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Published on Thursday 13/06/2013

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Buying a castle or an hôtel particulier is the dream of many, who often do not think about the obligations (maintenance fees, cost and complexity of the reparation works). It is a fact, that those real estate properties are often sold by foreign buyers only a few years after the purchase and that no long term renovation works are carried on. It is noteworthy that those properties were always built by wealthy people (and, contrary to what people think, not by military aristocracy but by the "nobility of the robe" and the tax collectors that existed before the French Revolution of 1789) who were aware that they needed to dedicate an important part of their land or financial estate to the expenses related to this real estate property. For instance, it was common place until the French Revolution of 1789, that tens of thousand of acres of farming land be dedicated to the castle and the rest of the property, in order to provide stable income. Those who did not respect this rule have always ended up selling their castle. By setting up a rule of equal share of the inheritance, the French Revolution of 1789 contributed to the division of the estates and the separation of the castle from the income producing farming land. For instance, it is common knowledge that the mansion of wine producing properties is always well maintained.

In order to avoid disappointments, it is necessary before buying this kind of property, to make sure with the buyer his aim, the financial means he is willing and able to dedicate to the maintenance and restoration of the property to buy, his knowledge of the specifications of the restoration works on such properties which are the object of specific protection rules (i.e. listed buildings, historical landmarks...) supervised by the ministry for Culture and, more importantly, his intent to keep this building with the obligations and costs involved.

Necessary firsthand precautions for the purchase of a historic home by a non resident

Many people often dream of buying a château or a historic hôtel particulier, without realizing the constraints involved in owning such a property (maintenance fees, cost and complexity of its repair and restoration). Experience shows that many buyers are disappointed in their purchase and end up selling the property shortly thereafter. More specifically, historic houses owned by non residents are often frequently sold over and over and the long term maintenance work is lost along the way (restoration of the roof and the façade, bracing of the structures...).
It is noteworthy that most of these properties were built before 1789 under a political, social, religious, legal and tax system  that allowed the gathering of the wealth in the hands of a lucky few. Contrary to what is commonly thought, they were not so often from the nobility of the sword (noblesse d'épée) who kept their castles from the middle ages. Those happy few were the Church, the nobility of the robe (noblesse de robe), bankers and tax collectors in the 17th and 18th centuries.
The neighborhood of the Faubourg Saint-Germain in Paris was built in the 18th century by the members of the Parisian Parliament and the Court of Auditors. Hôtels particuliers built downtown in the 17th and 18th centuries and castles in the suburbs of the cities which had their own parliament before the French Revolution of 1789 (Ancien Régime) (Dijon, Montpellier, Nantes, Rennes, Lyon, Toulouse etc.). Every capital city of each region has religious buildings built before the French Revolution of 1789, which show the magnificence of the Church.

In order to avoid disappointments, we will guide you through the process of carefully choosing a property, helping you step by step to check matters before the purchasing this type of property by a non resident, then explain why it is necessary to set up a special-purpose reserve in order to finance the maintenance and reparation costs and set up the property as a long-term investment project.

I) Matters to clear firsthand

Buying a historic home requires substantial preparation on the part of the buyer. This is even more true for a non resident, who is often not familiar with (1) the legal and tax aspects of the purchase of a real estate property in France and (2) the nature and scope of the restoration and the specific administrative constraints if the property is a historical landmark (monument historique) subject to the control of local branches of the Ministry for culture.

Thus, the prospective buyer has to be advised before his purchase by a French notaire (i.e. attorney whose intervention is required by law for real estate sales):

  • His patrimonial aim (leisure purchase or running the property as a business),

  • His financial means to pay the price and the maintenance and repairs. In particular, his income and his estate must be checked in order to evaluate what part of it he is willing to dedicate to his project,

  • How much time he can spend on this project and draw his attention on the fact that he needs assistance, especially from a specialized architect in order to make, when appropriate and before the preliminary sales and purchase agreement, a inspection of the property and a study of necessary work and their cost,

  • His knowledge of the restoration work and the administrative constraints of protected buildings (historical landmarks – monuments historiques ), but also the tax advantages and the eventual subsidies,

  • Lastly, his will and his passion to carry on this, necessarily, long-term project.

    As in all real estate purchases, the non resident buyer has to be informed before the signature of the preliminary sales and purchase agreement, of the legal and tax consequences of the purchase, ownership and sale of a real estate property in France. Those will be checked with regards to the French law and the applicable international conventions, in collaboration with the buyer's tax and legal advisor in his country of residence. Then, a sound investment structure can be chosen, in order to anticipate the inheritance matters and the consequences of an eventual divorce, if the buyer intends to keep the asset on a mid or long-term basis.

