Real estate tax, change of use

The commercial-use right (commercialité): transfer and taxation

In the municipalities where the change of use of residential premises is subject to prior authorisation (Article L. 631-7 of the French construction and housing code, CCH), converting a dwelling into offices most often requires a compensation: the simultaneous conversion into housing of premises used for another purpose (Article L. 631-7-1 of the same code). This mechanism has given rise to a market, particularly active in Paris, for the transfer of commercial-use rights (commercialité). For tax purposes, the tax authorities have taken the view, since Ordinance No. 2005-655 of 8 June 2005, that the authorisation attached to the premises constitutes a right in rem over immovable property: the transfer of commercialité by a taxable person therefore follows the VAT regime of the building to which the right relates, VAT applying as of right where the building was completed less than five years ago, and an exemption with an option to tax applying otherwise (published ruling BOI-RES-TVA-000178 of 9 July 2025). The firm secures the VAT and registration-duty treatment of these transactions, on the transferor's side as well as the transferee's.

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— In brief
Subject matter
Transfer of the right to use premises for a purpose other than housing, by way of compensation (CCH, Articles L. 631-7 and L. 631-7-1)
Nature
Right in rem over immovable property according to the tax authorities (authorisation attached to the premises and published in the land registry), with no transfer of ownership of the premises themselves
VAT
Regime applicable to supplies of buildings (CGI, Article 257, I-1-1°): VAT as of right where the building was completed less than five years ago, exemption with an option to tax otherwise (CGI, Articles 261, 5-2° and 260, 5° bis; BOI-RES-TVA-000178)
Registration
Regime to be assessed on a case-by-case basis in light of the qualification as a right in rem over immovable property adopted by the tax authorities and of the terms of the deed
Key issues
Taxable-person status of the transferor, input VAT deduction for the transferee, drafting of the deeds and coordination with the planning authorisation
— 01

A right born of the regulation of changes of use

In certain municipalities, including Paris, the change of use of residential premises is subject to prior authorisation (Article L. 631-7 of the French construction and housing code, CCH). An owner wishing to use a dwelling for another purpose (offices, retail, short-term furnished tourist lettings in certain cases) must obtain that authorisation, which the municipality may make conditional upon a compensation: the simultaneous conversion into housing of premises used for another purpose, for at least an equivalent floor area, or even a larger one in certain districts under the municipal regulations (Article L. 631-7-1 of the same code).

An owner who has no premises of his own to convert may acquire this compensation from a third party: the holder of premises used for a purpose other than housing undertakes to return them to residential use for the benefit of the applicant. What the third party transfers is the commercialité of its premises, that is, the right to use an equivalent floor area for a purpose other than housing. The premises themselves do not change hands: only the right of use is transferred, and it is consumed in the transferee's authorisation file. Since Ordinance No. 2005-655 of 8 June 2005, the authorisation granted subject to compensation has been attached to the premises and published in the land registry, which leads the tax authorities to regard it as a right in rem over immovable property.

This market, particularly active in Paris where compensation is the rule and where certain districts require reinforced compensation, brings together a wide range of players: institutional investors, property companies, property dealers, social landlords, private individuals. The value of commercialité depends on the location of the compensating premises and on the requirements of the municipal regulations, and the amounts at stake call for rigorous tax treatment: VAT for the transferor, input VAT deduction for the transferee, registration of the agreement, and the impact on the cost base of the property project.

The firm deliberately takes on a limited number of engagements in order to guarantee the direct involvement of its partners in every matter, and systematically assesses the relevance of its involvement before accepting any engagement.

— 02

The tax regime of the commercialité transfer, point by point

01

Legal nature: a right attached to the premises, not a sale of the premises

Born of the regulation of changes of use, the commercial-use right has been analysed by the tax authorities as a right in rem over immovable property since the authorisation granted subject to compensation became attached to the premises and published in the land registry.

