The provisional sales agreement: definition

The purchase and sale of a property are generally made official by a provisional sales agreement. As real estate specialists, MGM’s experts can assist you with drafting your provisional sales agreement and reveal all the practicalities of this preliminary contract: documents to provide when drawing up the provisional sales agreement, conditions of withdrawal, signing before a notary… Follow the guide!

What is a provisional sales agreement?

The provisional sales agreement is a contract that sets the conditions of sale ahead of reiteration of the deed before a notary. As a preliminary contract, it is equivalent to a notarial deed or a private deed. The provisional sales agreement therefore precedes the purchase/sale of a property, and specifies all the terms of sale:

  • The price of the property;
  • The type of purchase: mortgaged or not, property in a classic condominium or tourist residence;
  • The cut-off date;
  • The special conditions of sale;
  • The identity of both parties (buyer and seller);

Additional information about the property for sale: address, description, vendor’s title to property, and any easements and mortgages.

Why enter into a provisional sales agreement?

When you want to buy a property, establishing a provisional sales agreement allows you to secure your future transaction and bind yourself with the seller. The agreement serves as a promise made by the seller to the buyer, and a promise made to the seller by the buyer. The signature is also the concrete way to fix the price of the property and all the conditions of sale (general, special and precedent).

The provisional sales agreement also gives you a right of withdrawal for a period of 10 days after signing. If you decide that you no longer want to buy the property during this period, the seller returns the security deposit (representing 10% of the sale price) that you gave them at the time of signing.

Did you know?
The time between the signing of the agreement and the final sale (usually 3 months) provides you with the time to arrange financing; this period also serves to purge the right of pre-emption (a right giving communities the opportunity to buy the property first).

How do I enter into a provisional sales agreement?

Provisional sales agreement: what documents do I need to provide?

When establishing the provisional sales agreement, the seller must provide several mandatory documents, whether the transaction is taking place before a notary or not. These documents are collected together in the Technical Diagnostic File (DDT)1.

If the property you want to buy is being sold as part of a classic condominium, the seller must provide additional documents along with the provisional sales agreement:

  • The documents relating to the organisation of the building ;
  • The documents relating to the state of the building;
  • The documents relating to the financial situation of the condominium and the lot being sold.

How do I withdraw?

After signing the provisional sales agreement, you have a period of 10 days during which you can withdraw. If you exercise this right, the sums paid as security are returned to you, and you have no further obligation to the seller.

The seller, on the other hand, does not have a right of withdrawal. If all conditions precedent are fulfilled (mortgage obtained, absence of easements, right of pre-emption), both parties must sign the final deed of sale.

Did you know?
If the seller opposes the sale, the courts may intervene and force the sale in accordance with the law.

Do I have to use a notary?

Although the provisional sales agreement can be signed between individuals, we strongly recommend calling on the expertise of a notary (or bailiff). The latter will take care of:

  • Drafting the preliminary contract,
  • Checking the documents to be appended to the provisional sales agreement,
  • Drawing up the deeds based on your discussions. 

The notary also guarantees the legal validity of the sale, and can advise you on the most advantageous agreement terms for your situation.

Did you know?
Both parties can also call on an estate agent to draft the provisional sales agreement. In this case it will be a private deed.

Having specialised in construction and real estate development for over 50 years, MGM’s experts can assist you at every stage of your investment project. Our experts can provide you with personal advice tailored to your situation and goals.

You can also benefit from our know-how to make your tourist residence investment a success, find out the various types of mortgage available or be informed about drafting a commercial lease. MGM offers you new-build property developments in the Alps’ most beautiful resorts. Discover the advantages of our upmarket residences online..

 

1 DDT: The Technical Diagnostic File must contain the various health and safety and legal reports and statements: asbestos survey or asbestos report (for buildings with a building permit issued before 1 July 1997); lead exposure risk statement (for buildings constructed before 1 January 1949); termite and dry rot surveys (for buildings constructed in at-risk zones defined by the prefect); gas installation report; prior electricity installation report; and natural, mining and technological risks report.

