What is French Leaseback and how does it work?
Investors buy the freehold of an off-plan property outright, so you own the property. As with all new properties, the purchase price includes VAT, however with a Leaseback property the VAT is refunded back to you. As VAT in France is 19.6%, this either replaces, or significantly reduces your deposit.
The property is then leased back to a management company who specialise in the tourist management, maintenance and rental of these properties for a period of 9 - 12 years. In return owners receive a guaranteed annual return which increases with inflation, irrespective of occupancy of the property, NET of all communal charges, maintenance and running costs.
History of French Leaseback Properties - Why were leasebacks introduced?
In the late 1960s, following the increasingly large number of tourists visiting France which continues today as the most visited country in the world, the French government recognised the need to encourage investment in the construction of tourist residences, and offered an incentive to investors by refunding the VAT on the purchase price of properties built for leaseback purposes.
The majority of people who own holiday homes in France, only actually live in them for a few weeks of the year.
Most Leaseback Schemes will offer you the option of staying in the property. How long varies between developments from one week to several months. Generally the more personal use you opt for, the lower the rental income, but then you will have the saving of not paying for holiday accommodation.
Each development has its high and low seasons and the Contrat de Bail Commercial (Commercial Leaseback Agreement) will specify how many weeks, and in which seasons, you are able to keep for your own use. The owner usually has first choice of which weeks to spend at the property and is required to request their preferences at the beginning of each year. Often any unused weeks will be 'bought back' by the management company.