Buying a house as a group of friends

WE ARE a group of three friends planning to buy a French property together by setting up a company (société civile immobilière). Is this a safe way of doing things, and what happens if we fall out or one of us wants to sell?

Choose your friends with care. Whatever ownership structure you use, the biggest issue that you face is dealing with disputes should they arise.

One of the benefits of using an SCI is that the company structure provides a legally binding decision-making procedure.

For routine management issues a majority voting system normally operates quite satisfactorily.

The use of shares also means, for instance, that if one of the owners is unable to contribute later to major repairs or renovation works, it is possible to change the share structure of the company to compensate those who will pick up the bill.

An SCI also allows for the transfer of ownership between the shareholders should one of them wish to sell their stake.

So, in this sense, the use of an SCI is a better solution than any other ownership structure.

However, an SCI it is not a panacea. It provides no solution when one of the owners wishes to sell and the others are unable (or unwilling) to buy them out.

In theory, it is possible to sell the shares to a third party, but the market for such transactions is scarce and it can generally only be done with the agreement of the existing owners.

This can mean that it then becomes necessary to consider selling the property.

If the remaining owners do not wish to sell, then a satisfactory resolution of the dispute becomes very difficult.

Aside from disputes, the other major issue concerns French inheritance laws.

If the property is used as a holiday home, then an SCI escapes the constraints of French inheritance laws for UK-based owners (or those in other foreign countries).

This is because only fixed assets are captured by the rules, and as shares in a company are considered as meubles (movable objects), they are exempt from controls on the disposal of fixed assets in France
However, if it is the main home of even one of the owners, then French inheritance laws will apply to the resident. This means that their children (if they have any) would have automatic inheritance rights.

The problem can be improved by using a crossed-ownership SCI structure called démembrement croisé, in which the owners hold overlapping rights on the property, but in which no one actually holds it on a completely freehold basis.

One other advantage of this type of crossed ownership structure is that it also reduces liability to French inheritance taxes as the fiscal value of the shares is lower.

It is a useful form of ownership for an unmarried couple, or those not in a civil partnership, particularly where there are children from a previous relationship.

Nevertheless, use of this type of structure is controversial, as well as complex, so you would need to discuss the details with your notaire and/or legal advisors.

The Connexion publishes a helpguide, priced €7.50, on how SCIs work, compiled in association with Conseils des Notaires, available from this link.