Co-ownership charges: definition

Passionate about the mountains and building in equal measure, MGM offers you a choice of high-quality residences in an outright purchase set-up. Buying an outright purchase property enables you, as the owner, to manage your property and personalise it freely. Our experts reveal all about co-ownership charges and explain how second home owners can recover them.

What are the co-ownership charges for an MGM residence?

Specialising in mountain property construction, MGM imagines and designs audacious developments at the heart of the Alps’ most beautiful resorts. Harmoniously integrated into their environment, our residences give you the chance to buy an upmarket main or second home.

Whether you want to buy a main home or invest in a second home, with an outright purchase set-up, you own a lot that includes:

  • Private property: your home;
  • Collective property: the communal areas of the residence.

In order to cover the cost of maintenance and equipment for the collective areas, each owner must pay annual co-ownership charges; these consist of general communal charges and special charges.

General communal charges

At your MGM residence, the general charges are spent on the conservation, maintenance and administration of the communal areas.
The general charges also include all work done in the collective areas of the co-ownership: maintenance of entrance halls, renovation of communal areas, updating pipes to meet current standards, etc.

Did you know?
The general communal charges are calculated for each buyer according to the number of thousandths of the building owned by them.

Special charges, or charges for communal equipment and collective services

The special charges cover all the expenses connected with the functioning of the building’s communal areas and the co-ownership’s collective services:

  • collective heating;
  • lift;
  • intercom ;
  • collective antenna systems;
  • water and electricity in some residences.

Each homeowner’s share of the special charges is established by a co-owners’ vote at a general meeting, or is directly set out in the co-ownership rules.

Second home: how to recover co-ownership charges from tenants on a yearly basis

Whether you are letting out your luxury mountain home on a yearly or seasonal basis, the law allows you to claim back a portion of the charges from the tenant: these are known as “recoverable charges”.

Monthly fee or upfront payment?

Tenants may be asked to pay occupancy charges:

  • By monthly fee: this flat fee is revisable each year under the same conditions as the main rent. This option only applies to furnished rentals.
  • By upfront payment: in this case, the amount charged will be regularised annually:
  • if the upfront payment made by the tenant does not cover the amount actually spent, the tenant must then pay the balance;
  • if the upfront payment has exceeded the amount actually spent (which is very rare), you return the excess payment to the tenant.

What are the main recoverable occupancy charges?

Decree number 87-713 of 26 August 1987 sets out a list of all recoverable co-ownership charges; only the charges listed in this degree can be claimed back from the tenant.

  • Cold water, hot water and collective heating of private spaces and communal areas;
  • Routine maintenance and minor repair expenses (leaks, joint replacement, heating, flue, etc.);
  • Individual installation of heating and hot water in private areas;
  • Operating and routine maintenance charges for the interior and exterior parts of the building;
  • Passenger lift and goods lift;
  • Personnel and hygiene costs for waste disposal, cost of disinfection products and consumables (bin bags, paper, etc.);
  • Street-sweeping tax and waste disposal tax or fee. 

With MGM property developments, you benefit from an ideal location at the heart of the Alps. Our luxury outright purchase residences give you access to a main or second home in an incomparable setting.
Our upmarket co-ownership offer apartments of various surface areas in exceptional natural environments ­­– whether in the Alps’ most beautiful ski resorts or near Lake Annecy (department 74).

Investing in an MGM residence means adopting a privileged lifestyle, as well as benefiting from a number of advantages. Our experts can assist you and help with at every stage of your property purchase.

We can also provide advice to help you prepare a preliminary contract or understand the definition of a commercial lease. With over 50 years’ experience in mountain property development and construction, MGM is the ideal partner for your mountain resort property purchase.

Industrial and commercial profits: definition

In the real estate business, profits derived from a furnished rental property are considered to be “industrial and commercial profits”. Also known as “BIC” (short for bénéfices industriels et commerciaux), these profits are liable for income tax (known in France as IR, short for impôt sur le revenu). What are the different types of BIC? How are these profits calculated? Our MGM experts can help you understand more about industrial and commercial profits.

What are industrial and commercial profits (BIC)?

