Property dealer — French Tax Code art. 1115, last paragraph

The 2-year period:
the commitment to resell in « lot-by-lot » sales

The last paragraph of Article 1115 of the French Tax Code shortens the period of the commitment to resell from 5 to 2 years where the transaction constitutes a sale by lots triggering the pre-emption right of the occupants: Article 10 of Law no. 75-1351 of 31 December 1975 (protection of occupants of residential premises) or Article 15 of Law no. 89-462 of 6 July 1989 (landlord-tenant relations). This regime is emblematic of the so-called « vente à la découpe » (break-up sale), and its scope was clarified by a ruling of the French Cour de cassation of 9 October 2024 (no. 22-20.175, published in the Bulletin), which provides an important clarification as to when the occupancy condition of the lots is assessed.

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— In brief
Applicable provision
French Tax Code art. 1115, last paragraph: period reduced to 2 years
Scope
Sales by lots triggering the pre-emption right (Law 75-1351 art. 10 / Law 89-462 art. 15)
Starting point
Date of acquisition of the building (not the notification to the tenants)
Key case law
Cass. com., 9 October 2024, no. 22-20.175: occupancy assessed at the expiry of the period (property dealer's appeal dismissed)
Forfeiture penalty
Duties (at the rate in force on the date of acquisition) plus interest at 2.40% per year, running from the month following the deadline for presenting the deed for registration (French Tax Code 1727 via 1840 G ter, I)
— 01

An exceptional period for break-up sales

The last paragraph of Article 1115 of the French Tax Code derogates from the ordinary 5-year period by imposing a shorter period of 2 years where the resale consists of « sales by lots triggering the pre-emption right » provided for by two distinct sets of rules: Article 10 of Law no. 75-1351 of 31 December 1975 (first sale of an occupied residential unit following the division of the building into lots, the notification of the price to the tenant or bona fide occupant constituting an offer to sell) and Article 15 of Law no. 89-462 of 6 July 1989 (landlord-tenant relations, notice to quit for sale).

The resale period is intended to prevent land hoarding (BOI-ENR-DMTOI-10-50, § 30); its reduction to two years for break-up sales (division of buildings into lots, unit-by-unit resale to purchasers who are often the occupants) accelerates the turnover of occupied lots. The counterpart is a tight deadline that requires close control of the timetable from the moment of acquisition.

As early as 2015, the French Cour de cassation held that occupancy is not assessed at acquisition (Cass. com., 7 July 2015, no. 13-23.366). The ruling of 9 October 2024 (Cass. com., no. 22-20.175, published in the Bulletin) fixes the time of that assessment: the occupancy condition of the lots concerned is assessed at the expiry of the 2-year period. The practical consequence is that any lot still occupied by a tenant or a bona fide occupant at the expiry of the two years falls within the short period, even if it was not occupied at acquisition and even if its subsequent resale ultimately triggers no pre-emption. The tax authorities do not have to establish initial occupancy.

— 02

5 operational questions to master

Beyond the principle, the 2-year period raises practical difficulties: characterisation of the transaction, starting point, interaction with the ordinary 5-year period, and consequences in the event of a partial resale.

1. Characterisation of the sale by lots

The transaction must constitute a sale by lots within the meaning of the two laws referred to. In concrete terms: division into co-ownership lots, unit-by-unit resale, and triggering of the pre-emption right of the sitting tenants, either because the sale of an occupied residential lot, following the division of the building, constitutes an offer to sell to the tenant or bona fide occupant, whoever the intended purchaser may be (Law 75-1351, art. 10), or because a notice to quit for sale is served (Law 89-462, art. 15).

2. Starting point of the period

The 2-year period runs from the date of acquisition of the building by the property dealer, not from the notification of the notice to quit or of the pre-emption offer to the tenants (Cass. com., 14 February 2024, no. 22-17.541). The timetable for organising the notifications is therefore essential: it must fit within an operational window that leaves enough time for the actual resale before the deadline.

3. Assessment of occupancy: Cass. 9 Oct. 2024

The ruling of the French Cour de cassation of 9 October 2024 (no. 22-20.175) holds that the occupancy condition of the lots is assessed at the expiry of the 2-year period, not at acquisition. This reading cuts both ways: a lot vacated before the deadline escapes the short period (Cass. com., 7 July 2015, no. 13-23.366), but a lot still occupied at the end of the two years is subject to it, whatever resale is envisaged. In the case decided, the property dealer forfeited the regime.

4. Interaction with the ordinary period (5 years)

Where some lots are resold quickly to occupants (pre-emption or direct sale) while others remain in stock, applying the 2-year period to the lots concerned and the 5-year period to the other lots can raise difficulties. In the event of a partial resale, the BOFiP lays down a rule of proportion: duties, costs and interest are due on the difference between the acquisition price and the price of the fraction resold within the period; where the price of each plot or lot was stated separately in the deed, the solution applies lot by lot (BOI-ENR-DMTOI-10-50, § 110). A lot-by-lot mapping and a lot-by-lot breakdown of the price in the deed of acquisition are therefore essential to manage the tax risk.

