Real estate taxation, financing

The sale with right of repurchase (réméré): taxing a financing through ownership

The sale with right of repurchase, known as vente à réméré (French Civil Code, articles 1659 et seq.), allows an owner to unlock the value of a property by selling it while reserving the right to take it back within a period that may not exceed five years (article 1660). For tax purposes, the initial sale is a transfer in its own right: transfer duties or VAT depending on the property's regime and the seller's status, together with a taxable real estate capital gain where applicable. The repurchase, exercised within the period, restores the seller to ownership against reimbursement of the price and costs (article 1673): it is then subject, under conditions, only to a fixed duty, but the duties paid on the initial sale remain acquired to the Treasury (CGI, article 1961). The firm structures these transactions and compares them with the alternatives, including the fiducie-sûreté.

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— In brief
Mechanism
Sale with a right of repurchase stipulated in the contract (French Civil Code, articles 1659 et seq.): immediate transfer of ownership, with a right to take the property back reserved to the seller
Time limit
Five years at most (article 1660 of the Civil Code), a strict deadline that runs without any judicial extension
Sale
Transfer subject to transfer duties or to VAT depending on the property and the seller's status; taxable real estate capital gain where applicable
Repurchase
Reimbursement of the principal price and costs (article 1673 of the Civil Code); a repurchase exercised within the period is subject, under conditions, to a simple fixed duty, with no refund of the duties paid on the initial sale (CGI, article 1961)
Alternative
Fiducie-sûreté: security through a transfer of ownership to a fiduciary, with its own tax neutrality regime
— 01

A financing that operates through a genuine transfer of ownership

The sale with right of repurchase (réméré) is neither a mortgage loan nor a promise to sell: it is a completed sale, coupled with a clause by which the seller reserves the right to take back the thing sold (article 1659 of the French Civil Code). The buyer, often an investor, becomes owner immediately; the seller receives the price, generally retains use of the property against an occupancy indemnity, and has a contractual period, capped at five years (article 1660), in which to repurchase.

This mechanism makes it a cash-flow tool backed by real estate: it releases liquidity quickly, including where bank credit is unavailable or a registered charge encumbers the property, and then allows full ownership to be recovered once the situation has been restored. The repurchase is carried out by reimbursing the principal price, the costs and proper expenses of the sale, the necessary repairs and the expenditure that increased the value of the property (article 1673 of the Civil Code), the seller then taking the property back, in principle free of the charges created by the buyer.

For tax purposes, each step carries a cost that must be quantified before signing. The initial sale is a transfer for consideration: transfer duties at the standard rate or VAT depending on the nature of the property and the seller's status, and, for the seller, a potential real estate capital gain taxed under the ordinary rules, without the prospect of the repurchase suspending taxation. The repurchase, conversely, restores the seller to ownership: exercised within the stipulated period and under conditions, it gives rise only to a fixed duty according to the administrative doctrine, while the duties paid on the initial sale are not refunded (CGI, article 1961); this treatment must be anticipated and documented in the deed.

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

— 02

The réméré regime, point by point

01

The civil-law mechanics: a completed sale, a strictly framed right of repurchase

Articles 1659 to 1673 of the French Civil Code organise an immediate transfer of ownership, tempered by a right to take the property back that is strictly limited in time.

  • The right of repurchase must be stipulated in the deed of sale itself: it is a covenant included in the sale, not a subsequent agreement
  • The period may not exceed five years; if stipulated for longer, it is reduced to that term, and the courts cannot extend it (articles 1660 and 1661)
  • If the repurchase is not exercised within the period, the seller is foreclosed and the buyer remains irrevocably the owner
  • An exercised repurchase restores the seller to possession: the seller takes the property back free of the charges and mortgages with which the buyer may have encumbered it, subject to the reservations provided by the statutory texts (article 1673)
02

Taxation of the initial sale: a transfer in its own right

The prospect of the repurchase changes nothing in the treatment of the sale: the transfer of ownership is immediate and taxable under the ordinary rules.

  • Older property sold by a private individual or outside the scope of VAT: transfer duties for consideration at the standard rate, assessed on the price plus charges
  • Seller who is a taxable person acting as such: VAT applies as of right to a building completed no more than five years earlier or to building land, with an exemption and a possible option to tax for an older building, the interaction with transfer duties being assessed according to the regime adopted
  • The seller's real estate capital gain is taxable on the sale: the individual regime (CGI, article 150 U, with the standard exemptions and allowances) or business profits depending on the transferor's status
  • In practice the réméré price incorporates a discount against market value: it must remain justified by the economics of the transaction so as not to invite a challenge
03

The repurchase: return of the property and a tax treatment to be secured

Exercising the right of repurchase is not an ordinary resale: the seller takes the property back in performance of the initial covenant, which calls for a specific tax treatment.

  • The seller reimburses the principal price and the costs listed in article 1673 of the Civil Code; these sums form the exit cost of the transaction
  • For registration duties, a repurchase exercised within the stipulated period is not treated as a new transfer: the deed recording the repurchase is subject, under conditions, only to a fixed tariff (administrative doctrine, BOI-ENR-DMTOI-10-10-30-40); on the other hand, the duties collected on the initial sale are not refunded, article 1961 of the CGI excluding any refund where the rescission results from the exercise of the right of repurchase
  • Where the initial sale was subject to VAT, the treatment of the repurchase is analysed under the rules of real estate VAT: the status of the parties, the nature of the property at the date of the repurchase, and the consequences for input VAT deduction rights
  • The full costing, sale then repurchase, determines the economic merit of the réméré as against conventional or fiduciary financing
04

Réméré or fiducie-sûreté: two ownership-based securities to compare

The réméré and the fiducie-sûreté both rest on a transfer of ownership for financing purposes, but their legal and tax balances differ significantly.

