Newsletter No. 8 – Real Estate Law
Summary
LEGISLATION
LOCAL RENT OBSERVATORIES
Decree of November 5, 2014 – Order of November 10, 2014
–
RENTAL VALUE OF RESIDENTIAL PREMISES
Order of December 18, 2014
CASE LAW
… of November 5, 2014
Failure to bring the bylaws of a freeholders' association into compliance
… of November 5, 2014
Voting procedures for the appointment of the managing agent
… of November 19, 2014
Limitation period applicable to an action to annul the managing agent's mandate
… of November 19, 2014
General and special common areas: standing to sue
… of December 3, 2014
Reference to a fixed base index in an indexation clause
… of November 5, 2014
Derogation from the rules for recovering rental charges: heating charges
… of October 1, 2014
Modification of the allocation of charges following a change of use of a unit in a co-ownership
… of October 15, 2014
Conditions for terminating the lease
… of November 26, 2014
Breach by the seller of their duty to inform and liability of the notary
LEGISLATION
Rent Observatory
The ALUR law provides for the creation of local rent observatories (Article 16 of Law No. 89-462 of July 6, 1989, aimed at improving landlord-tenant relations, as amended by the ALUR law). These observatories, established at the initiative of local authorities and inter-municipal bodies, are tasked with collecting rent data for a specific geographic area and making statistical results available to the public.
Decree No. 2014-1334 of November 5, 2014, which entered into force on November 8, 2014, sets out the procedures by which the Minister for Housing grants or withdraws accreditation for local rent observatories. It specifies, in particular, the form and content of the accreditation application. These elements are further clarified by the Order of November 10, 2014, which establishes the list of documents to be submitted with the application.
The decree makes the granting of accreditation conditional upon several factors, including:
- compliance with the methodological requirements defined by a committee, created by the decree, namely, the scientific committee for rent observation;
- the existence of a balanced representation of landlords, tenants and managers within the governing bodies of the observatory as well as the presence of qualified individuals in the field of housing or statistics.
Article 3 of the decree sets out the procedures for communicating the data collected by the observatories to public and private entities. This article also stipulates the annual publication of the observatory's results. This publication must take place before March 31st of each year (Article 2 of the order of November 10, 2014).
These results should show:
- of the median and average rent level across the metropolitan area;
- of the median and average rent level by geographical area;
- of framing data on the observed housing stock;
- the main trends in the evolution of the rental market if changes in rent levels are observed.
Rental value of residential premises
Article 74 of Law No. 2013-1279 of 29 December 2013 amending finance law for 2013 provides for an experiment in the revision of the rental values of residential premises and premises used for the exercise of a salaried activity at home to be carried out in 2015.
The decree of 18 December 20143 lists the departments for the experiment of the revision of the rental values of residential premises provided for in Article 74 of the amending finance law for 2013.
1 Decree No. 2014-1334 of 5 November 2014 concerning local rent observatories, the procedures for communicating and disseminating their data, and the creation of the Scientific Committee for Rent Observation. 2 Order of 10 November 2014 concerning local rent observatories and the procedures for communicating and disseminating their data
3. Order of 18 December 2014 establishing the list of departments for experimentation with the revision of rental values of residential premises provided for in Article 74 of Law No. 2013-1279 of 29 December 2013 amending finance law for 2013
The departments selected for the pilot program to revise rental values are:
- Charente-Maritime;
- the North;
- the Orne;
- Paris ;
- Val-de-Marne.
The rental value of each property or portion of a property is determined based on the state of the rental market. It takes into account the nature, location, and characteristics of the property or portion of the property in question. The rental value of exceptional properties may be determined by direct assessment using a rate to be defined during the pilot phase.
The government must submit a report to Parliament no later than September 30, 2015. This report outlines the consequences of the revision for taxpayers, local authorities, inter-municipal public cooperation establishments, and the State. It examines how the revision is carried out while maintaining constant tax revenue for local authorities and focuses in particular on measuring:
- Tax transfers between categories of taxpayers;
- The impact of the revision on the financial and fiscal potential of local authorities, the distribution of state grants and equalization instruments.
CASE LAW
Compliance of free trade union associations
3rd Civil Chamber, November 5, 2014 (No. 13-21.014) FS-PBRI:
The Court reiterates here that the failure to bring the bylaws of a free trade union association (ASL) into compliance before the expiry of the period stipulated by the Ordinance of 1 July 2004 (Art. 60) and by the Decree of 3 May 2006 deprives it of its capacity to sue or be sued, but does not invalidate its legal existence.
In this case, a summons was issued in 2009 at the request of an ASL. Created in 2001, this ASL only published the amendment to its bylaws on 9 June 2012. On 4 April 2013, the Court of Appeal annulled all procedural acts carried out at the request of the ASL from the date of the initial summons.
The Court of Cassation quashed the judgment on the grounds that the irregularity resulting from the failure to bring the bylaws into compliance had been remedied by the time the Court of Appeal ruled.
