What is repurchase sale?
A Repurchase Sale in France consists of temporarily transferring your property to a third party for a sum of money. It is then possible for you to buy it back from them after a fixed period of six months to five years (Articles 1659 et seq. of the Civil Code).
This type of sale allows the seller to remain in the property (especially if it is their main residence). In return, the seller pays the buyer a monthly occupancy allowance.
The amount of the redemption includes the market value of the property (known through an estimate) and acquisition costs (i.e. selling costs, repairs, etc.).
Types of real estate that are eligible for repurchase sale include apartments, houses, and commercial spaces.
Who is the repurchase sale for?
The sale to repurchase allows owners who are in debt to avoid a judicial seizure of their property followed by an auction.
It's usually seen as a last resort solution for those under a banking ban (registered with the Bank of France) or who are unable to repay various credits (i.e. mortgages, consumer credit, etc.).
This can also concern people who want to invest in real estate projects but lack liquidity. This allows them to release funds because banks refused to finance their projects.
Useful link : What do you need to know before making a loan?
What are the disadvantages of repurchase sales?
In some cases, it is not possible to recover the property at the end of the term. It all depends on the extent of the initial debt and the ability of the seller to return to a more stable financial situation. And in case of inability to buy back the property, it is permanently lost.
This type of sale is not without financial consequences since the seller must pay an occupancy allowance throughout the term. The seller must also reimburse the costs of the sale (i.e. notary fees, mandatory technical diagnostics, agency commission) paid by the buyer.
What risks the seller if he does not pay the occupancy allowances?
According to the Civil Code, non-payment on a single occupancy indemnity leads to the loss of the purchase of the property. Ownership of the property reverts to the buyer. A blocking of funds is then established by the notary who takes charge of the unpaid occupancy indemnity (from the first breach).
How much does a repurchase cost?
- Notary fees (reduced to 2% of the sale price if the buyer has the status of property dealer)
- Real estate agency fees
- Precarious occupation allowances (generally between 7% and 12% of the sale price per year)
What are the steps of the repurchase sale?
- Search for A Buyer
- Select the type of sale to repurchase via a real estate agent or on your own.
- Assess the feasibility of the project: the estimated value must cover the entire debt (if applicable).
- Send a proposal to the seller: must include the amount of the investor contribution (55% to 60% of the value of the property), amounts of monthly occupancy fees, and the price of the option to buy back the property
- Establish The Sales Contract
- Draft the notarial deed: search for funds, signing of the repurchase contract, the sales agreement, and the occupation contract.
- Prepare the transaction: regulation of the seller's receivables, withdrawal of a security deposit (contribution when subscribing to a loan for the purchase of the property).
- During the repurchase sales contract: pay all occupancy allowances at the beginning of the contract (or monthly), pay maintenance work of the property & the property tax.
- In case of non-payment of compensation: the former owner can be evicted.
- After The Repurchase Sale
- Redemption of the property: if the seller is able to buy back the property, the buyer then has to return it. It's also possible to take out a bank loan (provided you are no longer banned from banking and filed). The seller then has to pay the price of the redemption as well as the costs incurred in the repurchase sale.
What are the advantages of repurchase sales?
- Benefit from a debt-restructuring tool
- Avoid a foreclosure of your property
- Gives the chance to repay an outstanding loan
- Obtain funding for a project (without having to apply for credit)
- Owes no additional interest since it pays the exact amount of the planned redemption and the ancillary costs
For the buyer:
- Guaranteed capital
- Secure a profitable investment for the short term (often 8% profitability on average)
- The repurchase sale consists of transferring the property, temporarily, to a third party for a sum of money, with a possibility of buying it back over a fixed period of six months to five years
- This type of sale allows the seller to continue to occupy the premises in return for a monthly occupancy allowance that is paid by the seller to the buyer.
- Apartments, houses and commercial premises, as well as other types of property are eligible for repurchase sale.
- According to the Civil Code, an unpaid on a single occupancy indemnity entails the loss of the purchase of the property.
- This type of sale has advantages and disadvantages.
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Posted on 24/05/2023 by
Andy LECUYER
