French Leaseback Scam
At this stage there is practically nobody in the UK or Ireland with an interest in property that has not heard of French Leaseback property. This product was (and still is to some extent) promoted to avid UK and Irish property investors as the ultimate ‘hands off’ property investment product. The usual blurb would go something like this: “you can pick up French sale and leaseback holiday homes with 100% mortgages at all-time-low interest rates, guaranteed rental returns and a variety of tax breaks.” In fact, 2013’s blurb hadn’t changed much, just replace the 100% with 85% and there you have it straight from Channel 4’s ‘A Place in the Sun’ in March 2013. The problem is, those that have already ‘invested’ in French Leaseback properties are at this stage very much convinced that the product, far from being a ‘guaranteed return investment’ is in fact a great big scam. In one owner’s opinion up to 90% of people who have invested in leaseback product have had mostly negative experiences. That is a serious indictment of an industry that is promoted as being the exact opposite – ‘hands off’, ‘easy maintenance’ & ‘guaranteed return’ are just some of the promotional buzz words. The odd thing is – nobody is really talking about what is, essentially, an epidemic being nicely swept under the carpet. It is just a murmur in France – when it should really be a roar.
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Note – For those interested, a petition has been set up in early 2017 with the aim of highlighting issues with French Leaseback properties at EU and French government level. If you wish to sign the petition the link is : http://bit.ly/2i9VKfr.
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Note from February 2018: An Irish leaseback property owner is being sued by a French Bank following default on a mortgage for a French Leaseback property. The owner is fighting the legal action through Dublin solicitors Mason, Hayes & Curran. If you would like to help out (and possibly create a precedent if you are in a similar position) you can do so on the GoFundMe page set up to fund the case. It can be reached via the following link – FrenchLeasebackScandal Go Fund Me.
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I spoke with one such investor who has, over a period of years, owned what he refers to as ‘seven of the bloody things’. This has given him a lot more experience of this market than most of those actually promoting French Leaseback properties. He is in no way complimentary about the leaseback industry which he deems to be a ‘total scam’.
He has asked not to be named for obvious reasons, but a brief chat is enough to convince that he does, indeed, know exactly what he is talking about.
French Leaseback Scam – Right from the Off
This is, he claims, a market that is rotten to the core and was, right from the very off. Property was sold at a 30 to 40% premium to the market which put investors at a disadvantage from the minute they paid a deposit.
It was heavily marketed on the basis of being a ‘government backed’ product – which as I’ve explained on this site before, it never was. There was a VAT return element, but this was already priced into the properties so investors never benefitted from it in any case.
Management companies were set up with backhanders from developers to keep them operational for a few years to get the properties built and off their hands. The management companies would then claim that they could not continue to provide the agreed returns (often as high as 5%) and owners would have to take a 30% to 50% reduction in rental income for the company to remain viable. Because the owner base generally covered a variety of individuals from across France, the UK and Ireland there was no hope of them ever having the ability to get together to challenge the management company. They took the reduction or the management company folded. Those were the stark options. When the management company did fold an incoming company was not obliged to offer the same yield, so investors found their income, where paid at all, had dropped dramatically one way or another.
French Leaseback Scam – The Added Costs Gravy Train
Even where the management companies stayed solvent investors have found that they are liable for a raft of extra costs and charges, detailed in French small print, about which they knew nothing at time of purchase. Ultimately, if the property made any money they didn’t get it anyway. One example is ‘an eviction indemnity’ which essentially allows the management company to charge an investor a hefty fee if they decide not to renew the lease when it falls due – which many have done over the past few years. It is being sought for loss of a going concern- ‘une perte de fonds de commerce’. This indemnity can be anything up to three years of standard rental income – Nemea for example has stated that it is entitled to impose such costs on owners of properties managed by the group. This new law was introduced in October 2009, is retrospective in nature and a wholly legal route for leaseback operators to penalise owners.
French Leaseback Scam – Counting the Cost
Back at home investors were left with the shortfall – at a time when they could least afford it. Many of them had seen their wages cut, had lost jobs or had seen the value of their investments either slashed or, in many cases, completely obliterated. Many, many Irish and British people had believed the hype from the seemingly booming banking industry, and bank shares were a staple in practically every investment portfolio. Virtually all of them have been wiped out by the property related banking bubble and bust.
This investor claims that it is virtually impossible to sell a French leaseback unless you have an incredible level of perseverance or a lot of luck. This is from somebody who is fluent in French, has contact with several Notaire’s (French notaries) and knows the country very well. It is something that most people have not the ability, the time, the finance or the desire to countenance.