It should be noted that the solution of the judgment is expressly enshrined in the 2004 ordinance. Article 60 I. of the ordinance, amended by the Alur law, includes a third paragraph according to which the ASLs, which brought their statutes into compliance after May 5, 2008, recover the rights mentioned in article 5 of the ordinance as soon as the Alur law is published, without, however, being able to call into question decisions that have become res judicata.
4 See in particular 3rd Civil Chamber, QPC, 13 Feb. 2014, No. 13-22.383
3rd Civil Chamber, November 12, 2014 (No. 13-25.547) FS-PB:
In this case, a homeowners' association (ASL) established on April 12, 1989, sued one of its members on May 31, 2005. The defendant argued that the claim was inadmissible. The Court of Cassation dismissed the appeal against the Court of Appeal's decision, which had ruled that the ASL had lost its capacity to sue and declared its action inadmissible.
The Court of Appeal indeed held:
"that the ASL did not produce any document justifying the effective modification of its statutes constituting compliance with the ordinance of July 1, 2004." Furthermore, it specifies that "the acknowledgment of receipt of the 'association's statutes' issued by the prefecture on December 27, 2004, being insufficient to prove that these were indeed the statutes brought into compliance with the new regulations, and the establishment of new statutes dated October 3, 2011, which it noted, for an unchallenged reason, were not in compliance with the applicable texts, could not allow it to regularize its situation with regard to its right to take legal action.".
Procedures for appointing the property manager by the co-owners
3rd Civil Chamber, November 5, 2014 (No. 13-26.768) FS-PB:
A resolution to appoint a property manager was not approved by the majority required under Article 25 of the Law of July 10, 1965. Having received at least one-third of the votes of all co-owners, a second vote was immediately held, requiring a majority under Article 24, which led to the appointment of this property manager.
The Court of Appeal overturned this resolution, ruling that the assembly was also required to vote on the candidacy of another property manager and could therefore only proceed to a second vote under Article 24 after submitting the second candidacy to a vote under Article 25.
The Court of Cassation reiterated that "Article 19 of the Decree of March 17, 1967, issued for the application of Article 25-1 of the Law of July 10, 1965, applies when several property management contracts are submitted to the general meeting for approval" and dismissed the appeal.
Statute of limitations for an action to annul the mandate of a trustee
3rd Civil Chamber, November 19, 2014 (No. 13-21.399) FS-PB:
A co-owner filed a claim on March 25, 2010, seeking, firstly, the annulment of a decision of the general meeting of May 6, 2009, notified on May 14, 2009, appointing a managing agent, and secondly, the appointment of a provisional administrator.
The Court of Appeal declared the claim inadmissible on the grounds that the action was time-barred. According to the court, pursuant to Article 42, paragraph 2 of the Law of July 10, 1965, actions challenging decisions of the general meeting must be brought within two months of notification of said decisions.
The Court of Cassation quashes the judgment on the grounds that the claim, based on the lack of legal personality of the entity designated as trustee in the trustee contract and on the absence of the opening of a separate bank or postal account, does not constitute an action challenging the general meeting that appointed the trustee.
Clarification regarding the standing of co-owners to take legal action
3rd Civil Chamber, November 19, 2014 (No. 13-18.925) FS-PB:
In a group of buildings subject to condominium ownership, comprising thirteen buildings, unit owners in building 7 were authorized by a general meeting of the building's owners to connect their apartment, located on the 3rd floor, to their rooms on the 4th floor via an interior staircase, to close off the portion of the common hallway on the 4th floor that exclusively served their units, and were granted exclusive use of this section of the hallway. Unit owners in another building sued them for the return of the hallway and the demolition of the interior staircase.
The Court of Appeal dismissed the claim. In support of its decision, the Court of Appeal emphasized that "the condominium regulations distinguished between general common areas belonging to all co-owners of the buildings and special common areas belonging to the owners of each building; that they stipulated that each unit was allocated general thousandths and specific thousandths for the common areas of each building; and that the co-owners of each building could hold special meetings for matters concerning only their specific common areas."
The Court of Cassation dismissed the appeal on the grounds that the Court of Appeal correctly held that these regulations created undivided ownership among the co-owners of each building, such that the other co-owners had no undivided ownership rights over the relevant parts of the buildings. Since the plaintiffs did not own any unit in Building 7, their claim for the return of common areas of that building was inadmissible for lack of standing and interest.
Reference to a fixed base index in an indexation clause
3rd Civil Chamber, December 3, 2014 (No. 13-25.034) FS-PBR:
According to Article L.112-1 of the Monetary and Financial Code:
"Any clause in a contract for successive performance, and in particular in leases and rentals of any kind, providing for the consideration of a period of variation of the index greater than the period elapsed between each revision, is deemed unwritten.".
