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WHAT IS LEASEBACK?



What does a 'Leaseback' property mean?
Property bought under the Leaseback Scheme are freehold property that are sold with a separate contract of rental and management. This contract is called a Lease and is between 9 and 11 years long. Management companies like Pierre & Vacances or Odalys provide a guaranteed rental income which can go up to around 5.5% but is nowadays more around 4%. In most cases, the owner is able to choose some weeks of personal use. The guaranteed rental income does not depend on the occupation rate which is a huge advantage for investment purposes as you know how much proportion of your mortgage will be paid off by the income.

No VAT is charged on Leaseback scheme properties which reverts to a saving of 20% when bought new.

As the management company rents and entirely manages the property, it is a 'hassle-free' investment and the opportunity to own a holiday home without the maintenance worries.

The majority of people who own holiday homes in France, only actually live in them for a few weeks of the year. In addition, French inheritance laws mean that many properties are owned by many family members who cannot agree what to do with the property - this also leaves many properties empty. This is why the French government has introduced 'Residence de Tourisme', or 'Leaseback' schemes to try and increase the quantity of holiday accommodation available in tourist hot-spots in order to cater for more tourists.

 

How does it work?
Some new properties for sale in France have negotiated a 'Residence de Tourisme' status. This means that a purchaser can buy the freehold of the property with or without a mortgage and then lease it back to a rental and management company for a pre-determined period (usually a minimum of 9 years) at a fixed rental. At the end of the lease period, the property will be returned to the owner in good condition. Most of these properties include pools or gyms which can be accessed free of charge.

Each property purchased in this way usually has options for the purchaser to make use of the property for a few weeks of the year. Each development has its own definition of Very High, High and Low season weeks and at the time of your purchase you would define how many of each weeks you wanted to keep for your own use, normally none to six weeks dependant upon each scheme.

The owner of each property has first choice of which weeks to spend at the property.

In order for the rentals company to guarantee the rent for 9 years it is vital the development is in a high demand location with good facilities - the same attributes that tend to drive a good capital gain in a property.

 

What's the difference between a Leaseback scheme and a time-share?
When you purchase a time-share, all you are getting are specific periods of time which you can use within certain locations over a set number of years. Once the term comes to an end, you are left with nothing. With a Leaseback scheme, you are the actual freehold owner of the property and have simply entered into a minimum 9-year or so lease agreement. After this agreement ends, the property is still yours to do with as you wish. The only thing in common with both schemes is that you only have specific times you can use the property during the lease.

 

What happens if I have to sell the property before the end of the Leaseback term?
As the freeholder of the property, you can sell it at any time. You would however have to sell it with the Lease if the lease was still running.

The general rule is that when buying a Leaseback property, you do not pay VAT. This advantage runs over a period of 20 years meaning that if you decided to get out of the lease/not sign a new lease, during this 20 years period, you would then have to repay the proportion of VAT on the remaining years. Exemple: You sign an initial lease of 9 years. You decide not to sign a new one, then you have the equivalent of 11 years (20%/11 years) of VAT to repay to the Government. If you wait 20 years then you do not have to repay any VAT. If you purchase a property with an existing lease, then the start of the 20 years is at the initial start of a lease so it might not be long before you have no VAT to repay when getting out of the lease.

 

Who will look after my property during the Leaseback period?
The management company manage all of the properties on the development.

 

Who is responsible for paying all the bills during the Leaseback period?
All the utility bills are paid for by the management company who are also responsible for the upkeep and general maintenance of the property during the term. You may have to pay co-ownership charges in some developments. The local 'Taxe foncière' (local rates) would be the responsibility of you, the owner.  No 'Taxe foncière' is due on new properties for the first 2 years.

 

Why is there a discount on the purchase price?
The French government has given tax breaks to developers in order to encourage them to build 'Residence de Tourisme' developments. This discount or VAT refund is passed on to purchasers to act as an incentive to get them involved in the scheme. There is a great shortage of holiday accommodation in the summer and France earns a lot of its Gross National Product from tourism.

 

When I book my preferred week, will I be able to live in my own property?
As long as you have booked on time, you will usually be able to stay in your own property. If you are late in booking, it may have to be another similar property.

 

What happens if I can't use all my allocated weeks?
Owners often arrange to sub-let the property, although you would have to do this privately. Some Leases restrict this.

 

What happens if I wish to use more than my allocated weeks?
Generally you would get a discounted rate on any extra weeks you required over and above those allocated to you

 

Can I use the property during the off-seasons?
Not with all leases. Some give you the possibility to stay at a minimum cost during the off-seasons, some don't give this option at all.

 

With the lease with rental income option, is the income guaranteed?
The rental income is guaranteed throughout the period and is usually paid every 3 months in arrears. The rental companies who pay the rent are usually large holiday companies with substantial numbers of clients and assets.

 

What happens at the end of the Leaseback period?
The property is yours to do with as you so wish. You can sell it, rent it out privately, live in it or you can sometimes negotiate a new lease with the management company.

 

Would I get a higher rental return if I bought the property outright?

It all depends on the rental return you get and the value of the weeks that you use personnally.

There are three points to consider. Firstly, your annual rental income would not be guaranteed, secondly, should you wish to use a managing agent, you will find that they will charge up to 25% of all your rentals and thirdly, you would be responsible for all advertising costs, maintenance bills, pool cleaning, gardening, apartment cleaning, changeover costs and arrangements with the property between lets and dealing with emergencies associated with the property.

 

 

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