5. Forfeiture penalty

Failure to comply with the 2-year period entails forfeiture and the recovery of the duties not collected, assessed at the rates in force on the date of acquisition (BOI-ENR-DMTOI-10-50, § 110), payable within one month of the expiry of the commitment, increased by late-payment interest under Article 1727 of the French Tax Code (0.20% per month, i.e. 2.40% per year), in accordance with paragraph I of Article 1840 G ter of the French Tax Code. Late-payment interest does not run from the breach of the commitment but retroactively, from the first day of the month following the expiry of the statutory deadline for presenting the deed of acquisition for registration (BOI-ENR-DMTOI-10-50, § 110; Cass. com., 6 November 2024, no. 23-11.616). The penalty is identical to that of the ordinary regime.

— 03

Our approach at the firm

On break-up sale transactions, the firm acts upstream (analysis of the characterisation of the transaction, choice of the acquisition vehicle, drafting of the clauses in the preliminary agreement and the deed of acquisition to specify the commitment and the applicable period and to break down the price lot by lot, timetable for the division and the marketing) and downstream (securing the timetable of notices to quit for sale or pre-emption notifications, monitoring compliance with the period, litigation in the event of a challenge).

The ruling of 9 October 2024 requires reasoning lot by lot on actual occupancy at the end of the two-year window; the firm accordingly organises, from the moment of acquisition, the vacating or priority resale of the occupied lots.

— Frequently asked questions

Everything you need to know about the 2-year period

Why is the period reduced to 2 years for certain transactions?

Article 1115, last paragraph, of the French Tax Code imposes a short period of 2 years (instead of 5 years) for sales by lots triggering the pre-emption right of the occupants, either under Article 10 of Law no. 75-1351 of 31 December 1975 (protection of occupants of residential premises) or under Article 15 of Law no. 89-462 of 6 July 1989 (landlord-tenant relations, notice to quit for sale). The resale period is intended to prevent land hoarding (BOI-ENR-DMTOI-10-50, § 30); its reduction to two years for break-up sales accelerates the turnover of occupied lots.

From what date does the 2-year period run?

The period runs from the date of acquisition of the building, not from the notification of the sale to the tenants or of the pre-emption offer. This starting point has been confirmed by the French Cour de cassation (Cass. com., 14 February 2024, no. 22-17.541; Cass. com., 9 October 2024, no. 22-20.175). Where the acquisition is subject to a condition precedent, the period runs from the fulfilment of the condition (BOI-ENR-DMTOI-10-50, § 110). The practical consequence is that a timetable for the division and the notifications must be organised from closing so that the actual resale takes place before the period expires.

How is the occupancy condition of the lots assessed after the ruling of 9 October 2024?

As early as 2015, the French Cour de cassation held that occupancy is not assessed at acquisition (Cass. com., 7 July 2015, no. 13-23.366). The ruling of 9 October 2024 (Cass. com., no. 22-20.175, published in the Bulletin) fixes the time of that assessment: the expiry of the 2-year period. The short period applies to lots which, at the end of that window, are occupied by a tenant or a bona fide occupant, without the tax authorities having to establish their initial occupancy and whatever resale is subsequently carried out. In the case decided, the property dealer's appeal was dismissed and the forfeiture upheld.

Does the 2-year period apply to the whole transaction or lot by lot?

In practice, the analysis is carried out lot by lot. The 2-year period concerns the lots which, at its expiry, are capable of pre-emption by their occupants. The other lots (vacant, or with occupants who do not hold the pre-emption right) remain subject to the ordinary 5-year period. In the event of a partial resale, the BOFiP first applies a rule of proportion (duties, costs and interest due on the difference between the acquisition price and the price of the fraction resold within the period), then specifies that the solution applies per plot or lot where their price was stated separately in the deed (BOI-ENR-DMTOI-10-50, § 110). A precise mapping of the lots and a lot-by-lot breakdown of the price in the deed of acquisition are therefore essential.

What happens if I do not resell within 2 years?

Forfeiture is incurred. The duties not collected, assessed at the rate in force on the date of acquisition, must be paid within one month of the expiry of the commitment, increased by late-payment interest under Article 1727 of the French Tax Code (0.20% per month, i.e. 2.40% per year), on the basis of paragraph I of Article 1840 G ter of the French Tax Code. Late-payment interest does not run from the breach of the commitment but retroactively, from the first day of the month following the expiry of the statutory deadline for presenting the deed of acquisition for registration (BOI-ENR-DMTOI-10-50, § 110; Cass. com., 6 November 2024, no. 23-11.616). For a two-year period, forfeiture therefore costs the duties increased by more than 4.8% in interest, even if the duties are paid as soon as the forfeiture is established. Apart from force majeure (BOI-ENR-DMTOI-10-50, § 70), the only way out before the deadline is to replace the commitment to resell with a commitment to build under the conditions of French Tax Code, art. 1594-0 G, A, II, where works resulting in a new building are feasible. No extension is provided for the two-year period.

Which resales escape the 2-year period?

The 2-year period is reserved for sales by lots triggering the pre-emption right. The following in particular escape the short period: lots free of any occupancy at the end of the two years, sales of the building as a whole (Article 10-1 of the 1975 Law, not referred to in Article 1115) and the sales that Article 10 itself excludes (relatives by blood or marriage up to the fourth degree, an entire building, certain social housing bodies): these transactions remain subject to the ordinary 5-year period. Conversely, the resale of an occupied residential lot, even to a non-occupying investor, triggers the offer to sell to the tenant and falls within the two-year period. The analysis is carried out lot by lot and lease by lease, from the moment of acquisition.

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