facilities such as heating, lighting or
wastemanagement, and set out objectives
for improving the building’s environmental perfor-
mance.
•
No penalties in the case of absence of such document.
Î
Evolution of the rent during the initial lease
•
Rent is usually yearly adjusted in accordance with an indexation
clause providing for an evolution of the rent on the basis of an
index:
•
The National Construction Cost Index published by the Institut
national de la statistique et des études économiques (INSEE) is the
most commonly used index for commercial leases
•
It is now possible to apply a new index, called the Commercial Rent
Index (Indice des Loyers Commerciaux), to premises which are
used for commercial use (as opposed to office use).
•
Another new index named ILAT (Indice des Loyers des Activités
Tertiaires) has been created for premises used for non-commercial
and non-industrial service activities.
Î
Term of the renewed lease
•
When the termof the initial lease is more than nine years, it is
renewed subject to the same terms and conditions as the previous
lease but for a termof only nine years.
Î
Rent on renewal
•
Rent on renewal must correspond to the rental value of the leased
premises: when the parties cannot agree on this value, the law
refers to certain elements:
- the characteristics of the premises;
- the permitted use;
- the respective obligations of the parties;
- local commercial factors which have an impact on the busi-
ness operated by the tenant; and
- the prices commonly applied in the vicinity.
•
Exception to this principle: the rule of capping renewed lease rent:
- not applicable for leases exceeding a nine-year term.
- provides that the rate of variation applied to the rent payable
upon entry into force of a renewed lease cannot exceed the
variation in the quarterly National Construction Cost Index
published by the INSEE since the date on which the initial rent
of the expired lease was determined.
- does not apply when: (i) as a result of tacit extension (ie,
when the lease continues to have effect after its contractual
termbecause no party has given notice), the termof the
lease exceeds twelve years, (ii) single-use premises (premises
which, according to their characteristics, can only have one
use, such as a cinema or a hotel); and (iii) premises used
exclusively as offices.
•
In addition, the parties may derogate by contract from the capping
rule and freely fix the procedure for determining the amount of the
renewed lease.
TaX
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Direct acquisition of a property
•
The acquisition of a property gives rise to either stamp duty (droits
d’enregistrement) or value added tax (VAT).
Investor Guide to Europe 2014
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•
Stamp
duty applies
to a construction
completed for more
than 5 years at the time of the
acquisition. Stamp duty is assessed on
the purchase price and is, in principle, levied
at the rate of 5.09%, subject to exceptions where
a reduced rate of 0.715% (eg. undertaking to re-sell the
property within a 5-year period) or a fixed duty of €125 (ie.
undertaking to build a property within a 4-year period) apply.
•
On the contrary, the acquisition of a property froma seller liable
to VAT is automatically subject to VAT in the case of (i) a terrain à
bâtir (ie. land upon which constructions fixed to or in the ground
may be authorised under local or municipal planning rules or the
provisions) or (ii) a building completed within the last 5 years. VAT is
levied at the standard rate of 20%and assessed, in principle, on the
purchase price.
•
In addition, notary’s fees amount to around 0.825%of the pur-
chase price above €60,000 (1% incl. VAT), it being said that, fees
exceeding € 80,000 (excl. VAT) may be negotiated. The land regis-
trar’s salary (contribution de sécurité immobilière), levied at the rate
of 0.10%on the same basis as stamp duty, is also due.
Î
acquisition of shares in a company holding a
property
•
For stamp duty purposes, a real estate company (sociétés à pré-
pondérance immobilière / SPI) is defined as a non-listed legal entity
(French or foreign) of which the assets mainly consist, at the time of
the acquisition (or during the year preceding the sale of the shares),
of property or property rights located in France or shares in other
SPIs.
SPIs
- rate: 5%
- taxable basis: market value of the property, directly or
indirectly held, and other assets, after deduction of the sole
liabilities relating to the acquisition of the property.
Companies other than SPIs
- joint stock companies (sociétés anonymes, sociétés par
actions simplifiées): rate of 0.1%assessed on the purchase
price; or
- partnerships (sociétés civiles, sociétés en nomcollectif,
sociétés à responsabilité limitée): rate of 3% (with a deduction
of €23,000multiplied by the number of shares transferred,
then divided by the total number of shares of the company)
assessed on the purchase price.
Regardless of the nature of the company, amerger only gives rise to a
fixed duty of €375 or €500 (plus notary fees and land registrar salary)
where it involves companies subject to corporation tax.
Î
asset deal vs. share deal
Acquisition of the shares in an SPI may generate tax savings in terms
of stamp duty but, it may also have other indirect tax consequences
(eg. inheritance of potential tax liabilities, no right to depreciate shares).
