International Property Insider

Northern Cyprus Title Deeds

2010-03-25T11:30:00.001Z

The TRNC Government is passing a new law to allow individual title deeds to be issued for properties under construction. The draft bill has been approved by the Council of Ministers and has been passed to Parliament for final approval. It will then become law.

The proposed law would mean that purchasers of off-plan properties in Northern Cyprus would be able to take title to their property immediately on purchasing – that is before the construction has even started.

This would help to ease the current problems where unscrupulous – read crooked – builders are refusing to hand over title deeds for completed properties or demanding additional payments from purchasers before doing so. It would also remove the risk of builders taking mortgages over properties and so preventing the transfer of title from taking place.

The Government also hopes that this will pave the way for a new ‘mortgage’ system to be introduced into the TRNC to allow banks to provide mortgage finance to ‘off plan’ purchasers. Mortgages on off-plan developments are not possible under the current system because purchasers are unable to take title until the construction is complete and, until then, they have nothing that can be mortgaged. Issuing title deeds at the start of construction would allow purchasers to take title and finance the purchase through a mortgage from a bank. The mortgage would then be registered over the purchaser’s own individual title deed.

Demopoulos -v- Turkey

2010-03-24T18:20:00.001Z

Summary: Rights of Greek Cypriots to take action to recover their property in Northern Cyprus; Circumstances in which the European Court of Human Rights will permit a claim; Effect on the risk of foreign buyers being sued in their own country.

This case has caused quite a stir. Since the judgement of the European Court of Human Rights (ECHR) was announced a couple of weeks ago I have been contacted by a series of journalists and other interested parties. All of them have been very confused about the situation. This is not surprising as the position is both complicated and confusing. It is, however, a case of great importance if you own or you are thinking of buying property in The Turkish Republic of Northern Cyprus (TRNC).

The case is an interesting example of what happens when the legal system crashes with politics.

When commenting on the situation in Cyprus you are bound to offend somebody and so I apologise now.

You will remember the background. In 1974 the Turks invaded/liberated the northern part of Cyprus and turned it into what is, in effect, a separate country. Many thousands of Greek Cypriots were displaced and became refugees in the south and many Turkish Cypriots were displaced and moved to the north. This left lots of property in the north the title to which was still in the name of the original Greek Cypriots and a lot of property in the south the title to which was still in the name of the Turkish Cypriots who had now moved to the north.

Arguments about this land have continued for over 35 years. They reflect the bitter divisions still experienced in Cyprus as a result of not only the events of 1974 but also Cyprus’ earlier history. In my view, those feelings will not go away until a political solution is found to the Cypriot problem and, maybe, not for 25 years after that. Spilled blood takes a long time to dry.

Since 1974 there have been a series of court cases to try to sort out the legal issues arising out of the effective division of the island.

A large number of those have ended up before the EHCR. In early cases, and in accordance with general international law, EHCR took a very strong line. Aggressors could not acquire rights by invasion. They and the United Nations declared the Turkish occupation of Cyprus and TNRC illegal and TNRC of no legal authority.

There are currently about 1475 cases pending before EHCR about the rights of Greek Cypriots relating to property in northern Cyprus.

Mr Demopoulos started his case in 1999. These cases do not move quickly! His and a number of other cases were used, together, as a ‘test case’ to allow EHCR to consider the basic principles of what should happen to these property disputes. The case was heard in November 2009 and the judgement announced in early March 2010. As I said, these cases do not move quickly.

To cut a (very) long story short, the court decided the court decided that it could not deal with Mr Demopoulos’ claim.

A large number of arguments were advanced but, basically, the reason they declined to deal with the case falls into two parts. Article 35 of the European Convention on Human Rights says that you can only bring a case to EHCR if you have ‘exhausted all domestic remedies’. In other words, you can only go to the EHCR if your rights have been broken and you have tried to get justice through the local courts and failed.

In this case Mr Demopoulos and the others have not tried to do this. In Northern Cyprus the government had set up a body called The Immovable Property Commission (IPC). This was specially set up to deal with these cases. On the face of it, therefore, it would seem obvious that Mr Demopoulos and the others were not entitled to take their cases straight to ECHR. But it is not that simple. He and the others argued (amongst other things) that they should not have to use the IPC in this case. They claimed that by going to this commission they were being forced to acknowledge the validity of the government of Northern Cyprus. They claimed that this commission did not provide any real or effective remedy because of its bias against Greek Cypriots, because it almost never ordered that property should be returned to them and because any compensation awarded was only a small fraction of what the property was worth.

The ECHR rejected these claims. It decided that the IPC procedure appeared to be reasonable and that people must try it – and the appeal mechanism built into the procedure for dealing with cases where the claimants were dissatisfied – before they could (if they still felt their rights had been breached) make an application to EHCR.

I think very significantly, the court said that it was now 35 years since these events took place and we all have to live with the fact that times have moved on. You cannot just freeze people’s rights in 1974. To do this could cause great injustice to other people.