BIC (industrial and commercial profits) means profits made by individuals or partnerships conducting a commercial, industrial or craft activity. They are included in taxable income and must be declared under the simplified real tax regime, the normal real regime or the micro-BIC regime.

What profits are treated as BIC?

The following are considered as BIC:

  • Profits from commercial, industrial and craft professions;
  • Profits from commercial activities by assimilation: rental of real estate or sale of a business, buildings, stocks or a share in a real estate company;
  • Profits made by co-owners of ships, municipal concessionaires or farmers and mining concessionaires.

As a property owner, BIC may therefore apply to you. In the rented property sector, BIC concerns profits received in the context of:

  • rental of a furnished apartment;
  • rental of a furnished commercial or industrial property;
  • leasing-management of a business.

When you invest in an MGM tourist residence, the profits from your rental may be considered as industrial and commercial profits (BICs) liable for income tax.

According to the regulations, the people who fall into the BIC category are:

  • A self-employed individual operator or entrepreneur;
  • The sole partner in an EURL (limited liability single-person company);
  • A partner in a partnership.

What is the difference between professional BIC and non-professional BIC?

Industrial and commercial profits are divided into two taxable income categories:

  • professional BIC: this refers to profits made from a professional activity. Your activity is deemed to be professional if the personal, direct and continuous participation of a member of the taxable household is necessary for its functioning;
  • non-professional BIC: this refers to profits made on a non-professional basis. The activity is non-professional if it does not meet the conditions listed above.

How are industrial and commercial profits calculated?

As the owner of a rental property, it is important to know the various tax regimes in order to calculate the industrial and commercial profits.

The micro-enterprise

The “micro-BIC” tax regime is intended for self-employed individuals and private entrepreneurs who are not liable for VAT. This system applies automatically when your annual turnover before tax:

  • is less than €82,000 (for businesses selling goods to take away or eat on the premises, and provision of housing);
  • is less than €32,900 (for services and furnished rentals).

If you are subject to the micro-enterprise regime, your taxable profit is calculated based on the turnover achieved during the tax year. You must therefore declare all the receipts of the year, including exceptional receipts.

The simplified real regime
If you are subject to the simplified real regime, profits are calculated in real terms: turnover - deductible expenses.
To be classed under this tax regime, your turnover must be between:
  • 170,000 euros before tax and 789,000 euros before tax for two consecutive calendar years, for the sale of goods and provision of housing;
  • 70,000 euros and 238,000 euros before tax for two consecutive calendar years, for BIC services.

The normal real regime

The normal real regime also enables you to calculate profit in real terms. To be classed under this tax regime, your turnover must exceed:

  • 789,000 euros before tax for sale of goods and provision of housing;
  • 238,000 euros before tax for services.

What is the difference between property income and BIC?

When you invest in rental property, your operation may fall under two different tax regimes:

  • If you are letting a furnished property, you are taxed under the industrial and commercial profits (BIC) regime;
  • If you are letting an unfurnished property, your income is classed as property income.

These two tax regimes apply to housing as well as business premises.

Did you know? It is the nature of your property that determines your tax regime. When you receive rent from your MGM second home, you must declare it:

  • as BIC if the rental is in a tourist residence;
  • as property income if the property is in a classic condominium.

MGM’s experts can assist you at every stage of your property project. You can also find detailed articles about commercial leases or condominium charges, as well as advice on calculating your borrowing requirements and investing in a mountain tourist residence successfully.

Commercial lease: definition

Let MGM’s real estate experts explain the definition of a commercial lease and the main conditions of this contract between you and your MGM tourist residence: commercial lease statutes, operation and advantages, termination and renewal… Make the most of our expertise to update your knowledge and gain a better understanding of the 3 6 9 commercial lease.

What is a commercial lease?

The commercial lease is a tenancy agreement by which a lessor (the owner) rents their property to a third party (the lessee) for the purpose of conducting a commercial or craft activity there.

When you buy an apartment in an MGM tourist residence, a commercial lease is established between you and the operator (either MGM Hôtels et Résidences, or CGH); as the owner of the property, you have the status of lessor, while our operator is the third party “lessee”.