  • The transferor transfers the right to use a floor area for a purpose other than housing, while correspondingly undertaking to return its own premises to residential use
  • The transaction involves no transfer of ownership of the premises: the transferor keeps its building, the transferee keeps its own
  • The transfer takes the form of an agreement and of the undertakings given in the transferee's application for authorisation (identified compensating premises, floor areas, conversion deadlines)
  • Where compensation is required, the change-of-use authorisation is attached to the premises and not to the person, and the premises offered as compensation are referred to in the authorisation published in the land registry (Article L. 631-7-1 of the French construction and housing code, as introduced by Ordinance No. 2005-655 of 8 June 2005)
02

VAT: the regime for supplies of buildings, by assimilation

Qualified as a right in rem over immovable property, the commercial-use right is treated as tangible property and follows the VAT regime of the building to which it relates (CGI, Article 257, I-1-1°; published ruling BOI-RES-TVA-000178 of 9 July 2025).

  • Rights in rem over immovable property are treated as tangible property and follow the regime of the immovable property to which they relate (CGI, Article 257, I-1-1°)
  • Transferred by a taxable person acting as such, commercialité is subject to VAT as of right where the right relates to a building completed less than five years ago
  • It is exempt where the right relates to a building completed more than five years ago (CGI, Article 261, 5-2°), in which case the transferor may opt for taxation (CGI, Article 260, 5° bis), an option that is often decisive to preserve its own input VAT deduction rights
  • A non-taxable transferor (a private individual transferring the commercialité of premises held as private assets, outside any economic activity) in principle carries out a transaction outside the scope of VAT; the dividing line is assessed on a case-by-case basis and deserves to be secured
03

Registration duties and consequences for the transferor

The qualification as a right in rem over immovable property adopted by the tax authorities for VAT purposes has repercussions on the registration-duty analysis; the regime applicable to the agreement and the treatment of the proceeds in the transferor's hands call for a dedicated analysis.

  • The qualification as a right in rem over immovable property adopted by the tax authorities calls for an examination of the possible application of transfer duties and of their interaction with the VAT regime of the transfer
  • The registration-duty regime of the agreement is assessed on a case-by-case basis, depending on the qualification adopted and the terms of the deed; the drafting must ensure consistency between the VAT treatment, the registration duties and the land registration
  • In the transferor's hands, the proceeds of the transfer are taxable under its own regime: operating income or exceptional income for a business, with attention paid to the book value of the right transferred
  • The undertaking to return the premises to residential use entails conversion costs and a possible loss of rental value, to be factored into the overall economics and into the price
04

Consequences for the transferee: deduction and cost base

For the purchaser of the commercialité, the challenge is twofold: recovering the VAT invoiced and correctly incorporating the expense into the cost base of the project.

  • Where the transfer is subject to VAT, as of right or under an option, the tax invoiced by the transferor is deductible under the ordinary rules, provided the transferee is a taxable person and uses the converted premises for transactions giving rise to a right of deduction (offices let under an option to tax, in particular)
  • Using the premises for transactions that are exempt without a right of deduction (unfurnished letting without an option, for example) makes the acquisition VAT non-recoverable: the tax becomes a cost, to be anticipated in the structuring
  • The cost of the commercialité forms part of the cost base of the conversion project; its accounting and tax treatment (capitalisation or expense) depends on the characteristics of the project and must be documented
  • The timeline matters: the transfer is linked to the transferee's authorisation file, and the conditions precedent (obtaining the authorisation, completion of the compensation) must be coordinated with the point at which the VAT becomes chargeable
— 03

Our approach

The firm becomes involved from the negotiation stage: analysis of the transferor's taxable-person status and of the VAT regime of the transfer (VAT as of right, exemption, advisability and formalisation of the option to tax), validation of the transferee's right to deduct in light of the intended use of the premises, review of the tax clauses of the commercialité transfer agreement (price exclusive or inclusive of VAT, conditions precedent, invoicing), examination of the registration-duty regime and, where appropriate, protection through an advance ruling. The firm also assists transferors and transferees where the treatment adopted is challenged in the course of a tax audit.