So what does this mean in practice?

First, it means there can be a long delay before these cases are dealt with by IPC and any appeals are dealt with. Think years, not months.

Second, in almost all cases the best the Greek Cypriot is going to get is an order for compensation rather than the return of his land or, possibly, and exchange of his land in Northern Cyprus for land belonging to a Turkish Cypriot in Southern Cyprus. Whether that compensation will be fair and reasonable remains to be seen.

How does this affect the foreign owner of property in Northern Cyprus?

If they have got the proper paperwork showing ownership of the property under the TRNC rules, it is now unlikely that the Greek Cypriot will be entitled to recover possession of their property. The worst they would face would be an order to pay compensation for the value of the property which, of course, could still be a lot of money. However, they will only face that risk if:

IPC orders the payment of compensation –usually paid out of its fund – and the money is not paid
OR – and do not underestimate this possibility – after going to the IPC, the claimant appeals against the decision and after the appeal is dealt with by the courts he still alleges that the process is in breach of his human rights. That case could then be taken back to ECHR which, it seems to me, would then have the power to deal with it.

How does this ties in with the recent Orams case?

If the Greek Cypriot owner of the property obtained a judgement in the Cypriot courts against the new foreign owner of the property then, under the European Union Rules, that judgement will still be capable of being enforced against the foreign owner in the EU country in which he lives or has assets. However, because of the delays in the system, it could be some years before this position was reached and it is now much less likely that he would be able to obtain such a judgment.

What should the owner of a property in Northern Cyprus do now? They should take good legal advice. They will have to decide whether to ‘seize the moment’ and try to negotiate a settlement with anybody claiming ownership of their property or whether to drag things out for as long as possible in the hope that the problem will go away.

As I said at the outset, this whole situation is a minefield full of great legal complexity. That is never good for the people who stumble into the minefield. Whenever a lawyer says a problem is interesting it means that it is difficult and expensive! However, the position has now got a lot clearer. Those who took the risk and bought property in Northern Cyprus a few years ago will breathe a little easier. Was this the right decision? For someone interested in upholding international legal rights, probably not. It sends the message – which will, undoubtedly used in other cases – that if you do something wrong and stall things for long enough you may get away with it. All in all, this seems pretty much like a victory for Turkey and another cause for grievance for the people of Cyprus. However, it may just send the message that everybody needs to ‘get real’ and negotiate sensible solutions to these long running and very painful legal disputes. To that extent it was a good decision.

John Howell

How can I avoid problems with tenants in my property in France?

2010-03-24T16:53:00.001Z

It is, I’m afraid, typical to have the odd problem, They should be few and far between. They will arise more often if you treat the ownership and letting of your property too casually.

It is, incidentally, the same in the UK. My neighbour has just gone through the same process. It has taken months and she is £5,000 out of pocket.

How can you avoid problems?

1. Take care when choosing tenants. If taking long term tenants, take references. If taking short term tenants, go with your instincts. If you have any concerns, don’t let them have the property.

2. Think about using a local property manager to vet and meet tenants.

3. Take a security deposit, to the maximum extent allowed by law.

4. Have a proper, legally drafted contract. French law gives different levels of protection depending upon the type of property (furnished, unfurnished etc) and the length of the tenancy.

5. If you have a holiday home, stick to letting to holiday makers and for short periods. Not only do you tend to make more money but they usually need to go home at the end of their stay. If you get the contracts right they also have very little protection if they stay on illegally.

6. AS SOON AS things go wrong, take advice and do something about it! Early intervention is (usually) cheaper and more effective.

7. Remember that, if you’d had your money in the bank, you’d be earning next to nothing on it – so, even with the odd set back, this is probably not a bad investment.

These problems can be sorted out from the UK – but you will have to give a lawyer in France Power of Attorney to deal with things on your behalf.

Let the Buyer Beware!

2010-02-24T15:08:00.002Z

Global Edge, 24 Feb 2010.
England's 1966 World Cup hero Sir Geoff Hurst claims his name was “used and abused” by a British estate agent selling off-plan property in Marbella, Spain.
Sir Geoff Hurst told London's high court yesterday that Mark Cordner, who he believed owned and had the legal right sell off-plan development Aloha Royal near Marbella, had deceived him and six other investors.
They claim that, because of Cordner's alleged deceit, negligent misstatement and wrongful conspiracy, they handed over the full purchase price up front and without security for seven off-plan apartments.   They say their rights over the properties have now either been destroyed or rendered worthless. Sir Geoff Hurst claims he has personally lost £600,000.
Hurst said that he did virtually no research and took no legal advice, as Cordner said that his in-house lawyer would deal with the legal work.
"It is easy to say in hindsight, but if I'd seen the documents, we wouldn't have gone anywhere near this" said Hurst.
Comment:
How on earth does this still happen? How can people be so stupid?   After 30 years of shouting – from every pulpit that would allow me access – that only a fool buys a property without legal advice, EVEN TODAY only about 60% of the buyers of property overseas use a lawyer – and, worse still, many of these use the developer or estate agent’s lawyer.
Yet many of these buyers are well educated and successful people.   Many are surrounded by advisers of one sort or another.   Some wouldn’t buy a paper clip without reading the Which! report!
Why do they do this?   I think it is often a cross between embarrassment – insisting on using a lawyer looks like you don’t trust the seller; lack of knowledge – how do you find a good lawyer to deal with a property in Bratislava and greed. It is subtly (or, often, not very subtly) – suggested to you that ‘using a lawyer is a bit of a waste of time and that, quite frankly, its just not necessary in this country’.
Don’t listen. Insist on protecting your position.
For years, my colleagues have been telling me that I am crazy to keep on stressing the need to use a lawyer when buying abroad. After all, we make so much more money sorting out the mess you get into when you don’t!