Through this contract, you entrust the rental of the property to our operating company, which will take care of all the rental management procedures, and will market the apartment to tenants.

The commercial lease creates a right to the application of commercial lease statutes.

To benefit from these statutes, the operator MGM provides the following serviced accommodation services:

  • Reception of customers;
  • Cleaning of apartments;
  • Provision of towels.

What are the advantages of a commercial lease?

Commercial lease status has the advantage of establishing specific obligations between you and the lessee. These detailed regulations mean that you know the rights and duties of each party.

What the lessor (you) must do:

  • Make the rented property available to the tenant;
  • Guarantee the peaceful enjoyment and security of the rented property.

What the operator MGM must do:

  • Pay the amount of rent set out in the lease;
  • Use the rented property in accordance with the contract drawn up.

 Commercial lease statutes are advantageous for you and the tenant:

  • You receive net rent each month as set out in the contract;
  • You are protected on several levels concerning renewal of the lease;
  • The contract clauses are defined clearly.

How does a 3 6 9 commercial lease work?

How long is it for?

In our tourist residences, the commercial lease signed between you and the operator runs for a minimum period of 9 years. When the contract (also known as a 3 6 9 lease) expires, you can renew the lease or recover the full use of your apartment (to occupy, rent or sell it).

How do I terminate a commercial lease?

The commercial lease can be terminated by the tenant every 3 years, except in tourist residences*. This is provided for by the commercial lease statutes. To terminate the lease, the tenant must give you notice by deed of service, at least 6 months’ ahead of their departure.

As a lessor, you can also terminate the lease under certain conditions. The main reason for termination is non-payment of the monthly rent.

* In tourist residences, the tenant is the manager. The term of the lease is fixed by the State for a minimum of 9 years (our operator MGM has chosen a term of 11 years).

How do I renew a commercial lease?

The commercial lease statutes give the tenant a right of renewal. This protection is called “commercial ownership”. You can of course decide not to renew the lease and recover your property.

Commercial lease rent

The law does not impose any rules concerning rents or how they are set. The original rent is therefore set freely between you and our operator MGM ­– it can be revised every three years, but must be within a legal upper limit prohibiting excessive increases. In any case, the law does not require any party to draft a commercial lease in writing, but it is advisable to draft and sign a contract in order to simplify the agreement.

Having specialised in real estate development for over 50 years, MGM offers new-build properties in the Alps’ most beautiful resorts and on the shores of Lake Annecy (department 74). Enjoying exceptional surroundings, our residences offer upmarket apartments designed in an authentic mountain chalet style.

The quality of our apartments, our residences’ prestigious services and the reliability of our property managers enable us to attract thousands of investors every year, as well as a very large number of holidaymakers. Thanks to this reputation, we can help you make a particularly profitable seasonal rental investment.

Discover our expert advice on buying an MGM second home, and see all the advantages of our tourist properties in the mountains.

What is a preliminary contract?

Are you planning to buy a property? There are several ways we can help make the transaction go smoothly, including preparing the document known as the avant-contrat, or preliminary contract. Here the property development specialists at MGM reveal all you need to know about this preliminary contract, and help you understand its various conditions.

What is a preliminary contract?

The preliminary contract precedes the signature of the authentic deed of sale. It can be a provisional sales agreement, a reservation contract or a unilateral promise of sale. In all cases, this preparatory contract sets all the legal and economic conditions of the future notarial deed, but also the selling price, as well as your commitments and those of the seller.

Definition of the preliminary contract

The preliminary contract is a deed that summarises all the conditions of sale established between you and the seller: price of the property, conditions precedent and sale cut-off date. It also includes the promises of commitment (from the seller and yourself), and acknowledges your agreement to the principles of sale and conditions precedent.

The preliminary contract “formalises” your commitment, and the conditions on which you have agreed. The time between the signature of the preliminary contract and the signature of the authentic deed of sale (generally 3 months) will also give you the necessary time to complete the sale-related formalities: securing finance, purging possible pre-emption rights... This document is therefore a key step in your property purchase project.