Some leaseback products are, he says, quite saleable, but there are not many of them in his experience. He has sold one of the seven he owned for a marginal profit, that he considered a huge achievement. With the others he was not nearly as lucky and, he states, you need to be prepared to take a serious loss in order to sell most of them. Locals will buy them if they are cheap enough and they can wriggle out of the lease, other than that he contends that you can forget about selling the vast majority of French leaseback property on the market.
French Leaseback Scam – Where’s the Beef?
Personally, I have approached at least a half dozen French Leaseback sales companies, some of them very large, to put me in touch with someone who had purchased and subsequently sold a leaseback property – whether for a profit or a loss. I have never had one of them provide me with somebody to speak to despite some of the companies claiming to have ‘resold’ many millions worth of property each year. I do have one acquaintance who has sold one at a modest gain but he admits himself that it was sold only because the development was literally at the base of the ski lift on a high profile Alpine slope – location and all that. He has another leaseback property in a less salubrious development that he has not managed to sell and feels that it will be sold for a huge loss, if at all.
French Leaseback Scam – Some Advice
If you do wish to sell your property this investor’s suggestion is that the best route is to go local – nobody is selling these from Ireland or the UK. He also says the French small ads website www.leboncoin.fr is well worth a visit. It is slightly quirky in that it can only take French Visa cards and there is no English version but it does work – no other avenue has ever achieved anything like the results he has seen from this particular site.
If you find yourself in a situation whereby no rent is forthcoming and a period of more than one month has elapsed from the time rent was due you can engage the services of a ‘huissier de justice’ or bailiff to serve the operator ‘un commandement de payer’ – an ‘order to pay’ notice.
Some companies take heed of this and pay up but many do not. The cost of engaging the services of a huissier is about €75. The huissier must live in the area where the residence is located.
If you have the good fortune to have your lease rescinded by the ‘administrateur judiciaire’ (receiver) for non-payment of rent then whatever you do in the future, do not sign another lease with anybody else.
Rent out the property yourself or go through an independent rental agent. You must fulfil 3 of the following criteria governing the ‘Résidence de Tourisme’ industry:
- Meet and greet the clients
- Provide linen or have linen provided
- Hand over the keys of the apartment to the holidaymakers
- Provide breakfast.
Most people fulfil the first 3 criteria. You can advertise your apartment on www.abritel.fr or www.hoildaylettings.co.uk. You will invariably make a lot more out of a property renting it out yourself than you will through the vast majority of leaseback operators.
If you are selling do take into account that most ‘Résidences de Tourisme’ properties were overvalued to the tune of 30% to 40% at the time of purchase. In the vast majority of cases these properties will have not appreciated in value at all. Depending on when they were purchased, many will have fallen further in price from that time so you will have to be realistic in your asking price if you do wish to move the property on.
French Leaseback Scam – Nobody’s Interested
On a slightly different topic, this investor contacted both the Sunday Independent and the Sunday Business Post to see if either one would do a simple report on his experiences with a product that was heavily advertised in both newspapers for many years. He’s never heard from either of them again nor does he expect to.
If you want to contact me about your experience of French Leaseback – good or bad – please drop a line to info@diarmaidcondon.com.
Hi Diarmuid
I read your article on French leasebacks . It was very informative if a bit depressing. I’m so sorry I didn’t do more research on the issue before investing.
I bought a leaseback from Quietude Evasion in 2006. They quickly got into trouble and went into liquidation in 2009 having left us short about 18 months rent. The owners formed a group and negotiated with another company Goelia who are now running the site but only paying about a third of the original rent.
I remortgaged my own house in Ireland to buy the leaseback and am now being pressurised by bank into selling the French property.
Has the market improved any and who if any would you recommend could sell it.
Regards
Marcus
To be honest Marcus, although it’s not the answer you want to hear, no the market for resale Leaseback properties has not improved.
If you are to sell it the best place to list it is with agents local to the property. There’s no point listing it in Ireland or the UK, neither are buying much Leaseback type property in France at the moment so you’d just be wasting your money.
Just bear in mind that you’ll likely have to take quite a hit on it if you sell before the end of the lease. If you can hold out and sell it as a freehold property you may be able to ask for more (just remember I don’t know the development in question or the specific property, so this is a general comment).
To Marcus O Connor. How are you faring with Goelia. They are interested in taking over a scheme in which we are a member. Would be interested to know before we sign up. Thanks in advance.
Hi Finbarr
Well they have always paid the rent on time and they seem to be more professional in their management and marketing of the site. Check out their website Goelia.com. The problem is of course they are only paying a third of the original amount that I was contracted to pay by the original company. It’s not near enough to cover the mortgage that We took out.
I have gotten a bit philosophical about the whole thing and am putting it down as an expensive life experience.
Regards
Marcus
Hi Diarmaid,
We purchased a leaseback 6 years ago without a mortage in the Languedoc. The story after that is familiar , 2 holiday companies to date with the current incumbent wanting to reduce rents. We have a strong owners group with 50% being French.