UAE (Dubai) – The future of property investment

2010-02-21T15:49:00.002Z

19. Feb 2010. DUBAI (Reuters) - Dubai's debt crisis has stifled sukuk issuance and unfairly put a damper on the Islamic finance industry, experts said, noting that an unstable credit environment and poor due diligence was to blame for the debacle.
The state-owned conglomerate Dubai World rocked global markets in November when it unveiled plans to delay repayment of $26 billion in debt as it restructures.
The company staved off default on a $4.1 billion Islamic bond linked to its property unit Nakheel after a last-minute bailout from Abu Dhabi.
Prior to the repayment, investor jitters were heightened by worries about legal ramifications and the ability to claim assets, if there was a default on the issue.
Comment:
There were wild rumours going around that defects in the whole legal structure behind Islamic finance (Islamic finance is, essentially, no conventional interest payments) meant that the lenders would not be able to recover any assets in the event of a default. This was nonsense. These rumours do, however, give rise to the important thought that, for those of us more used to conventional western forms of finance, getting involved in deals using Islamic structures needs special care and good legal advice.
As to Dubai in general, our feeling is that the fall in property prices still has some way to go (10% – 15%??) but that the views expressed to us by some clients that ‘Dubai is finished’ are far from the truth. Dubai still has the potential for being the leading commercial hub in the region and we think it will recover. Slowly.
Should you buy ‘bargains’ now? We don’t think so. There are likely to be better bargains in 6 months’ time.

Spain – What on earth is going on?

2010-02-21T15:45:00.001Z

Leader, 19 Feb 2010.

Spain. The only economy in Western Europe still in recession. Unemployment has risen to more than 4 million (about 20%), and there are fears that Spain could end up with a financial crisis worse than Greece's. But now Spain now has someone to blame – the press. Yes, the Spanish intelligence services are investigating the role of British and American media in causing financial confusion and turmoil. This follows claims from Prime Minister José Luis Rodríguez Zapatero's socialist government that speculators and newspaper editorial writers had launched a concerted attack but without any apparent examples to show anyone.

Comment:

The comments upon which this article was based really annoyed me!

The question I am asked more than any other is ‘What is happening to Spain?’ This issue affects hundreds of thousands of British people. Those with houses there. Those who like to holiday there. Those who saw Spain as a good investment location. And, of course, the many of our clients who do business with Spain.

I have been dealing with Spain for 25 years. During that time I have dealt with thousands of transactions of various types, from setting up businesses to buying holiday homes. Here is my take!

When I first started to work in Spain, many parts of the country were still almost third world in their levels of development and, certainly, second world in their levels of wealth. It was only 10 years after the death of Franco, during whose 40 years in power Spain had fallen further and further behind the rest of Western Europe.

Then, in the eighties, they began to benefit from a massive property boom fuelled by the millions who had enjoyed holidays in Spain and who could now afford a piece of their dream. Behind them came the thousands of businesses needed to sustain such an ex pat community. This generated huge wealth, often in the areas which had previously been poor and which were still administratively under developed.

The boom continued for many years – probably until about 2006, though some would say 2007. The Spanish government, belatedly, recognised the development potential associated with this residential tourism. It had dreams of becoming the California of Europe, where the millions of baby boomers from the cold and wet north of Europe would choose to retire and where those lucky enough to be able to choose where to work would set of their high tech/high profit enterprises.

This was a good plan. But Spain had become expensive and people had become increasingly frustrated with – and unwilling to accept – the administrative inefficiencies and the whiff of endemic corruption which affected their daily lives. This coincided with the opening of new (and, often, much riskier and more corrupt) markets which drew away many speculative ‘investors’ in the hugely over priced Spanish property market, which promptly collapsed.

Property had become a huge part of the Spanish economy in which other areas had also grown, backed by high amounts of debt. Although the rest of the country and trhe economy had developed almost beyond recognition, Spain was in big trouble.

Then came the global recession and it was, almost, adios & goodbye!

