The Lease

The commercial lease (between the purchaser of an apartment as landlord and “Home Business” as the tenant), is contracted for a definite term of 11 years and 3 months. When the lease comes into effect the investor will start receiving rent three months afterwards. The initial 3 months after completion are rent free for the operator in order to allow for the opening, furnishing and marketing of the apartments. Subsequently the investor will be paid quarterly in arrears.

The tenant (Home Business) must maintain the standards in which the apartment has been handed over by the landlord (if it has a 4 star rating, then the tenant must maintain this 4 star rating).

As owner of the property, you are entitled to sell the property at any time during the leaseback period, but because you would be selling with the residue of the lease term, this would be reflected in the selling price. Also the initial VAT saved is repayable pro rate if the property is sold within 20 years. Overseasproperties.com would not recommend this as the optimal strategy.

The lease will be renewed by tactic agreement unless it is cancelled by one or other of the parties at least one year before the date the current lease expires.

Home Business undertakes to take out insurance and to keep the property insured for the full duration of the lease, against fire, explosions, damage due to water and against rental risks and claims from third parties. Each owner is obliged by French law to take out Civil Responsibility insurance.

At the end of the lease, Home Business will leave the premises in a normal state of wear and tear along with any improvements and embellishments made.

Home Business will pay all the residence expenses and repairs, along with taxes and duties that tenants are ordinarily bound to pay, and more generally, to pay costs necessary for the proper running of the building. The property owner remains responsible for the land tax (only effective from the 3rd year of ownership).

In the event of sale or transfer of the property during the lease term, the owner undertakes to transfer the obligations resulting from the lease to his or her purchaser or heir. The purchaser will pay any amounts owed to Home Business due to the failure to honor obligations contracted in the deed of purchase.

Extended Lease

There may be an opportunity that the operator (ie Home Business) may renew the lease for a further six years approximately. This is because the operator has signed an 18 year agreement with the local authority to operate the development as a Residence de Tourisme for that time.

If the lease is renewed under the same conditions of the previous lease, the minimum rent that will be paid is the starting rent multiplied by 80% of the cost of the construction index over the previous term.

The length of the second lease is flexible and negotiable. It could be for one year or a period that would take the total period up to 18 years to cover the initial planning permission.

Guaranteed Rent

The lease is granted and accepted in exchange for a guaranteed rent of 4.5%. This rent will be paid in arrears at the end of each calendar quarter, on the 1st of the following month.

The rent will be revised annually on the basis of the variation in the INSEE national construction cost index. The index is published quarterly and the base index is usually that last published at the time the lease comes into effect (in French, the index is called: l’indice national du cout de la construction). The basic index will be that of the last quarter published at the date the lease comes into effect and the reference index used for the revision will be that of the same quarter for each of the following years. Owner Occupation

The owner is entitled to four whole weeks free occupation from Saturday 5pm to Saturday 9am, excluding July and August. To take advantage of this, the owner will inform Home Business each year of the preferred dates, necessarily in writing and by October 15th of the year preceding his or her stay at the latest. On condition that these dates are available, confirmation of the chosen dates will be issued. No reimbursement may be granted for the weeks if they are not used.

Home Business extends the use of these free weeks to one of their future residences in France including planned developments in Divonne-les-Bains which will open in 2006 and Marseilles in 2007.

At any time, the owner may take advantage of a stay at the rack rate in force minus 20%, depending on availability and for no more than 182 day per year. They may also take advantage of a 15% discount on the price of stays in other residences managed by the MMV group.

The use of the purchaser’s apartment – or an equivalent apartment – is reserved exclusively for the use of the owner, their parents and direct descendants. As the property will be furnished lets, and in order to ensure homogeneity of furniture the property complex, the price of the furnishings is an indivisible part of the agreement, to acquire the furniture package proposed by Home Business.

The furniture will be replaced and repaired by the management company at their expense throughout the duration of the lease and the new lease if it is renewed.

70% of the cost of the furniture is due at the time of signing of the deed and 30% on taking possession of the property.

Mortgages

Overseasproperties.com has selected Crédit Foncier Bank as its preferred mortgage provider for this specific French investment opportunity.

Crédit Foncier is a credit institution specializing in real-estate financing. It has considerable experience in property financing, notably from buyers from the UK, the Benelux, Scandinavia, Switzerland and Italy. The Crédit Foncier team are fully qualified to recommend the best solutions for investors; you will be accompanied by an adviser, in English, throughout the entire buying process.

The bank is a subsidiary of the Allianz Group through AGF (Assurances Generales de France) and has been in business for over 150 years.

Crédit Foncier offers a range of financing solutions tailored to every situation and designed for each client. Overseasproperties.com will arrange for an English speaking representative to contact you.

Crédit Foncier offer for this leaseback investment:

• Maximum 80% of the purchase price (including VAT)
• Possibility of grace period during the building
• Maximum term of 20years
• 1.30 – 1.70 margin over Euribor (European Inter Bank Offered Rate)
• Interest only or repayment loans
• Assistance in setting up a French bank account

A purchaser must apply for a loan within 30 days of receiving the signed contract back from the vendor (and send evidence of this to the vendor). The purchaser has 60 days within which to obtain a loan from the date of the signing of the contract.

French mortgage insurance is mandatory and will cover all or part of your remaining mortgage in the event of death. Many policies will pay all or part of your monthly repayments if you become ill and cannot work or become permanently incapacitated. Life assurance is usually around 0.4% of your mortgage per year.

Stamp duty and registration fees will need to be paid at completion when the agreement will be filed at the notaries office. The notaire’s fees, Stamp Duty and Registration fees will add up to approximately 4.5% to 5% of the purchase price.

The type of documents you will be expected to provide for Crédit Foncier would be:

• Property details (‘contrat de reservation’ and ‘bail commercial’)
• Evidence of income
  last three pay slips and a letter from employer confirming salary, position and length of service (if self-employed, provision of last three years audited accounts is required).
• Latest income tax return
• Evidence of other income (eg rent agreement or bank statements for investment income)
• Evidence of identity
• Identification proof – passport, birth certificate and where appropriate, marriage certificate
• Confirmation of address – copy of a utility bill, e.g. gas, electricity or phone showing present address (dated within last three months).
• Confirmation of other loans and mortgages.

General criteria for French mortgage approval

• Evidence of income of more than €40,000 and financial investments or savings of more than €20,000.
• Affordability – up to 33% (fixed monthly commitments including the requested mortgage loan repayments compared to the net income per month) or a sufficient disposable income.
• Regular and stable income.