The commercial lease agreement and tourist rentals in France: Everything you need to know
When you invest in property in France, it’s important to ensure you have access to trustworthy and reliable legal advice. But how can you know if you’re getting good advice without at least a high-level understanding of the complex concepts involved? This article provides a straightforward overview of the French commercial lease agreement and its impact on your overseas investment, so you’ll have the tools to choose the best guidance.
Commercial lease agreement basics
In simple terms, a commercial lease agreement is exactly what it sounds like. That is to say, it is a lease offered by a landlord to a business for use of its premises in order on which to carry out business activities. French law tends to be quite rigid and strictly defines what counts as ‘commercial activity’ as well as certain terms of the lease agreement. For example, renting out a furnished property is considered a commercial activity whereas renting out unfurnished property is classed as a private activity covered by the civil, not commercial code. French law also dictates that the length of a commercial lease must be for a minimum of nine years, with a break option every three years and the right to renew at the end.
Commercial leases for tourist residences
Given that commercial leases only apply to commercial premises, it can be challenging to understand why it would come into play for tourist residences. However, commercial lease agreements are a common feature when investing in tourism residences in France as part of a leaseback agreement. With a leaseback agreement, the investor enters into a kind of two-part deal with a property management company. Firstly, you as an investor buy a Freehold property in France, meaning you own the property outright and indefinitely. Secondly, as soon as the deed is signed, you lease the property to the management company as part of a commercial lease. Since the management company then markets the furnished property for use by tourists – i.e. the management company’s business activities – it is eligible for a commercial lease even though it may look more like a residence. In other words, you rent to the company, not to the tourists themselves.
What does this mean for investors?
One clear advantage of this kind of arrangement for investors looking to buy property in France is that a rental income is guaranteed by the commercial lease. The owner of the property – you – rents the property to the management company, which exercises its business activities regardless of whether there are tourists currently staying at the property or not. As a result, you collect a fixed yearly return, adjusted annually for inflation, and it is down to the management company to ensure that they undertake the task of filling vacant properties and chasing down payments. In addition, it is worth remembering that this is not a timeshare arrangement where ownership is shared. With a commercial lease, you own your property but lease it to one commercial client.
How to make the most of a commercial lease
There’s only one rule for getting the best out of a commercial lease arrangement for tourism property investments and it’s the same rule that applies to any investment of any kind: Information is king. Certainly, you don’t need to be an expert in all of the intricacies of French property law, but you do need to be in a position to recognise someone who is. Choosing the right property management company to advise you and help you take care of the nuts and bolts of the legal process is almost certainly the hardest part of investing. Customer testimonials, one-on-one contact, and online research can all be used to build up a picture of whom you’re dealing with. Once that decision is made, and made well, everything else is likely to fall into place.
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