Fundamentally, however, the Spanish plan of the 1990’s was a good plan. Spain has the most reliable ‘good’ climate in Europe, especially during the winter months. It is easy to get to, with hundreds of flights every day. People still want to live there. They have money and will pour it into the Spanish economy – which, of course, also needs to keep on developing in other areas. So what has gone wrong?

Basically, each and every time there has been a crisis affecting the expat communities, the government – at whatever level – has made the wrong decisions. Most damaging has been the fiasco of people losing homes bought with the benefit of (what boil down to) forged building licences. Corrupt town hall officials lined their pockets. The consumer lost out. But instead of the government ‘stepping up to the plate’ and accepting liability for this disgraceful situation, it did little or nothing of use. Ten years’ later, people are still losing their houses.

Today’s story epitomises everything that is wrong about Spain. Until these things are resolved, in my view, the Spanish property market and the growth of the expat community are going nowhere.

Of course, prices have fallen so far – over 50% in some cases – that some are tempted back by the prospect of bargains. This includes many of our clients. But until these fundamental issues are resolved – credibility, administration and cost of living – I think there is little prospect of the retirees returning in large numbers or the tens of thousands of empty houses on the costas finding buyers.

Russia – Business & Corruption

2010-02-21T15:43:00.001Z

President Dmitri A. Medvedev fired two top Interior Ministry officials on Thursday and said he would eliminate thousands of ministry jobs in an effort to reform a police force widely criticized for corruption and abuse. He said some 15,000 cases of police corruption were logged last year, which was “just the tip of the iceberg.” He dismissed 15 generals, including 10 regional police chiefs, and told police officials that he wanted the ministry cut in half, to about 10,000 employees.

Comment:

We do very little business in Russia and almost every deal our clients have been involved in seems to hit all sorts of problems, so I am, perhaps, a little skewed in my overview of the country.

I still think it’s a scary place to do business – for a whole variety of reasons from the script to the weather.

However, it is quite clear that there is a monster tussle going on between the ‘ordinary’ Russians that I meet and those in authority.

The people I meet tend to be highly educated and entrepreneurial businessmen. They tend to be in their thirties or early forties and are quite open about the fact that they find many aspects of their system frustrating. They are not gangsters. They may be a little cavalier about various issues from health and safety (Hurrah! I hear you say) to the payment of taxes, but they are people you can do business with.

Then you hit the brick wall of bureaucracy!

Does this story suggest that, at last something is to be done? Or is it just another PR exercise, to conceal the fact that – at its upper levels – nor much has changed in the attitude of the administration since the 1960s?

One thing is crystal clear. If you are thinking of doing business in Russia, you need a good plan and good connections.

Portugal – The McCann Court Case

2010-02-21T15:40:00.001Z

19 Feb 2010 - LISBON (Reuters Life!) - A Portuguese court upheld on Thursday a ban on a book about the disappearance of British toddler Madeleine McCann written by former detective Goncalo Amaral, who led the initial investigation.

Published in 2008, Amaral's book, "Maddie: The Truth of the Lie," was removed from shelves following an injunction last September after the McCanns claimed the book defamed them by suggesting Madeleine died in her room in a Portuguese holiday resort and they faked her abduction.

Comment:

This story reminder me, obliquely, of two things.

The first is that, when they first have dealings with the Portuguese judicial system, many clients moan about how unfair/prejudiced/slow it is. This is just not true. Of course, it differs from what they are used to but most of the differences appear more significant than they really are. In some cases, their ‘own’ system may be better. In others it will be worse. Dealing with these differences (and accepting them) is a key part of being an ‘international’ person.

The second thing this story reminded me about was that in many, many countries – not just Portugal – HUGE numbers of cases are appealed. In the UK it is very low – probably just 2 or 3%. In other countries it is 90% plus. So the McCanns – and the media – should not expect this story to be over yet!

Morocco – Increased Investment

2010-02-21T15:37:00.001Z

18 Feb 10 The World Bank has promised to increase its loans to Morocco from $300 million to $600 million per year from 2010 – 2013.

Comment: This is an endorsement of the structural changes made to the economy over the last few years and is important part of the jigsaw of funding Morocco’s substantial tourist investment plans.

The two sides of Mexico

2010-02-21T15:34:00.001Z

19 Feb 2010, (Drug War Chronicle). Mexican drug trafficking organizations make billions each year trafficking illegal drugs into the United States, profiting enormously from the prohibitionist drug policies of the US government. Since Mexican president Felipe Calderon took office in December 2006 and called the armed forces into the fight against the so-called cartels, prohibition-related violence has killed over 16,000 people, with a death toll of nearly 8,000 in 2009 and over 1,000 so far in 2010.

19 Feb 2010, (Dow Jones). Mexico’ largest retailer, Wal-Mart de Mexico SAB (WALMEX.MX), said Thursday that it plans to invest 12.5 billion pesos ($975 million) in its domestic operations.

Comment: No wonder clients, both in the US & the UK, seem confused and ambivalent about doing business in Mexico.