    After this first phase, we will now explain why it is necessary for the buyer to set a designated reserve in order to finance the maintenance and repairs on a long-term basis, and to allow the creation of financial resources dedicated to the château.

    II) Necessity to set up a designated income producing reserve

    The construction or the maintenance of historic homes has always been expensive (and sometimes too expensive) even before the French Revolution of 1789. How many castles have been demolished or destroyed, how many construction sites have been stopped after the owner's misfortune? Let's remember the Marquis du Tillet de la Bussière who was financially ruined by the construction of his château de Villarceaux near Paris or Machault d'Arnouville who had to stop the construction of his Château d'Arnouville lès Gonesse in the Val d’Oise and demolish the service quarters after he was dismissed as finance general controller after he wanted to impose an income tax on all the classes before the French Revolution of 1789, or, closer to our times, the banker Jacques Laffitte who had to, after 1830, sell the park of his château in Maisons-Laffitte in the Yvelines and demolish the service quarters in order to find construction material. Lastly, we should remember that the last châteaux were built in France were prior to 1930.

    The French Revolution of 1789 was very damaging for many châteaux, were demolished to sell construction material or neglected since the owners did not have the money required for their upkeep. The rule or equal share of inheritance and the creation of the four taxes (tax on doors and windows, property tax on real estate, property tax on moveable property, patente) contributed to splitting the estates and thus, lessen the income that provided for the maintenance of such properties. The tax increases during the 20th Century have only made this situation worse.

    Let's not forget that special-purpose land was dedicated to these properties. This land was often thousands of acres and produced regular income which paid for the maintenance, for the owners' own expenses and paid for the salary of their employees. This special-purpose reserve disappeared because of the new succession rules and taxation set up after the French Revolution of 1789, forcing the owners to divide their properties with every new generation, departing the dedicated reserve from the property it supported.
    For example, it is easy to see that the châteaux which have vineyards are always in better condition than the ones without, even if it has not always been the case in the past. The French region of the Gers shows a remarkable contrast between the châteaux in the Armagnac producing region and the other ones.

    Therefore, the prospective buyer has to think seriously about his project before his purchase and check that his income is sufficient to finance the necessary expenses.
    Depending on his income and his estate, he will be advised to buy a property which already has a vineyard so that the property produces its own income or, if not, think about turning the château into a business depending on its features and its history. Furthermore, if the buyer's estate allows it, the buyer will need to use part of it so that the income can provide exclusively for the maintenance of the château. The amount of this dedicated reserve will depend on the importance of the expenses to cover, keeping in mind that they have to be assessed on a long-term basis and that the income of the capital is always less than the income of the work. The composition of this special-purpose reserve will depend on the buyer's knowledge of the investment market and on the risk he is willing and able to take. The example of the important endowment contribution granted to the Historical Landmarks Fund (Caisse des monuments historiques) after the death of the marquise de Maillé at the same time as her château de La Motte Tilly is a reference, even if the way the endowment has been used since then can be criticized. It is also recommended that the investment portfolio be managed directly by the investor.

    In order to optimize the funding of long-term restoration work, it is advisable to place the property in a company that owns the investment portfolio, liable to corporate tax so that the costs of the maintenance, work and amortization can be deducted from the income of the investment portfolio. This allows the avoidance of the limitation of the deductibility of the works on historical landmarks. The example of the château d'Ancy le Franc (Yonne) is a reference since the company owning the château also owns several properties which are rented, and also runs the château as a business. The gross annual yield of the investment portfolio is 14%, that is 4.3% after deduction of the expenses and amortization (balance of the year 2011).

    In summary:

    Buying a historic house for a non-resident requires a deep motivation and a passion, which must be carried on as a business project on a long-term basis.
    Important financial means will need to be dedicated either to the purchase of a property that produces its own income, or to the purchase of a property which will need this money to be reserved and/or find a way to make money from the property.
    A team of qualified professionals, including an experienced notary or notaire, will need to assist the buyer to succeed in his endeavor.
    Without a careful and thorough preparation, the buyer may face disappointments that inevitably lead to selling the property shortly after the purchase.

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    Tags : Trust Sale Société civile immobilière/SCI International law International tax law Real estate investment Historical landmark/Listed building

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    The interdisciplinary expertise of the Selarl Bruno Bedaride, notaire in Paris covers the following areas: corporate law, international contracts law, legal and tax advice, advice for international transmission, real estate law, family office, real estate and company finance law. We offer more particularly our services to non residents or foreign company who wish to invest, move or create a business in France.