What is French Leaseback Property?
Loué Meublé Non-Professionel (LMNP) or the French Leaseback Property System was introduced by the French government in early 1980s to increase the quantity of holiday accommodation available in the country. This was a measure to offset the growth of required holiday accommodation sites in the country, as a result of burgeoning tourism industry in the country.
Under the LMNP, the investors who purchased the property had to lease it back to a pre-determined Property Management Company for a fixed period of time (generally, between 9 to 11 years, extendable up to 18 years). During this period, the task of the Management Company is to furnish, equip and let the property for a guaranteed net return. The return on property tends to range between 2.5% and 6% per year depending on the factors, like the Property Management Company, nature of property, its location, and whether or not you will be enjoying the property for holidays.
The French Leaseback Property Scheme is a runaway hit with most leaseback developments taking place on the Mediterranean and northern coasts, the Alps and in Paris. The Ski stations like Val d Isere in the Savoie region of France are just about ideal investment for a Leaseback property. Similarly the ski resorts in the Three Valleys area (Trois Vallees), like Meribel, Les Menuries, Courchevel and Val Thorens also attract tremendous Leaseback investment.
Some other hot locations for Leaseback Property investment in France include Les Arcs 1950, the French Riviera the Languedoc-Roussillon area along the Cote Vermeille between Perpignan and Banyuls-sur-Mer, Pyrenees ski resorts like La Mongie and Font Romeu, Biarritz, Capbreton and Arcachon, Brittany, Normandy, and Nord Pas de Calais.
Advantages of French Leaseback Property
The best part in owning a French Leaseback Property is that the owner avoids paying French VAT on new property, which amounts to about 19.6% that would normally apply.
Additionally, the owner also avoids paying any tax on the Capital Gains if he keeps the property for 15 years.
In a recent clarification by the French government, it has been resolved that upon the sale of a leaseback property, the owners are not required to repay the VAT pro rate temporis as long as the new buyer continues with the lease agreement. Therefore, the new buyer also does not require to pay VAT either.
Leaseback arrangement ensures regular annual rental income. However, if you plan to occupy the premises for some time of the year, the rental income will accordingly decrease. The rule is ‘the less you use your property the higher your yield will be’.
With a number of Property Management Companies to choose from, the investors have choices in plenty. The allurements include flexible packages, including renegotiating the number of weeks’ access to the property each year at a price.
Legalities and Cautions
The experts advise the potential French Leaseback Investors to go thoroughly with their contract. Every clause of the contract must be carefully vetted with the help of a local lawyer. Due to the technicalities involved, it’s better to be safe than sorry. At the expiry of the initial fixed term and depending on the peculiar terms and conditions of the contract, you can either exit the lease or renew it with the Management Company. In either scenario, make sure that that you negotiate your rents upwards. For such an advantage, it is pertinent to check the initial contract and ensure that upward revision of rent is an integral and indispensable part of the contract.
However, you must remember that while capital appreciation is incidental, leaseback is principally meant to ensure a guaranteed rental income.
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