If you are looking to do business there, top quality legal advice and ‘intelligence’ is vital. Depending upon your detailed requirements, our ILP members in Mexico and/or the US are able to assist.

Malta – Fall in cruise traffic

2010-02-21T15:29:00.001Z

In January 2010, cruise passenger traffic in Malta comprised 9,062 persons, a decrease of 28.0 per cent over the corresponding month in 2009.

Passengers from EU countries accounted for 71.2 per cent of the total traffic, with the main market being Germany. There was a decrease of 81.9 per cent in Spanish passengers and another 79.3 per cent from the United Kingdom. Moreover, visitors from non-EU markets totalled at 2,607, and comprised 28.8 per cent of the total traffic. Passengers from the United States accounted for 61.0 per cent of non-EU countries, whereas passengers from Japan increased by 48.1 per cent over the corresponding month last year.

Comment:

These figure back up many others showing the depth of the recession in Malta and elsewhere.

They also tally exactly with our figures fall the fall in volume in the Maltese property market.

Hungarian Revival Plan

2010-02-21T15:25:00.001Z

Budapest, 19 Feb 2010 (Dow Jones). The prime issue of Hungarian politics is putting the economy back on a course of recovery, said Viktor Orban, head of the opposition party Fidesz, which is widely expected to win Hungary's parliamentary elections in eight weeks' time. The main economic tasks of the future government, should his party win. Those are: drawing what Orban calls a true picture of the state of public finances; help for the corporate sector via simpler operating conditions and "lighter burdens to carry"-- probably indicating lower taxes; a jumpstart to the construction industry; a renewal of foreign economic relations; and protection for Hungarian arable land, water supply, products, manufacturers, and consumers.

Comment: This typically pragmatic view seems set to carry forward the Hungarian focus on inward investment and construction.

Increase in Travel to Hungary

2010-02-21T15:24:00.001Z

Hungary Tourism Report, 20 Feb 2010. The most recent tourism data, for the first nine months of 2009, show a 3.4% year on year increase in foreign visitor arrivals. Same-day visitors accounted for the majority of the increase. Visitor arrivals from Romania and Serbia declined, by 3.6% and 5.0% year on year respectively, but arrivals from Slovakia rose a by 15% and the number of visitors from Austria and Germany increased marginally.

Comment: This tallies with our observations that Hungary & Slovakia are becoming two ‘power houses’ of central Europe.

The Crisis in Greece

2010-02-21T15:19:00.001Z

19Feb 2010 (New York Times). After weeks of denial, the European Union has begun grappling with Greece’s debt crisis and the dangers it poses for the 15 other nations using the euro.

Last week, Europe’s political leaders reassured panicky bond markets that they would — in some way — ensure that Greece doesn’t default. This week, finance ministers gave Athens a month to show whether the draconian measures it has announced — increasing taxes, freezing public sector hiring and raising the retirement age — are enough to meet its target of slashing the deficit from 12.7 percent of its gross domestic product to 8.7 percent by the end of this year.

Prime Minister George Papandreou’s Socialist government inherited this debt crisis. Over the previous five years, the conservative government recklessly expanded public payrolls. That kept unemployment down but ruined public finances and forced Athens to borrow more and more to pay the rising wage and pension costs.

Comment:

We have long said – and our clients long ago discovered – that dealing with Greece is different.

Were many of us surprised to find out that the government had ‘cooked the books’ to conceal half of its real deficit?

Before you feel too smug remember, if you are British, that our debt is probably bigger in percentage terms than that of Greece!

But, if you do business in Greece – or you are thinking of moving there or buying a holiday home – how should you react to this crisis?

Well, in my view, it depends.

If you are already doing business, you will (I hope) have begun to understand the local culture and you will have found ways to deal with it. Depending upon your business, the inevitable and substantial cuts in public expenditure may or may not hurt you badly. You will be able to work out what to do next and, probably, you will try to steer away from ‘public’ contracts.

This is probably not a good time to start to do business in Greece. New ventures are always tricky and this adds an extra and avoidable level of complexity.

If you a thinking of retiring to Greece, you will know what you want and you will have already decided that you love everything about the country. Expect things to get more expensive!

If you are thinking of buying a holiday home, I suggest you think long and hard. A lot of money is going to have to come out of the Greek economy – and that is likely to impact first and hardest on life’s luxuries, such as a villa by the sea. Prices are likely to fall. You will, probably, get a much better deal in a year’s time.

2010 Tax changes in Spain

2010-02-21T15:12:00.001Z

In Spain, tax rates and rules change every January, but – this year – there are number of ‘special’ changes proposed.

First, the main points of the normal stuff!

Personal income tax

Inbound expatriate workers arriving after 1 Jan 2010 can only choose to be treated as non-resident taxpayers (often hugely beneficial) if their pay package is worth no more than €600,000.
Taxation of dividends, interest and certain capital gains on the sale of assets increased from 18% flat to 19% on the first €6,000 and then 21%.

Corporate income tax

Reduction in the tax rate for small and medium-sized companies to 20%, subject to certain requirements.

