Leaseback purchase:

It is important that prospective purchasers understand the transaction and the pros and cons of this method of purchase so that an informed decision can be taken.

This method of purchase is an excellent deal for some but will not suit everyone.

Leaseback purchase: Purchase of a freehold property and granting of a lease to a 'holiday company' who will pay you a guaranteed rental - the lease will be for a period of 9 - 11 years on a fixed rental, normally inflation linked. The rent will be paid by the company regardless of whether or not they rent out the property at all times.

Refund of the TVA (VAT) which is 19.6% - this is according to a French law instigated to encourage more people to buy and rent out properties. This only applies if the property is newly built (most of them are). If it is a refurbishment then the TVA will not normally be refundable.

The TVA is either paid and reclaimed by the developer - in which case it is never actually paid over by the purchaser or the purchaser will have to pay the TVA and then reclaim it. This can take 6-9 months so the purchaser will need to be able to fund the amount for this period. In most cases the developer will provide assistance to reclaim the TVA - sometimes making a small charge to do so.

The rental will be set out in your lease (bail) normally as a percentage of the cost of the property.

You will need to check:

• What the percentage rental is based on, ie the price including TVA or not (TTC or HT).
• If there are any service or maintenance charges to be paid or deducted from the rent.
• Cost of the furniture which is provided so that all properties on the development are the same, which is essential for rental purposes
• Notaire's (conveyancing) fees.
• There should be no charge to you from the agency you deal with - they are paid by the developer to assist you throughout the purchase.

Bear in mind that although the rental may be lower in some seasons than you could get if you rented it yourself but you have no risk, you will receive your rent regardless of whether the property is rented out or not, the company take the risk and must allow for this - it is extremely unlikely that you could rent out all weeks on your own.

You have no concerns as to the security, maintenance and cleaning of the property. It is in the interests of the holiday company to keep everything in good order so that they can continue to rent as often as possible.

At the end of the 9-11 year lease most rental agreements will give the right to renew to the holiday company. However in practice they very rarely insist upon a renewal if it is not wanted. The reason being that if it became common practice for them to insist, it would make people very wary about buying a property in this way and they base their business on the continuing availability of properties. It is possible in some cases to request a letter confirming that they will not exercise their right.

You will pay a deposit of a maximum of 5% then pay in stage payments To reserve the property you will sign a reservation contract and lease. You will then pay in stage payments (in exactly the same way as for any new property in France). The first stage payment is normally around 25% and is payable once the foundations have been laid.

The company can alter the lease prior to completion but should it change to any extent you have the right to withdraw.

If you decide to use the property or sell it and not renew the lease At the end of the lease you will have to repay the proportion of the TVA, ie. if your lease was 9 years, you will repay 11/20ths of the amount of TVA. Taking inflation into account this will be a comparably small amount to pay back in 9 years time. After 20 years of leaseback the TVA is no longer repayable.

If you decide you would like to sell the property within the period of the lease You can do so but will have to sell it with the lease intact - to a like-minded buyer looking for an investment.

The notaire's fees on purchase will be as for any new property - around 3%. If you buy a refurbished property being sold as a leaseback, then there is no TVA element in the sale and you will normally pay a deposit to reserve the property and the rest of the money will be due when the property is completed. Notaire's fees will be 7/8% of the price of the property, not the refurbishment cost, so will equate to approximately 5% of the purchase price.

Some leases give the purchaser no use of the property at all This suits some buyers who are looking for a pure investment - taking account of both the capital investment potential and the rental income.The potential capital increase is often forgotten by potential purchasers - they just look at the rental return - the reason for buying these properties is that they pay rental and your money is invested in property which historically increases in price - if you hold onto it for some time. Property is not for the short-term investor - although in recent years it has proved that it could be.

You can take a mortgage, but not all banks will lend on them - it is wise to check with a mortgage broker specialising in French mortgages as to what you would be able to borrow on a leaseback purchase before you get involved with a purchase.

Personal use of the property offered in different ways The amount of weeks and the way it is arranged varies tremendously between developments, ranging from one or two weeks to several months and in some cases just a reduction on the rent being given whenever you want to use it.

If you choose a development where you have some usage you could calculate the cost of using such a property for holidays and add it into the equation of the rental return as you will not be paying for other holiday accommodation.

If you are working with limited holidays and time, then 3 - 4 weeks is probably as much as you would have time to use the property. You will not need to take responsibility for changing of linen, cleaning etc between renters, you just arrive to a perfectly cleaned holiday home on your weeks and leave it to the holiday company for the rest of the time.

You will require tax representation to declare the income in France - there is a tax treaty between our two countries and you will not pay it twice. In most cases the companies can provide this assistance or recommend someone to you - there will be a small cost which should be borne in mind when calculating whether it is worthwhile for you.

We do not make any extra charge for our assistance with a purchase. We will guide you through the paperwork, explain the contracts etc.