  • Seller's security: in the réméré, the seller has only a right of repurchase confined to five years; in the fiducie-sûreté, the settlor retains a right to restitution organised by the trust agreement once the debt has been paid
  • Taxation: the sale with right of repurchase is a taxable transfer from the outset; the transfer into a fiduciary estate benefits from its own tax neutrality regime, both on creation and on the return of the property to the settlor, under the conditions laid down by the statutory texts
  • Cost and speed: the réméré is put in place by a simple notarised deed of sale and is also available to private individuals; the fiducie requires an authorised fiduciary, a registered agreement and ongoing administration, for generally superior protection
  • Recharacterisation risk: a réméré whose economics reveal a mere secured loan may be recharacterised, with the attached civil and tax consequences; the drafting of the deed and the balance of the parties' obligations are decisive
— 03

Our approach

The firm acts upstream of the transaction: an audit of the property and of the seller's situation, a full tax costing of both stages of the transaction (transfer duties or VAT on the sale, capital gain, treatment of the repurchase at the fixed duty and the fate of the duties on the initial sale), the drafting or review of the clauses of the deed (right of repurchase, time limit, repurchase price, occupancy indemnity), and a documented comparison with the fiducie-sûreté or a conventional refinancing. The firm also assists sellers and investors in litigation or where the transaction is challenged by the tax authorities.

  • Sale with right of repurchase
  • Right of repurchase
  • Transfer duties
  • Real estate VAT
  • Fiducie-sûreté
— FAQ

Sale with right of repurchase: your questions

What is a sale with right of repurchase (vente à réméré)?

It is a sale with a right of repurchase: the seller immediately transfers ownership of the property to the buyer, but reserves, through a clause in the deed, the right to take it back during an agreed period (French Civil Code, article 1659). The seller receives the price, most often retains use of the property against an occupancy indemnity, and repurchases the property by reimbursing the price and the costs provided for in article 1673 of the Civil Code. The transaction is mainly used to release cash backed by a property when bank credit is not available.

What is the maximum period for exercising the repurchase?

Five years. Article 1660 of the French Civil Code provides that the right of repurchase may not be stipulated for a term exceeding five years; if the contract provides for a longer period, it is reduced to that term. The deadline is strict: it cannot be extended by the courts, and a seller who fails to exercise it within the agreed time forfeits the right, the buyer remaining owner definitively.

Is the sale with right of repurchase subject to transfer duties or to VAT?

The initial sale is an ordinary transfer for consideration: the right of repurchase suspends neither the transfer of ownership nor taxation. An older property sold by a private individual bears transfer duties at the standard rate. If the seller is a taxable person acting as such, the sale falls under the rules of real estate VAT: taxation as of right for a building completed no more than five years earlier or for building land, and an exemption with an option to tax for an older building, the interaction with registration duties depending on the regime adopted.

Does the seller pay capital gains tax even though the intention is to repurchase the property?

Yes, in principle. The sale with right of repurchase effects an immediate transfer of ownership: the real estate capital gain is determined and taxed at the time of the sale, under the ordinary rules (the individual regime of article 150 U of the CGI, with its exemptions and allowances, or business profits depending on the seller's status). The prospect of the repurchase is not a ground for deferral. This cost must be built into the overall costing, as it reduces the net cash actually released by the transaction.

What does the seller reimburse in order to take the property back?

Article 1673 of the French Civil Code sets out the list: the principal price, the costs and proper expenses of the sale, the necessary repairs and the expenditure that increased the value of the property, up to the amount of that increase. Only after satisfying these obligations does the seller recover ownership. The seller then takes the property back, in principle, free of the charges and mortgages that the buyer may have created in the interval. To this must be added, economically, the occupancy indemnity paid during the period and the costs of the new deed.

Are the duties paid on the sale refunded when the repurchase is exercised?

No. Article 1961 of the CGI provides that duties properly collected are not subject to refund where the contract is subsequently rescinded through the application, in particular, of article 1659 of the Civil Code, that is, through the exercise of the right of repurchase: the duties paid on the initial sale remain acquired to the Treasury. On the other hand, a repurchase exercised within the stipulated period is not taxed as a new transfer: the deed recording it is subject, under conditions (the right stipulated in the deed of sale itself, exercised within the period by the seller and not by a third-party assignee), only to a fixed tariff, according to the administrative doctrine. The firm secures this point upstream, as it weighs on the overall cost of the transaction.

Is a réméré or a fiducie-sûreté the better choice?

It all depends on the objective and on the operator's profile. The réméré is simple to put in place and open to private individuals, but it exposes the seller to the definitive loss of the property on expiry of the five-year period and triggers transfer taxation from the moment of the sale. The fiducie-sûreté offers a more protective framework: the property is held in a ring-fenced estate, the settlor has a right to restitution once the debt has been paid, and the transfer benefits from its own tax neutrality regime, under the conditions laid down by the statutory texts. In return, it requires an authorised fiduciary and heavier contractual engineering. The firm systematically compares the two routes before any structuring.

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