Covid-19 - French Property Sale Contracts
Friday 03 April 2020
Many property buyers were unable to complete on a sale in France before President Macron ordered the lockdown, so what is the legal position? writes avocat Clint Goffin van Aken.
As a general rule, it is unlikely that the sale and purchase contract (compromis de vente) would have made provisions allowing the buyer to withdraw from the sale in the event of an exceptional event, presenting the features of force majeure, such as the epidemic.
Therefore, if the purchasers are not in a position to be able to rely on the failure of one of the conditions provided for in the sales agreement (for example, the rejection of the loan request to the bank), and they do not want to continue the sale, they will have to bear the loss of the deposit, which often corresponds to 10% of the sale price.
However, the buyer may legitimately wish to delay the sale due to the lockdown.
Indeed, due to current travel restrictions, it has become impossible to plan a move or to involve craftsmen to carry out work.
In addition, the buyer may have an interest in not currently releasing the funds from the loan he contracted with the bank to finance its purchase.
Acting on the sale today would force them to bear the first instalments of a mortgage when they cannot move into the property.
Several reasons may therefore lead a purchaser to request that the signing of the deed of sale intervene after the lockdown period, even if the notary is allowed during this period (since the Decree 3rd April 2020) to draft up the deed of sale electronically and remotely collect the consent and the electronic signature of the parties.
Of course, given the current circumstances, in most cases the parties will sign an amendment to the sale and purchase contract allowing the postponement of the signature of the deed of sale.
But, if the seller refuses to delay the sale despite the epidemic there are provisions in emergency laws recently passed that protect the buyer.
In this case, the buyer could take advantage of the provisions of the Ordonnance n°2020- 306 dated the 25th of March 2020 which provides for exceptional measures in terms of deadlines from 12th March until the expiration of one month from the date of cessation of the state of health emergency.
On this last point Ordonnance n°2020-290 dated 23rd March 2020 declared the state or urgency for a period of two months from its entry into application, i.e. from March 24th, 2020.
As a result, the period currently concerned by the order corresponds to the period between March 12th and June 24th, 2020 (the last date can of course be postponed in the event of renewal of the state of emergency).
According to article 4 of the ordonnance the clauses penalising a contractual non-performance are ‘frozen’ during this period, stating: « Les astreintes, les clauses pénales, les clauses résolutoires ainsi que les clauses prévoyant une déchéance, lorsqu'elles ont pour objet de sanctionner l'inexécution d'une obligation dans un délai déterminé, sont réputées n'avoir pas pris cours ou produit effet, si ce délai a expiré pendant [cette] période [du 12 mars au 24 juin 2020] »
It is only at the end of this period from 12th March until 24th June 2020, that the seller can request the buyer to sign the deed of sale.
However, the purchaser also benefits from a period of one month to execute since, as under the regulations, the terms generate their effects only “from the expiration of a deadline of one month after the end of this period if the debtor has not performed his obligation before this term."
In other words, the seller will not be able to mobilise the terms of the sales agreement governing the failure to reiterate by notarial deed unless the buyer has not signed by 24th July, 2020.
In conclusion, if the sales agreement provides for a date for signing the notarial deed at the latest on a date fixed between March 12th and June 24th, 2020, the purchaser is entitled to claim the postponement of the signature between June 25th and July 24th, 2020, without being exposed to the sanctions provided for in the event of refusal to sign the notarial deed.
The purchaser will not lose the benefit of the sale agreement and the loan contracted to finance his purchase and will not be liable for any compensation to the seller.
Of course, the buyer can agree to sign the sale before the notary before June 24th, 2020, hence renounce the benefit of the public policy provisions of the regulation.
One should keep in mind, however, that this renunciation can have its effects, it must be certain and unequivocal and be carried out with full knowledge of the facts.
For any notary deed to be signed during the legally protected period, from March 12th to June 24th, 2020, it is therefore wise to obtain beforehand the renunciation of the parties to avail themselves of the provisions of the emergency regulations.
POSTSCRIPT: In a late change of plan, in Ordonnance n ° 2020-427, published on 15th April, the 10-day withdrawal ('cooling-off') period is not affected by this derogatory scheme. There is no extension of this period during the state of health emergency although the other extension provisions remain in place.
Clint Goffin van Aken