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Seller signs contract for French property then refuses to complete

by David Anderson

This article is for general information only. French law is a highly specialised area and you should only act or refrain from acting after receiving full professional advice on the facts of your particular case. This article is for general information and does not constitute investment advice. Always consult an IFA.

The facts

A recent French Supreme Court case considered the position of a buyer when the seller refused to complete after signing a contract (Cass 7 avr. 2016 no 15-12.307). A seller signed a standard contract with a purchaser agreeing to sell him a French property. The seller then changed his mind and refused to complete. The buyer insisted on the notaire making forthwith a sworn statement that the seller had refused to complete and that the buyer was ready and able to buy. The buyer then sued the seller in the French court and won.

On the same day as the buyer registered the court order at the French Land Registry, a third party creditor of the seller registered a separate court order which granting him a mortgage over the property.

The Question

The issue was who had priority, the buyer or the third party creditor?

Judgment

mortgageThe French Supreme Court decided in favour of the buyer overturning the opposite decision of the Court of Appeal. The Supreme Court referred to Article 37-2 of the Decree of 4 January 1955.

This article provides that the French Land Registry can register the rights of a buyer if the buyer sends the Land Registry (1) his claim lodged at the court, (2) a notaire’s declaration stating the seller has not completed and (3) a notaire’s declaration the buyer is ready to complete. Crucially all this is deemed to be effective from the date of the above formalities provided a court order is obtained within 3 years.

Accordingly as this was all done well before the creditor obtained a court order granting him a mortgage over the property the buyer had priority.

What to do if your Seller refuses to complete

A buyer faced with a seller who refuses to complete should do the following without delay:-

  • Obtain a declaration from the notaire that the seller has refused to complete in accordance with the contract. This should make it clear that the notaire has fixed an appointment for the seller to sign the transfer document and invited the seller who has not attended.
  • A declaration from the notaire that the buyer has deposited all funds with him to complete and has any necessary mortgage funds available to him.
  • Issue proceedings for an order of the court that the sale be completed.
  • Require the notaire to deposit all the above with the French Land registry.
  • Once an order of the court is obtained (within 3 years) register it with the Land registry.

In practice sellers are likely to refuse to complete if they obtain a significantly higher offer after they have signed the first contract. Buyers need to move quickly to protect their position once it becomes clear the seller is not going to complete to prevent a sale to a third party who may know nothing about the earlier sale.

 

November 2016

David Anderson   Sykes Anderson Perry Limited

www.saplaw.co.uk    david.anderson@saplaw.co.uk    + 44 203 794 5959

 148 Sykes Anderson Property July15 2

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