Real Estate Investment in France and Japan

Real Estate Investment in France and Japan Table Of Contents 1. About ORRICK 4 2. Real Estate Investment in France • Real Estate Investment in France 6 (English version) • Immobilieninvestitionen in Frankreich 22 (German version) 3. Real Estate Investment in Japan 40 4. Real Estate Group contacts 52 About ORRICK Orrick’s core practice areas include the following: Transactional Banking and Finance Bankruptcy and Debt Restructuring Capital Markets Compensation and Benefits Emerging Companies Energy and Project Finance Mergers and Acquisitions Outsourcing and Technology Transactions Public Finance Real Estate Structured Finance Tax Litigation Commercial Litigation Employment Law Intellectual Property International Dispute Resolution Product Liability Litigation Securities Litigation White Collar Defense Orrick, Herrington & Sutcliffe LLP is an international law firm with approximately 980 lawyers located throughout the United States, Europe and Asia. 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To efficiently serve our clients, Orrick is organized into two divisions – transactional and litigation – comprised of 19 practice areas, which are highlighted on the left of this page. © 2007, Orrick, Herrington & Sutcliffe LLP - 4 - Real Estate Investment in France English version Real Estate Investment in France English version by Dr. Alfred W. Fink This article will be published as a chapter of the Rechtshandbuch der Immobilieninvestitionen. It is distributed prior to publication by courtesy of the Verlag C.H. Beck. The aim of this article is to introduce foreign investors to the legal and tax framework of a property investment in France. The investors should have a sound understanding of the basics with regard to French property investment, so that they are prepared in good time and thus plan their investments thoroughly. A. LEGAL FRAMEWORK 1. Legal Sources French real estate laws are mainly codified in the: • Civil Code (Code Civil) (for transfers of title and non-commercial leases); • Commercial Code (Code de Commerce) (for commercial leases and shopping center authorizations); • Construction Code (Code de la construction et de l`habitation) (for construction and development); • Urban Planning Code (Code de l`urbanisme) (for planning and development); • Environmental Code (Code de l`environnement) (for authorizations of environmental unfriendly manufacturing sites and obligations regarding soil pollution). There are other rules, which are not codified, for example, rules applicable to real estate agents. 1 1 In order to carry out his professional activity, a real estate agent needs an authorization from the local authorities (Préfecture), according to Article 3 of the Huguet Law (current version as of December 31, 2006). © 2007, Orrick, Herrington & Sutcliffe LLP - 5 - © 2007, Orrick, Herrington & Sutcliffe LLP - 6 - Real Estate Investment in France English version Real Estate Investment in France English version 2. Outline French law recognizes different forms of ownership: Pursuant to French civil law, the sale and transfer of a French property can be documented in a privately written document, which is valid and binding to the contractual parties. To be effective against third parties, the transfer of a legal title must be evidenced by a written deed of transfer authenticated by a public notary (acte authentique de vente – “deed of transfer”). All deeds of transfer must be registered with the local land registry (bureau de conservation des hypothèques) after they are executed. In contrast to a number of other jurisdictions (for example: Germany), the registration at the local land registry has only a declarative but not a constitutive effect on the transaction, (e.g. the transfer of title has taken place between the contractual parties at the time of execution). The real estate register establishes the refutable assumption that the registered owner can in fact dispose of the property; hence, a purchaser cannot fully rely on the registration. In the case of a direct purchase of property, the purchaser generally instructs a public notary to make a title search. The latter will also verify the validity of the title of property of the vendor which must include evidence of a root of title dating back thirty (30) years. The notary is responsible for the content of the deed of transfer 2 and in far also for the result of the title search with the effect that a title insurance does not exist in France. In the case of indirect acquisitions of property (“Share Deal”), in most instances, lawyers will be called in to undertake the due diligence, the negotiation and the drafting of the share purchase agreement (“SPA”); French law does not provide for an authenticated transfer document. Nevertheless, it can be worthwhile instructing a public notary to undertake the title research and to make it part of the representations and warranties of the SPA. 2 Example of responsibility of notary decision: Cour de Cassation, Civ. 1er 11 octobre 1966, D. 1967, 209, note M. Ancel, JCP N 1966, II 14703; und Cour de Cassation, Civ. 1er, 28 juin 2007, n°838 FS-P+B – this decision limits for the first time the responsibility of the notary, when other counsel is involved. © 2007, Orrick, Herrington & Sutcliffe LLP - 7 - • Full ownership of a property (pleine propriété) or the partition of the property in usufruct (usufruit) und plain ownership (nue-propriété); • Co-ownership (copropriété); and • Three-dimensional ownership (propriété divisée en volumes), (i.e. ownership of property constituted as a result of a three-dimensional measurement, which dispels the relationship to the plot of land). Moreover, ownership of a piece of land and the buildings thereon or thereunder could be pulled apart (droit de superficie) by long-term leases, granting the tenant the equivalent of a real property right (droit réel immobilier). The two main types of long-term leases, both granted for a term of between 18 and 99 years, are the: (i) bail à construction, where the tenant is obliged to construct a predetermined building on the land, which is leased; and (ii) bail emphythéotique, where the tenant’s obligation is essentially to maintain the property. Since tenants of both of these leases hold the legal equivalent of full property rights, they can grant mortgages over the rented asset. 