Renegotiating property prices in France – when is the contract complete?
Back in the first decade of this millennium, just before the previous recession, gazumping was a relatively common experience in English property transactions.
This occurred in a rapidly rising property market, when a seller would agree to sell a house to one party, only to change their mind before exchange of contracts, because a more attractive offer had been received. Of course, the recession that followed slowed the market down, and so gazumping in England became less common, thankfully. Yet in ensuing years, when the English property market may have tended to favour the buyer, the opposite concept – known as “gazundering” – has occasionally been seen, where buyers have been able to look to renegotiate the price downwards at the last minute before exchange.
Either way, one party has been able to control the transaction to their own advantage. It has often been suggested that the fact that this manipulation has been one of the major flaws in the English conveyancing process; certainly it should not happen in a Scottish property transaction, and there should be less ability to do so in France.
Irrespective of the morals and ethics of trying to enforce a price amendment, or trying to decide who the best person to sell to, it is perhaps worthwhile thinking about when such negotiations actually can take place. In other words, at what point is the contract binding upon either party?
Helpfully, the French Civil Code states, at Article 1583 that a contract is complete once there is an agreement on the thing and the price. So once a price is agreed for the property, the contract is complete. Nearly… (Well this would be a rather short article if that was all there is to say). It is clear that once those two objectives are satisfied, a contract is complete in France and so binding in principle upon the two parties. Yet that is, of course, not the whole picture.
When talking of what constitutes offer and acceptance, it is worth mentioning that there is no differentiation between a written or a verbal agreement. While the property transfer must be completed by a written notarial deed, the actual agreement to sell could – in theory at least – be established verbally. There is, of course, always a question of proof though: in the absence of a written agreement, it is particularly hard to prove that a person did indeed agree to a transaction.
Once the seller has agreed to sell, they are bound to complete the sale and the buyer would have a cause for action should the seller try to withdraw. Occasionally, there may be some delay between the parties first settling on a price and the signature of the first contract. Even where such a delay may come from the buyer being more than a little dilatory in providing any required information, or simply not coming to sign the contract, the seller cannot simply withdraw without giving notice to the buyer.
So if the seller receives a better offer before the first contract is signed, it would not be possible just to ‘withdraw papers’ and then deal with the better offer. So none of that English gazumping.
And yet the buyers are treated differently. The underlying rules of contract law remain the same, however, in practice, a buyer is not bound in the same way, in the vast majority of purchases. That is because there are further rights granted in favour of the buyer that do not apply to the seller. Subject to a couple of exceptions, once the first purchase contract for a property has been signed, the buyer will benefit from a cooling-off period, during which they are perfectly at liberty to withdraw from a purchase without penalty. This protects a buyer against the risk of making a hasty decision to buy a property, or perhaps where there may be some undue pressure by one party on another to sign a contract.
It is occasionally suggested that this puts a buyer at an unfair advantage: that they could quite easily enter into a contract quickly – for example, if they thought another buyer was interested – and then simply back out without penalty. While this may be possible in theory, in practice it is extremely rare. Since there is a requirement in the French Civil Code that parties negotiate and execute contracts in good faith, it is arguable that a seller might have a basis to challenge a prospective buyer for acting in this way. So the aim of the cooling-off period is to protect a buyer who may need to withdraw soon after purchase.
There are a few occasions where the cooling-off period does not apply as a protection to the buyer. The most common of these is where a buyer is looking to purchase open land. This commonly occurs where land is purchased with a view to building a house. Buyers in such cases need to be extra cautious anyway – what about planning? what about a construction contract with a builder? – and so they should be sure they are going to proceed. Hopefully, therefore, it would be extremely unlikely that they would ever need to exercise that right.
Aside from this cooling-off period, once we establish that the price and the thing have been agreed, it is evident that the contract is complete. So what happens if one of the parties then tries to pull out? What penalties may be imposed on the defaulting party, and by whom? In large part, this depends on the wording of the contract itself. Contracts for the sale of property in France can be prepared by agents and notaires alike and can be in a multitude of different forms. The penalties envisaged by the different contracts can vary substantially. Where a buyer is at fault, this may just be as little as loss of the deposit paid. Where the seller is in the wrong it may amount to no more than being obliged to pay a similar sum to the buyer.
However, where a party is seriously considering pulling out of a transaction, they should ensure that they fully understand the detail of the deposit and penalty clauses in the contract. It is feasible that a potential obligation to indemnify the other party for 10% of the price may only be the tip of the iceberg. There may also be other express rights of action that the non-defaulting party may look to enforce. These could include the ability to force the contract to be completed anyway, or to seek further damages and costs.
In addition, careful attention should be given to the wording of other clauses in the contract. The agency commission may be payable, as may a contribution to the notaire’s fees. It is reasonable to expect that in the event a contract is terminated by one of the parties after signature, then the agent and notaire would be duly compensated for any work they had carried out.
It is important to note, though, that any action would inevitably require the involvement of a litigation lawyer – an avocat – in France. Even if it is clear that the buyer has failed to complete without good reason, the notaire will not normally be able to declare the contract null and void and then forfeit the deposit in favour of the seller. If the buyer does not accept their own breach of contract it is likely that the seller would have to commence proceedings, potentially to ask the French court to order the release. More complexity, time and cost then…
The simple legal question of what constitutes offer and acceptance of a contract in France does elicit a simple answer on the face of it. Yet even with only a very light scratch of the surface, it can be seen that there is any number of potential pitfalls that may trap the unwary. The freedom to pull out of a transaction is less than may be the case in England and Wales. That though is due not only to the point that offer and acceptance are confirmed, but to the fact that the first contract is often signed much quicker in France, and also that negotiations in France are not made ‘subject to contract’.
As ever, care is needed when selling or buying. There is every interest in seeking the assistance of an expert solicitor. Our dedicated French Legal experts can assist you every step of the way. Please get in touch through email email@example.com or by calling 0330 404 0778.
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