  • Commercialité transfer
  • Change of use
  • Article L. 631-7 CCH
  • Compensation
  • Real estate VAT
— FAQ

Commercialité transfers: your questions

What is the commercial-use right (commercialité)?

It is the right to use premises for a purpose other than housing in the municipalities where the change of use of dwellings is subject to prior authorisation (Article L. 631-7 of the French construction and housing code, CCH). Where the authorisation is conditional upon a compensation (Article L. 631-7-1 of the same code), the owner of premises used for professional or commercial purposes may transfer that right to a third party: it undertakes to return its premises to residential use, which enables the transferee to obtain the authorisation to convert a dwelling into business premises. Commercialité is thus an intangible right, distinct from ownership of the building.

Is the transfer of commercialité subject to VAT?

It depends on the building to which the right relates. The tax authorities consider that the commercial-use right constitutes a right in rem over immovable property, treated as tangible property and following the VAT regime of the building (CGI, Article 257, I-1-1°; published ruling BOI-RES-TVA-000178 of 9 July 2025). Transferred by a taxable person acting as such, commercialité is subject to VAT as of right if the building was completed less than five years ago, and exempt if it was completed more than five years ago (CGI, Article 261, 5-2°), in which case the transferor may opt for taxation (CGI, Article 260, 5° bis). The position of a non-taxable transferor, a private individual acting in the course of managing his private assets, is assessed differently and deserves a case-by-case analysis.

What VAT rate applies to a commercialité transfer?

Where the transfer is actually taxed, as of right or under an option, the standard rate applies, as no reduced rate is provided for this transaction. The agreed price must therefore be negotiated with a clear statement of whether it is exclusive or inclusive of VAT, the VAT at the 20% rate representing one fifth of the price exclusive of tax, that is, one sixth of the price inclusive of tax.

Can the transferee deduct the VAT invoiced on the commercialité?

Yes, under the ordinary rules, where the transfer was subject to VAT as of right or under an option. A taxable transferee deducts the VAT invoiced if the expense relates to transactions giving rise to a right of deduction: this is the case where the converted premises are intended for a taxed activity or for a letting subject to VAT under an option. Conversely, if the premises are used for exempt transactions without a right of deduction, the tax remains a cost for the transferee and increases the cost of the project accordingly. The intended use must therefore be settled before signing, as it determines the real economics of the transfer.

Does a commercialité transfer attract registration duties?

The question deserves a case-by-case analysis. As the tax authorities qualify the commercial-use right as a right in rem over immovable property for VAT purposes, the possible application of transfer duties and the registration-duty regime of the agreement must be examined in light of that qualification, of the terms of the deed and of the VAT treatment adopted, whether taxation as of right, exemption or option. The firm recommends an analysis of the deed before signing, the stakes being the registration cost, the land registration and the overall consistency of the tax treatment.

How does compensation work in Paris?

In Paris, the authorisation to change the use of a dwelling is in principle conditional upon a compensation: the simultaneous conversion into housing of premises used for another purpose, for at least an equivalent floor area. The municipal regulations set out the detailed rules, with reinforced requirements in certain districts where the compensating floor area required may exceed the converted floor area and where the location of the compensating premises is regulated. An applicant who has no premises to convert acquires the compensation from a third party: this is the commercialité transfer. The value of the right depends directly on the scarcity of compensating floor areas in the district concerned.

Is a private individual who transfers the commercialité of his premises subject to VAT?

Not necessarily. VAT applies only to transactions carried out by a taxable person acting as such, that is, in the course of an economic activity. A private individual who transfers the commercialité of premises held as private assets, outside any activity of that kind, in principle carries out a transaction outside the scope of VAT. The dividing line is nonetheless delicate: taxable-person status may result from a letting subject to VAT, from a series of transactions or from active marketing steps. The firm recommends securing this qualification before signing, where necessary through an advance ruling.

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