There is a proposal to form an owners group to run the residence. We are not sure if this arrangement would have the same disadvantages . We are considering repaying the Vat and keeping it as a holiday home This might give more flexibility re selling at a future date.
Michael
Diarmuid
Same happend me. I purchased a leaseback for 100k in 2007. I got in valued last week and it was valued at 20k. I have been advised to wait until the lease is up in 2018 and then sell. I am young enough so can recover from this, however i feel sorry for some pensioners who invested…shame on the selling agents I say.
Diarmuid and Leaseback Owners,
There is a site http://frenchleaseback.net of which I am a member. It was originally set up I think, for people purchasing leasebacks to liaise, buy/sell leasebacks etc., and has now turned into a site in which we can come together to support and advise one another vis-a-vis getting out of what is indeed a scam and a property scandal. Most buyers, myself included, and I’m sure others who have leaseback properties and commented here will agree, were totally misinformed as to the true nature of the product we were purchasing; of the hidden costs involved and of the overpricing of the “freehold’ properties we were “investing” in. It seems from what I can glean, that if you try to get out of the lease/not renew, you have to pay a hefty penalty fee; can never use it as a residential property as they’re usually in zoned business or tourism districts and now, the government have introduced extra taxes which make the outgoings on these properties unsustainable, resulting in even greater distress for ‘owners’, aka mere servants of the French Banks and Tourism industry. I don’t agree that the Agents are innocent – they, the developers, banks and notaires knew far more than we about the nature of the products that were being sold and chose to go ahead and dupe people into purchasing. This has turned into a nightmare for most people involved in this scandal and sorely needs to be challenged in the courts with those involved in the scandal being called on to provide redress to victims. While most groups purveying these properties weren’t so brazen, a review of the Apollonia Case (Google) provides a good indication of the corruption this ‘system’ is based on.
We are presently in dispute with our letting agents over unpaid rent.
Does anybody know if there has ever been a legal challenge in relation to French Leaseback? Might be worth pooling resources to get prominent legal firm to look into this? Can our MEP’s do anything to help?
Agree totally GIllian. People continue to pump money into these “investments” for fear of being sued when, in fact, they are victims of gross mis-selling & fraud. I am involved in litigation having been duped in one of these scams.
Nothing in France happens quickly or efficiently except when people are looking for money. My “resort” is now mired in multiple litigation & it appears that huge amounts of money will never be recovered.
I have 3 pieces of advice for innocent people caught up in this1. Stop regarding yourselves as being somehow responsible. You’re not. You’re a victim. 2. Instigate legal proceedings in France. 3. Regard all monies you have paid out as being lost but don’t compound matters by paying out more to banks/owners organisations/ 3rd part debt agencies etc etc.
I have resolved to never visit France again so disgusted am I with how I have been treated by a multitude of people/agencies. It’s a country with huge problems & likely like huge holes & in its banks’ balance sheets due to pathetic lending practices
Hi,
We are now at the point where the bank are repossessing our property. Has anybody been through this process yet. Do the banks persue you for the remaining debt after the property is sold?
Hi did you ever get an answer to this question Stephen?
They can if they choose to Stephen, the debt never goes away. At the moment it doesn’t make economic sense for them to do so in most cases, at least not yet. As far as I am aware legislation is being drafted within the EU to make it easier for banks and companies to reclaim debts across EU borders. If this comes to pass then it could be a very different issue.
may i ask has anybody got to the stage where the banks have sold your property and there is still money owed to the mortage lender , we will owe aprox 60,000 ,if they sell our apartment , im just wondering what they can do to us we are in ireland.
Just had p&v offer new contract with 1/10 of current value.
This is not as uncommon as you may think I’m afraid. Is this offer from the current management company at the end of the initial 9 to 11 year term or is it an offer from a new company which has taken over after the first one failed?
Yes it is the current management company at the end of 9 year term.
The scheme is with Pierre Et Vacances, thought as they are big more trust worried, silly me.
It seems lots of French buyers in scheme so hopefully group can organise something hard if outside country.
As have a French mortgage for a French property hoping to switch to an interest only payment for a couple of years – if I can (trying to get right people in bank). This hopefully will give time for French economy and priority to recover….
My understanding is in France lenders have to support you went your in difficulty, have you any information?
I am in same predicament.really don’t know what to do
Help
Hi Trish,
i am in the same position my apartment is only worth 100,000 i owe 150,0000 have been paying the interest only the last 10 years but have to start paying the capital as well now. I cant afford the full repayment. If i hand it back to the bank can the come after me for the rest? Did the come after you?
Hi Diarmaid,
Thanks for all the information – unfortunately, much of it is not what I wanted to hear!
