The French leaseback scheme was introduced by the French government in 1986 in order to increase international investment into the country while helping to provide self catering accommodations for the tourism industry. France is a number 1 vacation destination in the world: Around 80M tourists each year.
The 2 main criteria’s for the French Leaseback’s 19,6% rebate are
1. Not to personally use your property more than 182 days a year.
2. To have a management agreement with a management company.
The concept of leaseback is that you purchase a fully furnished freehold property from a development company and then lease it back to a management company over a specific period (Contracts tend to be 9 years, renewable up to 20 years)
In exchange for the time you agree to rent your property to the management company, you will receive a guaranteed return. You will equally be able to benefit from personal usage all year long for the remaining weeks you have not leased out.
PLEASE NOTE THAT ON THE “PURE INVESTMENT” DEAL THERE IS NO PERSONAL USAGE, BUT THERE ARE DISCOUNTS ON THE RENTAL RATES.
The French Leaseback scheme is NOT a “timeshare” system.
Thus, when you buy a French leaseback you purchase an entire property that has real value and provides you with capital gains. Whereas when you buy a timeshare you have to advance rent for a certain number of weeks over a certain amount of years.
VAT Rebate (the developer organizes this so that you only ever have to pay the before tax price)
19.6% is refunded on all new properties that fulfil 2 criteria’s mentioned in the previous paragraph.
e.g. If the price for a new property is €119,600, you will only pay €100,000, so a discount of €19,600.
This VAT refund is credited over a 20 year period.
Should you decide further down the line that you prefer to use the property for more than 182 days a year, before the 20 years are over, and stop the leaseback scheme, you will be liable to a refund of roughly 1% per year to the French government during 20 years. For instance, if you purchase a property and receive a refund on the VAT of €20,000, then decide to stop the leaseback scheme after 15 years, you will be liable to refund €5,000 to the government [ ( 20 years VAT) – (5 years of VAT) = €5,000 ].
You can sell the property at anytime
- In the event you are selling your property to someone who wishes to re-enter your leaseback scheme there is no penalty.
- In the event that the person, to whom you are selling, wants to purchase the property outright– i.e. not on the leaseback scheme - then you will be liable to pay back the outstanding VAT at the time of the sale. In this circumstance the vendor would tend to increase the price in order to accommodate the VAT repayment. . Equally you could potentially encounter penalty fee from the management company for breaking the lease.
Hassle Free approach to owning a holiday home
The French leaseback offers hassle free rental for the property owner. The management company is responsible for the full upkeep of the property, its furniture and the communal areas such as the gardens, pool, Spa, etc. The management company is also responsible for renting out your property during your absence. On the leaseback schemes where the rentals are guaranteed, the management company will pay you the returns whether or not it rented your property.
Weeks of occupancy in your property
The motivation behind the purchase of a leaseback property in France varies from a “pure investment” to the acquisition of holiday homes. Within the French leaseback scheme, Developers usualy offer a choice between pure property investments and a flexible mix of investment and leisure with a guaranteed income. For example a 2% return deal you benefit from 5 to 8 weeks of personal usage (depending on the season) + 25% reduction off rack rates at all destinations all year long+ 20% discounts on all facilities (bar, restaurant, spa). Accommodation for your personal usage usually needs to be booked well in advancen (6 months in advance.)