VAT

From 1 July 2010 VAT the normal rate will be increased from 16% to 18% and reduced rate from from 7% to 8%.

A few other important announcements of intended tax changes:

The corporate income tax credit rate for technological innovation activities would be increased from 8% to 12%, and its ceiling would go up from 50% to 60% of the reduced gross tax payable in certain cases
Tax credits for acquisition or renting of permanent dwellings would also be phased out for taxpayers with taxable bases over €24,107.20 ($34,983).
Income received by EU pension funds which are considered the equivalent of Spanish pension funds will be treated the same as Spanish funds – basically, exempt from taxation in Spain.
Spanish real estate trusts (SOCIMIs) will be taxed at a 19%
EU-residents deriving income from Spain will be taxed on a net basis, in the same way as Spanish residents, rather than on gross taxable basis.

Who owns Moveable (Personal) Property in France?

2010-02-21T13:35:00.002Z

On February 3rd, 2010, the French Cour de Cassation – in effect, France’s most senior court for cases of this kind – delivered a judgment on the law applicable to what, in the continental system, is known as ‘moveable property’ and which, loosely the same as what, in the Anglo-Saxon system, is known as ‘personal property’.   Basically, this case is about what happens to ‘things’ as opposed to land or buildings. This is only the fourth time the Court has dealt with this issue in the last hundred years or so.
This case is of considerable importance to anyone who has dealings with France.
In 2000, a French born painter living in New York had provided the defendant with 7 of his paintings.
In 2005, the painter died.
In 2006, the defendant then took the paintings to France and set about to selling them by public auction.
In 2007, the widow of the painter sought an order from a French court in order to ‘’attach’ the paintings before the sale. This would, in effect, have prevented the sale. The order was granted, but the the defendant applied to set aside the attachment.
The French court ruled in the defendant’s favour.
The widow then appealed to the Paris court of appeal, which dismissed the appeal. She then appealed to the Cour de cassation.
The basic issue in the case was who was the legal owner of the paintings.
Was ownership transferred in New York by a valid gift, or simply by the defendant being the possessor of the property for long enough to give ownership rights?
The Cour de cassation confirmed its former precedents and held that French law alone governs issues of property for moveables situated in France.
Under French law – Article 2279 0f the Code Civil – a person who holds moveable property and thinks, in good faith, that he is the actual owner of that property, becomes the actual owner of the property.
In this case, this meant that article 2279 had applied since the property had reached French soil.
The widow argued that, under American law, it was up to the beneficiary to show that he had received the paintings as a gift, and that mere possession would not transfer ownership to the holder of the property.
The Cour de cassation replied that, whatever might have been the case in America, given that French law had applied since the goods had reached France, article 2279 was enough of a basis to rule that ownership had been transferred by now.
Comment:
This case is important in a number of ways buy, in particular, it reaffirms that French law governs the ownership of moveable property whilst that property is in France.
For our mobile clients, this gives rise to the very practical risk that their car or their jewellery, clearly the property of A under US or UK law, could be the property of B whilst that property is located in France and the tests of ownership laid down by French law are applied.
As ever, it is not a question of whether the tests set out in French law are better or worse than than the tests used in the UK or US.   It is the fact that they are different and that those differences, to the unwary, can create both risk and lost opportunity.