All preliminary contracts must contain:

  • The identities of both parties;
  • The designation of the property, its surface area, sale price and habitable space;
  • Conditions precedent (varying according to the case);
  • The date of exercise of the option, for unilateral promises.

The different types of preliminary contract

MGM can tell you about all the main types of preliminary contract available on the property market:

  • The unilateral promise of sale: only the seller commits to selling;
  • The unilateral promise of purchase: the buyer agrees to purchase the property in the event of the person selling their property;
  • The provisional sales agreement (or synallagmatic promise of sale), known as sales agreement: the two parties make a commitment to each other; the principle of sale is then established, and the seller and buyer wait for the conditions precedent to be fulfilled in order to conclude the sale;
  • The pact of preference: the seller commits to selling their property in the event of putting it up for sale
  • The reservation contract: this contract concerns only the purchase of a new property or a property to be completed in the future (not yet built); the real estate developer agrees to reserve the dwelling for the buyer. If purchasing a property in an MGM new-build residence, you may be required to sign a reservation contract.

Why enter into a preliminary contract?

Entering into a preliminary contract allows you to formalise the principles of sale, but also to set out the conditions precedent to the sale. The clauses of the preliminary contract will also bind you with the seller during the time necessary to fulfil the conditions precedent.

It is also important to enter into a preliminary contract because it gives you the opportunity to benefit from a right of withdrawal of 10 days after the signature.

What is the difference between the promise of sale and the provisional sales agreement?

In the case of a real estate sale, you may have to sign a provisional sales agreement or a unilateral promise of sale. The two deeds are similar in many ways, but there are some differences between them. However, they remain very similar legally.

Points in common between the unilateral promise of sale and the provisional sales agreement:

  • The buyer has a right of withdrawal period of 10 days;
  • The clause stating the condition precedent of credit appears in both preparatory contracts;
  • The period of sale (the period between the signing of the preliminary contract and the signing of the authentic deed of sale) is generally three months;
  • The buyer pays between 5 and 10% of the sale price at the preliminary contract stage.

Differences between the unilateral promise of sale and the provisional sales agreement:

  • The unilateral promise allows the seller to immediately regain their freedom to sell if the buyer pulls out; the seller then receives the 5 or 10% of the price paid by the buyer. If the buyer pulls out of a provisional sales agreement, the seller has to have a certificate of deficiency drawn up by the notary.

In any case, the notary will advise you on the most suitable preparatory contract for your property purchase plans. Although it is not mandatory to use a professional, it is more advantageous to go through a notary, because they will guarantee the legal validity of the sale, and take care of all steps related to the preliminary contract: drafting of the preliminary contract, verification of the documents to be appended... The notary can also advise you on the best ways to proceed, and may include specific clauses according to your buyer profile.

Documents to provide with the preliminary contract

The preliminary contract must be accompanied by several mandatory documents, whether you are using a notary or not:

  • The Technical Diagnostic File (DDT)1

In the case of a purchase in an outright purchase:

  • The documents relating to the organisation of the building2 ;
  • The documents relating to the state of the building: maintenance record produced by the co-owners’ association;
  • The documents relating to the financial situation of the condominium and the lot being sold.

Having specialised in real estate development for over 50 years, we can assist you at all stages of your property purchase, including preparation of the preliminary contract. Located in the most beautiful mountain resorts and on the shores of Lake Annecy (department 74), our upmarket apartments are available in leaseback or outright purchase. Discover MGM’s prestige property services and benefit from our experts’ advice, to make your mountain investment and tax reduction plans a success.

 
1The Technical Diagnostic File (DDT) must include: asbestos survey or asbestos report (for buildings with a building permit issued prior to 1 July 1997); lead exposure risk statement (for buildings constructed before 1 January 1949); termite and dry rot surveys (for buildings constructed in at-risk zones defined by the prefect); gas installation report; prior electricity installation report; and natural, mining and technological risks report.
 2Condominium regulations and descriptive inventory of divisions; minutes of general meetings; condominium summary drawn up by the association, containing financial and technical data on the building.