My husband and I have decided to sell our leaseback cottage in Bordeaux, unfortunately for a lot less than we paid for it. We have already exited the lease, which I was advised we had to do in order to have any chance of selling.
This is our property: http://www.leboncoin.fr/ventes_immobilieres/794033139.htm?ca=2_s
If anyone out there is interested in buying, please contact Avenir Immobilier in Lacanau or Le Porge! It is a really lovely place, and we are devastated at selling, but the management company changed hands and the new leaseholders were only offering a fraction of the previous rent.
If you have any more advice on selling, I would be very grateful!
Thanks,
Máire.
Just came upon your mail, did you manage to sell you place? I’m thinking of looking into the long winded process of selling a leaseback?
regards
Martina
I have 2 leasbacks in Andilly, France for the past 9 years . Management company stopped paying rent few years ago so half the owners (French)got together to try to sue the management company . I did not join as it was all in French and I had no idea what was going on . Shortly after the management company changed name and wanted me to take 30% less rent and sign to agree to this . I had no choice as I though this was better than nothing and i have a huge mortagage . Now the French people are still trying to sue the management company and now that group are still getting the higher rent but one year behind me. Has anyone successfully ever managed to sue these management companies and get all that is due to them ? This is going on 3 years now and I don’t think they will be able to win the case against the management company . They are too clever but i want to know has anyone experience of this ? thanks . Depressed owner .
HI WE BOUGHT ALEASE BACK AND ARE CURRENTLY IN SECOND LESE WITH I THIRD OF THE “GUAARANTEED RENT . A LOT O THE
OWNERS ARE Irish land we come together to try to keep a grip on things. My question is if we all decided not to renew the lease at the same time could the estate just then resort to a holiday village with private owners a.we will have had the place for 20 years then ?is there any limit on how long it remains a residence of tourism a.Eileen
Could we start a blog exposing all the fraud and the French governments neglect and lack of interet in these fraudsters ?
Hi was just reading your website on leaseback scam ,we purchase an apartment through leaseback in France 15 years ago and have always had a problem getting out rent paid the builder is also the management company . We are at the moment taking legal action as a group to get out back rent and to evect the builder . We are not making much headway but no choice only to stick with it sometimes I see no end only throwing good money after bad. Would appreciate your opinion . Many thanks and will look forward to your reply. Phil
We have set up a petition aimed at the EU in order to force the EU and French government to address the issues with French Leaseback properties and the way they were mis-sold.
The link is : http://bit.ly/2i9VKfr
Please sign it !
Affected owners need to unite to get attention on this.
We are stuck with this big scam and I wish I know how to get out , We are loosing all our investment (over 200,000 Euros investment)
Hi,
It is always interesting to read your article it is very informative. We have a little french house in the Vendee which is leaseback, at present we are trying to negotiate an exit fee because we realise that it doesn’t matter when we want to leave the lease the management company we will always have to pay the exit fee so better now than later.
We have had the house for just over 11 years and enjoy our visits there.
The point I would like to make here is that when discussing the exit fee no one has mentioned that it is not just three years gross average rental it is more like 4 and a half years as the three years gross rental average is then times by a coefficient number by the management company and this number can be anything from one to five, we were informed by the management company, it is their choice. This makes for a hefty increase in the exit fee.
Chris
After 11 years of a 20 year lease our leaseback company are terminating the lease in the autumn of 2017. Can we just recover the property and use it or sell it free hold as we see fit?There’s no capital gain more like a loss of about 30-50k. We bought a refurbishment lease back so the VAT discount was lower. Will we still have to pay this back to the French tax authorities?
Does anyone know of a good tax accountant or sales agent on the south coast in the case of the latter. Thanks
Pete
French leasebacks are an absolute scam from the word go. Overpriced properties with about 3% return after tax and expenses if you are lucky enough to get any rent at all. Lucily i was able to offload mine at a 40k loss but havent looked back since. If you bought a house in England circa 2006 you would have doubled your investment by now.
Hi
Thank God for people like you exposing this fraud. I can’t understand as EU members consumers were not given protection. Everyone has heard about leaseback and knows it was a scam. The DGCCRF are intertwined with the tourism office set up to drive developments offering VAT rebates but this inflated values. Centre Parcs the so called family friendly holiday resorts have lowered the value and charge over 20k to sell – so owners cd be out of pocket of 100k or more. This after banks have made good interest but owners have lost thousands. We are frightened as PV keep their distance and don’t care!!!!!! There is no accountability- We funded CPs build and now they want us out. French banks are not allowed to refinance interest only loans according to one financial expert. Some very scared Irish and frank/UK owners waiting to learn their fate!!!!! Someone must do something- surely world is not this greedy or corrupt to ordinary families