre-emption. It would be open to SAFER to bring a legal action for fraud if they consider that has occurred. The burden of proof would be on SAFER. Most company share sales that do take place are only partial sales, often designed to get around the pre-emption rules. The partial purchase of sales enables the progressive transfer of a property.
These are sales via a life annuity, but only particular types of such sales escape the right of pre-emption.
Only where the annuity is in the form of services rendered (home, care) is it excluded.
Where it is for cash the right of pre-emption applies.
There is no right of pre-emption where real estate is being divided as part of an inheritance. There is similarly no right of pre-emption of sales between family members.
As a general rule, if the buyer of the property is a registered farmer then no right of pre-emption applies.
As a general rule, SAFER have no right of pre-emption on woodland, save in specific circumstances or if located in the Ile de France. <
In particular, the right of pre-emption continues to exist where the land is within a designated forestry management area or other parcels of land being sold are not woodland. The latter can occur quite frequently, so the sale of woodland is often caught by this rule.
However, it is also possible for SAFER to pre-empt only on the agricultural land, leaving the woodland aside. It would need a discussion with them.
SAFER have no right of pre-emption on property that is gifted between family members. 'Family' is widely defined, to include cousins.
Although they are able to intervene on gifts between third parties, there are limitations on their right to do so.
First, they cannot pre-empt on the gift of a residential building, or former buildings used for agricultural purposes. Such a gift between third parties would be highly unusual.
However, in a recent case in the courts, the sellers did finally gift land, which you can read about at SAFER and the Gift of Property.
Second, the right of pre-emption on gift transfers cannot be for any reason. It must be part of their central mission, mainly those concerning the installation, maintenance and consolidation of agricultural operations, with the law stating expressly:
'Le droit de préemption des sociétés d'aménagement foncier et d'établissement rural prévu au présent article ne peut être mis en œuvre que pour des motifs qui se rattachent principalement à leur mission de favoriser l'installation, le maintien et la consolidation d'exploitations agricoles ou forestières afin que celles-ci atteignent une dimension économique viable au regard des critères du schéma directeur régional des exploitations agricoles, ainsi que l'amélioration de la répartition parcellaire des exploitations.'
Finally, there is no indication in the law that were they to pre-empt just how the price might be determined on a proposed gift transfer. The seller is under no obligation to state a price, and the notaire is under no obligation to provide one to SAFER.
Accordingly, if the seller does not agree with the price offer made by SAFER then they can either contest it or withdraw the property from the market.
As a general rule all exchanges of rural land and property are within the remit of SAFER to pre-empt.
A recent case in the French Supreme Court suggests that SAFER cannot use their right of pre-emption where the disposal of property is the outcome of a judicial liquidation.
If all else does not work you can always go along and speak with SAFER and try to find out from them whether they are going to be interested in the land or buildings, or whether they are willing to cut a deal with you on the sale.
Some caution is needed in dealing with them, as they are often unwilling to give you any assurance in writing. The risk is that they may later be approached by a local farmer wishing to buy the land, in which case they may feel obliged to pre-empt.
One point that SAFER will always wish to consider is the price being paid for the property. They will not wish to buy if it is substantially over market value, as they need to be able to sell the property onto a farmer, who may be unwilling or unable to pay the price being demanded. So a high purchase price might have a dissuasive effect on them intervening, although it is never possible to be certain on this point. They might wish to do so to try and get the property taken off the market.
If SAFER insist on intervening, one possible solution is to try and agree with them to a letting of some or all of the farmland to a local farmer, with the letting on an annual basis and let through SAFER. The rental you would obtain would not be substantial, but such a tenancy would not grant the farmer the right to a life tenancy. However, you need to ensure the activity the farmer will pursue is acceptable to you.
This can only be general advice; you need to seek good professional advice from your own notaire, ensuring that they are familiar with rural property rights.