In this case, the Court of Appeal noted that the period for assessing index variations was systematically longer than the one-year interval between each indexation. Indeed, the lease stipulated that "the annual rent, excluding taxes, is automatically and without any formality indexed annually on January 1st based on the variation of the INSEE construction cost index, the index to be taken into consideration being the last one published on January 1st of each year, the reference index being the last one known on July 12, 1996."
The Court of Cassation held that indexation clauses referring to a fixed base index do not contravene Article L. 112-1 of the Monetary and Financial Code, provided that the period of index variation coincides with that of rent variation. Consequently, the Court of Appeal, which did not investigate whether the method of calculation chosen by the clause created an actual distortion between the index variation interval and the time elapsed between two revisions, did not provide a legal basis for its decision.
Recovery of rental charges
3rd Civil Chamber, QPC, November 5, 2014 (No. 14-40.039/ No. 14-40.040/ No. 14-40.041) FS-PB:
Article L. 442-3 of the construction and housing code in its version resulting from law no. 2010-1488 of December 7, 2010 on the new organization of the electricity market derogates from the rules of "recovery" of rental charges by allowing the landlord, owner of a building with moderate rent to recover all heating charges including the costs of depreciation and renewal of the installation.
This provision is being challenged; the plaintiffs consider that it is contrary to the principles of liberty and equality before the law guaranteed respectively by Articles 4 and 6 of the Declaration of the Rights of Man and of the Citizen of 1789.
The Third Civil Chamber has referred the priority question to the Constitutional Council insofar as the text could be considered as introducing unequal treatment between tenants, depending on whether or not the landlord decides to connect the building to a heating network, an inequality not justified by a reason of general environmental interest, since the resulting financial burden falls only on certain tenants.
Constitutional Council, QPC, January 23, 2015, No. 2014-441/442/443:
According to the Constitutional Council, the principle of equality before the law does not require that the rules for recovering rental charges for heating-related expenses be identical regardless of the heating method used. The Council maintains that the contested provisions encourage the use of grid energy for environmental protection purposes, and that the resulting difference in treatment regarding the charges that social housing organizations can recover from their tenants is directly linked both to a difference in circumstances and to the objective of general interest set by the legislature. Consequently, the Council considers that the complaint alleging a violation of the principle of equality must therefore be dismissed. The Council then notes that by modifying, including for leases in progress, the legal framework applicable to the determination of recoverable charges for low-rent housing, the legislator has not affected legally concluded agreements and therefore does not affect the right to maintain legally concluded agreements, guaranteed by Articles 4 and 16 of the Declaration of 1789.
Modification of the allocation of charges following a change of use of a unit in a co-ownership
3rd Civil Chamber, October 1, 2014 (No. 13-21.745) FS-PB:
The owner of a residential unit on the fourth floor of a condominium building leased it for use as a medical practice. This owner sued the condominium association to have the general meeting's decision to modify the allocation of elevator expenses for his unit overturned, following the change in its use.
The Court of Appeal upheld the owner's claim, noting that the condominium bylaws stipulated that apartments could only be occupied for residential purposes or used for professional activities. The court concluded that there had been no change of use within the meaning of Article 25(f) of the Law of July 10, 1965, since the co-owner had simply used his unit in accordance with the condominium bylaws.
Pursuant to Article 25(f) of the Law of 10 July 1965, as applicable to this case, which stipulates that a modification of the allocation of expenses for shared services and common equipment, necessitated by a change in the use of one or more private units, may be adopted by a majority vote of all co-owners, the Court of Cassation quashes the judgment of the Court of Appeal. The Court of Cassation holds that this provision applies even when the new use is provided for in the condominium bylaws.
Conditions for terminating the lease
3rd Civil Chamber, October 15, 2014 (No. 13616.990) FS-PB:
In this case, an elderly tenant was sued for lease termination due to non-payment of rent.
The Court of Appeal upheld the termination. The tenant challenged the decision based on Article 15 III of the Law of July 6, 1989, which prohibits landlords from terminating the lease of an elderly and impoverished tenant without offering them alternative accommodation.
In this ruling, the Court of Cassation limited the scope of this provision, clarifying that this article does not apply in cases of judicial termination of the lease due to the tenant's breach of their obligations.
Seller's failure to fulfill their duty to inform and the notary's liability
1st Civil Chamber, November 26, 2014 (No. 13-27.965) F-PB:
Ordered to return the deposit to the buyers following the court-ordered annulment of a preliminary sales agreement due to an error regarding the essential qualities of the property being sold, the sellers sued the notary for damages, alleging professional negligence during the execution of the agreement.
The Court of Cassation limited the scope of the notary's obligations. It first held that the annulment of the preliminary sales agreement was solely due to the sellers' failure to fulfill their duty to inform the buyers. The Court then emphasized that this preliminary contract was intended to formalize the parties' intentions without waiting for the expiration of the time required to obtain the additional information and administrative documents necessary to finalize the sale. Consequently, the Court of Appeal was able to conclude that the notary was not at fault, as he had no reason to suspect the sellers' statements were inaccurate.