3. Investment Possibilities A foreign investor can, in principle, acquire – without any restrictions – property in France. Nevertheless, an investor must notify his acquisition with the French Central Bank (Banque de France) and/or file a declaration with the French Ministry of Finance (Direction du Trésor) when specific thresholds are exceeded. The registration is compulsory, and lack of compliance is sanctioned by fine. Physical persons in France often acquire occupied property directly. For estate planning reasons, it can, however, be more sensible to acquire the property through a French partnership (société civile immobilière – SCI). Companies have a tendency to indirectly acquire property through. French companies, so that they can benefit (i) from the commercial depreciation of the asset in the annual accounts and (ii) from the tax-free reception of capital gains in the case of a disposal due to the stipulations of (certain) double taxation conventions © 2007, Orrick, Herrington & Sutcliffe LLP - 8 - Real Estate Investment in France English version (“DTC”). In the case of partnerships, there does not exist a preferred investment route, since the overall objective is to optimize the taxation of the transaction. The French real estate market offers a multitude of participation possibilities in local property companies. The present article only enumerates some of these possibilities, in which foreign investors can participate: (i) the French equivalent of REITS (société d`investissement immobilier cotée – SIIC), (ii) open-ended property funds (organisme de placement collectif immobilier – OPCI)3, (iii) a special form of a partnership for real estate investments (société civile de placement immoblier – SCPI), (iv) Joint Venture companies4, in which foreign capital investment companies, hedge funds or other private equity investors get together with French market participants in order to make joined investments in France and (v) the afore-mentioned SCI structures. Moreover many foreign investors use Luxemburg or Dutch company structures for their investments in France and recently there was also a discussion about Danish investment structures. In the case of major portfolio transactions over the last few months, even French and European anti-trust questions were verified during the transactions, since they exceeded the specific turnover thresholds. 5 4. Process of Purchasing and Selling The marketing of commercial/corporate property is usually taken care of by real estate agents and in large portfolio deals, from time to time, an investment bank has taken on this role. Depending on the asset’s characteristics, the marketing of the asset is either made known through a 3 This investment form corresponds to the open-ended German property fund (regulated by the Investment Code). 4 This often concerns Luxemburg companies. 5 Phillipe Guibert, Le secteur immobilier à l`épreuve du contrôle des concentrations, Concurrence n°2-2007, 46-51. © 2007, Orrick, Herrington & Sutcliffe LLP - 9 - Real Estate Investment in France English version tender (appel d`offres privé) to a selected number of potential bidders or directly offered to certain investors. When an investor is interested in acquiring the asset, it generally sends a written but non-binding purchase offer (lettre d`intention – letter of intent –LOI-) to the vendor. In this purchase offer, the investor normally requests an exclusive negotiation period, during which he can carry out a due diligence (audit d`acquisition) to ascertain whether he would like to maintain his offer. A standard due diligence covers title check, town planning, environmental due diligence and review of the rental situation.6 Once due diligence is completed, a preliminary contract (promesse) setting out the terms and conditions of the contemplated acquisition and the conditions precedent to be met is usually executed. The preliminary contract is generally a promise of sale, either: (i) granting an option to the purchaser (promesse unilatérale de vente) 7, who remains free to decide not to buy. The buyer usually give an indemnity (indemnité d`immobilisation), generally equal to five (5) or to ten (10) percent of the purchase price, that is payable if the buyer does not exercise its option after all conditions precedent have been met, if any; or (ii) committing the purchaser and the vendor to buy and sell on completion of certain conditions precedent (promesse synallagmatique de vente). The purchaser usually pays a deposit of five to ten percent of the purchase price to the vendor’s public notary even though the legal date of effect is subject to an uncertain event (i.e. the exercise of the pre-emptive right of the city or local community). The deposited sum will later serve (i) as a deposit in as far as all the postponed conditions have been met and that the parties have authenticated the purchase agreement in its final, ownership granting, form (réitération par acte authentique) and (ii) as indemnification in as far as the parties have reciprocally, within a specific framework, allowed for a withdrawal right. It is noteworthy that a promesse unilatérale de vente is legally effective only when it is signed by a notary or registered with the tax authorities as un unnamed 6 Explanations regarding commercial leases, planning and zoning are going beyond this article. 7 In rare cases, the purchaser delivers a unilateral purchase promise (promesse unilatérale d`achat). © 2007, Orrick, Herrington & Sutcliffe LLP - 10 - ... - tailieumienphi.vn