Our 10 key principles when investing in international property

2010-02-19T12:09:00.002Z

Writing down your core beliefs - your philosophy of property investment, if you want to be pretentious - makes you focus. I suggest you try it. It is an interesting exercise.
In my case, these principles have simmered nicely for over 30 years. Many of them were, for many years, deeply unpopular. Lots are now recognised and acknowledged as just plain common sense. This is something very rare in the property investment world!
1   You have to invest. No one else is going to look after you in your old age
This is now widely accepted. You cannot rely on your state or company pension, unless you want to live in poverty.
2   Your investments should be diversified
Stocks, bonds, cash, real estate, works of art, gold, diamonds etc. Only you - guided by your financial advisers - can decide which mix is right for you. It will change with your age, your financial position and your family situation. Your investment strategy therefore needs to be reviewed on a regular basis. Simple is usually good.
Many of our clients invest heavily in real estate. That is not surprising. They wouldn't come to us if they wanted to invest in gold! They don't trust the stock market. They don't trust the banks. They believe (in my view, rightly) that real estate has been a good, reliable, long term investment and that it has the great benefit of never going bust on you. Of course, in bad times, it will lose some of its value, but (if you have chosen well and taken legal advice when buying) it will not turn into a puff of smoke.
Of course, this does not mean that real estate should be your only investment. Many of our clients are, I believe, too exposed to this sector in general and, in particular, to higher risk locations.
3. Making an investment plan is, in the main, a science and not an art
Of course, there is skill involved in interpreting the information you receive but there are some basic principles behind property investment. See our presentation 'The Basic Principles of Property Investment'.
If you do your analysis properly and follow the rules your investments are far more likely to be successful.
4   A bargain is only a bargain if you can sell it at a profit!
A home in Ruritania for £5,000 sounds like a bargain. Often, it isn't.   This may just be the local market price in a market where there is no indication that prices are likely to rise any time soon. More likely, it is MORE than the local masrket price. You have been identified as a gullible foreigner and are you paying a 'tourist tax'.
Even if £5,000 is the right price and you can see it rising by, say, 20%, will you still make money after taking into account (often high) transaction costs associated with the purchase and the sale?
5   Buy in haste, repent at leisure
Sellers and estate agents always want you to commit NOW. The price is going up. There is another buyer. The rules allowing foreigners to buy are going to change.
Take your time. Take advice.   Take a reality check.
6   Choosing the best property usually benefits from professional advice
International property is not a simple investment investment.   There are too many markets, too many types of property, too many 'opportunities' and - frankly - too many dodgy characters out there just waiting to separate you from your money.
Unless to have the time and inclination to do a huge amount of research and unless you are confident in your ability to identify the bargains from the avalanche of rubbish to which you will be subjected, you are probably well advised to take some INDEPENDENT advice about your property investment plans. It is not expensive and will, almost always , make or save you far more than its cost. See our Investment Advice page.
7   There is no point in making money and then giving it all to the taxman
When you invest in international property, you will become involved with the tax systems of (at least) two countries. The country where you live and the country where the property is located.
Both are likely to have rules and loopholes that will, quite legally, allow you to reduce or eliminate your tax bills. This can save you a huge amount of money.
Take advice from a specialist who knows the rules in all of the countries concerned.
This planning needs to be done before you agree to buy the property. Once you have done so, most of the best opportunities to save money will already have passed.
This advice might, in some cases, lead to your deciding to invest in another country altogether!
8 Property needs to be looked after
You will, almost always, need some form of property management. Working out what you will need and where you will get it from is a key part of your plan. Certain types of property management are simply not available in certain places, possibly suggesting that you should look elsewhere.
9   Understand about Risk and Reward
Some property investments are much more dangerous than others. The country might be more dangerous. The legal system might not work well.   The market - and, in particular, the resale market - may be in its infancy or very restricted. The house might not yet be built - exposing you to the risk of the developer going bust with, in many places, no system of protection or compensation in place.
Curiously, you do not always make more money by taking more risk. In fact, the reverse is often true.
Make sure you understand and are happy with the amount of risk you are taking.
10 ALWAYS take independent legal advice before you buy a property
See our page on Lawyers & Legal Advice.

Lawyers & International Property Transactions

2010-02-19T10:29:00.002Z

Only an idiot buys a property - wherever it is located and whatever the type of property - without getting good and, above all else, INDEPENDENT legal advice. Agents and developers will often tell you that this is not necessary. They will tell you that 'in this country it works differently' or 'in this country we only have to get the title witnessed by a local notary'. Well, they are wrong. If you do not take good legal advice the chances of your purchase 'going wrong' increase dramatically. The consequences of this are usually very expensive. Even if you speak the local language fluently - and most buyers do not - there will be many issues that you should discuss with your lawyer. Surveys. Valuations. The best ownership structure to reduce tax or inheritance problems. Is the contract fair? Does the property have all of the necessary licences to allow you to do what you want to do? Does it have good legal title, free of debts and other burdens? Even if you are buying in a country where a notary must (by law) be involved in the process, most of these issues will not be addressed by most notaries in most countries. They do not see it as part of their job to do so. So do yourself a favour. Take some INDEPENDENT legal advice. 'Independent' does not mean from the estate agent or developers lawyer! Insist on using someone who you know in working for you alone. Insist on your advisers answering the key questions in writing and make sure that you understand the answers given. What are the key questions? They will depend upon the country where you are buying and upon your personal circumstances. The International Law Partnership Ltd (www.ilplaw.com) is a company giving you access to carefully chosen lawyers, acccountants and other professionals from around the world. Those lawyers work to agreed procedures and The International Law Partnership Ltd will supply you with a suggested list of Key Questions that your lawyers should answer for you. If you feel that you need advice in the UK - perhaps about how to minimize your tax liabilities (which can save you a fortune, even on the purchase of a simple holiday home or investment property) or about taking a broader, international, view of your property investment or inheritance planning stategy, then John Howell & Co (www.jhco.org) have over 30 years' experience.

18th February 2010 - A new beginning!

2010-02-18T22:09:00.000Z

Well, at last it's coming. I have been pretty much against moving from a newsletter to a blog, but I'm told 'it's the modern way of doing things'. And, as we all know, this means it must be better! But I'll let you into a little secret - strictly entre nous. I'm going to keep the newsletter going, at least for a while!

France: Restrictions on your ability to let your home – especially in Paris?

