Covid-19: Some clarification on withdrawal, cooling-off periods and conditions precedent in French property transactions
The French Law and Justice Department has recently provided some much-needed clarification on how the Health Emergency measures impact on property buyers’ right of withdrawal, the cooling-off period and on French property sales’ conditions precedent.
Article 2 of Ordinance number 2020-306 of 25 March 2020 as amended by Ordinance No. 2020-427 of 15 April 2020, states the general principle that the deadlines to complete most legal procedures are extended.
The above-mentioned Ordinances apply to any deed, appeal, legal action, procedure, registration, declaration, notification or publication which is prescribed by law or regulation, whose non-fulfilment is sanctioned by statute and which should have been accomplished during the legally protected period, that is to say between 12 March 2020 and one month after the end of the state of Public Health Emergency.
For these formalities a 2 months time extension, running from then end of the Health Emergency Period, applies in principle.
Faced with numerous questions from real-estate practitioners concerning the interpretation of these provisions, the Ministry of Justice has provided further clarification on how these rules apply to French property buyers’ right of withdrawal, the cooling-off period and conditions precedent which may be included in real-estate preliminary sale and purchase agreements.
The "periods for reflection, withdrawal or relinquishment provided for in particular in distance selling contracts, distance insurance or financial services contracts, life insurance contracts or contracts for the sale of residential property" are not subject to Article 2 of Ordinance No. 2020-306 of 25 March 2020. They "expire within the legally prescribed time limits".
Concerning the option for individual non-professional property buyers to withdraw their property purchase, the legal position is that at the end of the cooling-off period, "the beneficiary (the buyer) is definitively committed to a contract to which he has consented. A reading to the contrary (of Article 2 of the Ordinance of 25 March 2020) would mean that all agreements for which such a period is provided are paralysed".
As regards the cooling-off period, the French Law and Justice Department states that "its purpose is (...) only to impose on the party a certain time before he or she can accept the purchase offer and thus legally commit himself. There is no justification for extending this period. It is not a "legal act" to be performed within a certain period of time".
Ordinance No. 2020-427 of 15 April 2020, to this effect, added this clarification to Article 2 of the Ordinance issued on 25 March 2020, through a new interpretative paragraph 2, according to which it "is not applicable to the periods of reflection, withdrawal or renunciation provided for by law or regulation, nor to the periods provided for the reimbursement of sums of money in the event of the exercise of these rights".
After recalling that "the time limits of contractual origin are therefore not affected by" Article 2 of Ordinance No. 2020-306 of 25 March 2020, the Ministry of Law and Justice describes several situations by way of illustration. Thus, are not extended:
- Those time limits for French property buyers to confirm their purchase, where vendor signed a unilateral offer to sell, even if the time left for Buyer to decide expires during the legally protected period;
- Conditions precedent commonly provided for in contracts, in particular in property sales agreements, even if the period provided for in the contract for their fulfilment expires during the legally protected period;
- Conditions precedent for obtaining a loan or a mortgage with a completion date falling due during the legally protected period. Indeed, according to the Ministry of Justice, even if such a condition precedent is mentioned by Article L. 313-41 of the Consumer Code, it remains of a contractual nature. "The law only provides that in the case of financing the sale by means of a loan, obtaining the loan must be a condition precedent of the contract" and only imposes "a minimum period for the fulfilment of this condition". The Justice and Law Department adds that "it will be up to the parties to renegotiate this condition, if necessary, in Ordinance to extend the contractual time limit".