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  1. Law
June 1, 2008

Chateau de Tape Rouge

By Spear's

Sipping a vin chaud after an excellent day’s skiing in Val d’Isère, watching the sun slip out of a perfect blue sky behind a glimmering white mountain, I reflected on the day. Skiing with my children, now fifteen and twelve, was proving to be a great family holiday. Maybe I should buy a chalet in France so that we could enjoy days like this more often.

I shared my reflections with my children. ‘Don’t be silly Mummy,’ came the reply from my fifteen-year-old son. ‘How many times have you told us that investing in a property abroad is sheer madness?’ I snapped out of my reverie. Of course he was right. It is madness, for many, many reasons.  I would go to France more often than I really wanted to, feel obliged to entertain, worry about repairs, moan about the currency exposure, and would have invested too much of my capital in property.

Even if I cared little for these practical and financial issues, it would be foolish to ignore the complex problems attached to my owning a chalet in France if I were to die before selling.

Considering death before buying a French retreat may be as unromantic as a pre-nuptial before a wedding, but serious thought does needs to be given to properly structuring a purchase before committing to anything. In England a testator has testamentary freedom; in France there is a forced-heirship regime where heirs are guaranteed fixed percentages of the estate on the testator’s death, and the testator has only a limited freedom of disposal of assets on death.

An heir under French law inherits outright. If the heir is a child, their inheritance will be an interest in the French property as from the date of death. However, if at that time the child is resident in the UK, it is UK property law that determines the rules with regard to dealing with a child’s rights. And under Section 6 of the UK’s Law of Property Act 1925, a child cannot have an interest in land.

Children can therefore take a house as an inheritance under French law, but cannot sell, let or mortgage it. And their UK-based guardians, parents, executors and trustees can do little to help.

In order to deal with such an inheritance, it would be necessary to go to court under either the court’s inherent jurisdiction, or under Section 8 of the UK Children’s Act. The order from the English court would then need to be enforced in France, or you would need to obtain an order in France from the Juge des Tutelles.

Until 2002 in France, a spouse had no right to the testator’s estate. The law then changed to allow a spouse to be elevated to a similar position to a child of the deceased, with a minimum right limited to a one-quarter share of the estate. Where children are involved, and they are from the marriage, then the surviving spouse can opt for a usufruct over the deceased’s estate.

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A usufruct is not a life interest but it does have the effect of providing for the spouse for the remainder of his or her life and thereafter the children. (This option is not available for children of divorced parents.) Under French law, the division of assets between a husband and wife is governed by ‘community of property’ rules. There are several different matrimonial-property regimes, one of which is chosen on marriage.

The effect of the change in law in 2002 makes the choice of a matrimonial regime even more important. Couples married under English law are treated as if they had been married under the French ‘separation of assets’ regime, which treats each couple as owning their own assets. Most French couples, however, are married under the ‘community of property’ regime, which can include a special clause that attributes any property in France owned by a married couple to the survivor absolutely. If not, the usufruct arises for the life of the survivor. In this way the children’s rights are postponed until the death of the survivor.

An alternative which used to be favoured was the tontine clause in a will at the time of purchase. Under a tontine, the surviving spouse or joint owner is deemed to have owned all the property from the beginning. The surviving spouse takes all. There are, however, restrictions on sale while both owners are alive, and no sale is permissible unless both consent.

A couple who are resident in England and already married, and who wish to take advantage of the community regime of marriage can elect to do so under the Hague Convention No.25. This is not always an ideal situation. For example, if A has children by a first marriage and B also has children from a previous marriage, then if A dies before B, on B’s death the house goes to B’s children, and not to A’s children – which may or may not have been what A and B may have wanted.

A simple and popular solution to these difficult succession issues was to interpose a company between the non-French resident and the property so that the inheritance is of shares in a company, rather than property in France, to which English rather than French law applies. It was recently feared that this arrangement would result in an income-tax charge in the UK, but any possibility of this was removed by the 2008 Budget. I smiled at my children. Given all these complex problems, maybe it would be better to invest my money in a diversified portfolio and simply rent a chalet wherever – and whenever – I want.

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