2010-02-14T14:03:00.000Z

The French appear to have woken up to a law that has lain, almost unused (in this context) for many years. They say they want to use it to cut back on the number of owners of second homes who are, unofficially, renting out their properties in France. ~This would be a big problem. There are, probably, well over 30,000 such apartments in central Paris and, probably, hundreds of thousands in France as a whole. Is it a ‘flash in the pan’ or does it suggest serious problems for people wanting to let their homes in France and, in particular, in Paris?

What is the problem?

Well, this depends upon your point of view!

From the point of view of the French hotel and leisure industry, the problem is that – in very difficult economic times, when it is hard enough to make a profit – they are faced by an avalanche of (what they see as) unfair competition. This is the competition from tens of thousands of owners of second homes who rent them out to people wanting to take a holiday in France. These complaints have been bubbling along for some years. It is hard to say that this is not unfair competition. Most are not looking to make a profit. Most don’t comply with all of the safety and other regulations with which the hotel industry has to conform. Many pay neither tax or social security on their income and many employ ‘helpers’ who also pay no tax or social security. This gives these owners a huge advantage and allows them to price their product at a level with which the hotels, B&Bs etc simply can’t compete.

Do not underestimate the political power of this sector of the economy.

From the point of view of the owners of the properties concerned, they usually bought the property often depended upon the maintenance of the (lucrative) status quo. Many of our clients in Paris have been making over 5% net return on their investment, which has also increased dramatically in value over the last few years.

Now they face the government trying to crack down on this practice and, possibly, the end of this income flow.

How has the problem arisen?

French housing and construct law states that “any change of use of a dwelling must be submitted to prior approval. (Art L631-7) "

Until late 2008, change of use applications were dealt with by a central administrative body – in Paris the ‘Préfet de Police’. This entity was (and remains) responsible for a whole raft of regulatory activities but they do so as part of the national administration.

Few people applied for permission to change the use of their property. Arguably, few needed to – especially if they were letting their main home for a few weeks per year.

In 2008 the responsibility (in most cases) shifted to local control – in Paris to the Mayor of Paris.

Moreover, following the change in the law, the Mayor of Paris passed additional legislation to strengthen very greatly, its powers to control this phenomenon. Of course, this was just when the recession was starting to hurt to hotel industry.

Please note that these new rules will apply just as much – and possibly, in practice, more – to local French people with a second home as it does to foreigners.

Other authorities in France are, without doubt, looking to see how Paris gets on before lobbying for changes of their own, so (as is often the case) what happens in Paris has broader implications for those interested in France.

The worst feature of the Paris legislation is that it requires a person wanting to turn a property from residential use (including regular long term lettings) to tourist use to make good the loss of housing caused as a result. You must put back into residential housing good quality housing of the same size (and, in central Paris, double the size) of the unit to be used for tourist purposes. For most people, this is a non-starter!

What is a tourist letting?

It is, put rather too simply, being interpreted as a letting which will NOT be the main residence of the tenant AND it is for a period of more than 1 year (9 months in the case of lettings to students).

Our clients who let out to students and visiting academics (also included in the exemption?) and who use the property themselves out of term time will see little change.

The others will.

Can you get round the rules?

The legal validity of the ‘Paris’ rules can be challenged on a number of different legal bases. I am not sure that any would succeed! The less said about this, at the moment, the better.
You can challenge the local interpretation of the law – particularly their gloss on what is a tourist letting and whether this constitutes a change of use in any event.
You can comply with the national law and apply for a change of use certificate. This may be attractive in places where there is no legislation such as that in Paris. If you are granted permission and the law later changes, you will not have to comply retrospectively with the new – and, no doubt, tougher rules.
You can try to comply with the Paris rules. More major investors, these actually (in my view) create additional opportunities to build a varies portfolio.
Start to operate as a B&B or similar structure. This will, often not be possible.
You can try to hide. Make your activities invisible and take your money overseas. The first part of this is very difficult. There will be ads and websites stating, quite clearly, what you are doing. The second is of no legal effect.
You can join together with other investor/owners to take advantage of some of the interesting options we are now developing.

What happens if I break/ignore the rules?

This is not a new problem. Similar issues have arisen in most other ‘tourism’ economies, such as Spain, Portugal & Florida. Each has taken steps to deal with the problem. All in different ways. The long term effect of those steps has been patchy.

On the one hand, breaking the rules is likely to constitute committing a criminal offence in France AND give rise to fines of up to €25,000. Worse still, it could impact on the legality of your insurance.

This law, of course, gives ‘carte blanche’ to your neighbours who don’t like your activities to ‘turn you in’ by way of denouncement. I have written about this feature of French society many times!

On the other hand, the French are notoriously non-compliant with rules of all sorts. Will they treat this any differently? Does Paris even mean business, or are they just firing a warning shot across the bows of persistent offenders who have annoyed their neighbours?

Time will tell.

My experience, based on 30 years of dealing with France and other countries which have tried to tread this path, is that – once better times come – it will be forgotten about! The accommodation is needed. It brings in a different type of visitor from those who stay in hotels – often visitors who stay much longer and spend much more money. Of course, I cannot guarantee this.