The viager system is used in France to help older people in France enjoy their retirement while continuing to live in their own homes. It typically gives the benefit of a one-off lump sum plus a monthly payment for the rest of their lives. We look at how viagers work.
The combination of creeping property taxes, the cost of living and higher energy and building material prices has left many retired people feeling the financial squeeze in recent years.
However, for homeowners living on a pension the options to raise capital from the property are limited.
Many French banks are reluctant to offer retired people loans against a property’s value (crédit hypothécaire) due to their limited capacity to repay them. Also, ordinary French equity-release loans are for a limited time period and not designed for repayment from the borrower’s estate.
This leaves two alternatives to selling up and settling for a smaller property:
theprêt viager hypothécaire - a special form of equity release that allows people aged 60 or over to release funds from their home while continuing to live in it, with repayments due from their estate after they die
the viager system - where the homeowner sells the property ownership rights in exchange for a lump sum and lifetime regular sums.
What does viager mean?
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The viager system is broadly equivalent to ‘home reversion plans’ in the UK, however it is more widespread in France. It comes it two forms: viager occupé and viager libre.
Under a viager occupé, the sale involves the buyer paying part of the market value of the property to the seller as a tax-free upfront lump sum called the bouquet, often around 30% of the value. This sum is negotiable.
As part of this deal, the buyer acquires the nue-propriété (bare ownership) rights but not the use of the home as long as the seller is alive.
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The seller maintains a lifetime right to use or live in the property while the buyer pays them a regular lifetime sum – known as the rente viagère – on a monthly or three-monthly basis. This sum is taxed on a sliding scale proportional to the age of the seller.
Unless there is an agreement to the contrary, the seller continues to pay the rubbish collection tax, taxe foncière property owners’ tax, energy bills and expenses for maintenance. However, there is often a negotiation over the agreed share-out of certain of these costs, especially taxe foncière.
A variation of the viager occupé system is the viager mutualisé, whereby a group of investors purchase the property, rather than an individual buyer.
Under a viager libre, the buyer can use the property immediately. The buyer still pays an upfront lump sum and a monthly rent, which is typically higher.
As part of this deal, the buyer acquires both the nue-propriété rights and the usufruit (use of the home).
Under this system, the buyer pays all of the property taxes.
In both types of viager, the buyer pays rent for the lifetime of the seller.
The viager occupé version is the most common, and ads for such arrangements can often be found on sites such as leboncoin.fr
The viager system can help retired people with limited means to stay in their own homes and enjoy higher income.
It can also help to pay for a retirement home - usually under the viager libre system.
Under both forms of the viager system, the buyer is obliged to pay for any structural building work that the property needs once they have paid the lump sum - relieving the seller of one of the major worries of homeownership.
Above all, sellers who enjoy good health can get a good deal for their home as a result of years of receiving rent.
The most famous example of this was Jeanne Calment - the longest lived person in history - who sold her house as a viager occupé in 1965 and lived until 1997. The man who bought it, a notaire, died before her and his heirs inherited the contract and had to continue to pay the regular sums due.
The disadvantages of the viager system for sellers
The seller cannot pass the property on to their heirs - it is in effect now owned by the buyer.
Sellers who occupy the house still have the obligation to perform regular maintenance work, just as someone would in a rental property.
In addition, the fact that a property’s price is set on a certain date means that it will not rise in value with the housing market, leaving unlucky sellers regretting that they sold early.
Failure of the buyer to pay the rent can cause headaches for both parties, and lead to the cancellation of the viager agreement.
It is, however, not in the buyer’s interests to do this as the sale contract will contain clauses as to what happens: usually the seller will get back full ownership and keep the rent payments already made.
However, they may have to return the bouquet to the buyer and it will be necessary to undertake legal proceedings ranging from sending formal warning letters, to paying for a visit from a commissaire de justice (formerly called a huissier) and/or applying for resolution to a local court. Courts may decide to award all or part of the bouquet to the seller as damages.
Viager sales can be done via a specialised or general estate agency or a notaire.
As with all real estate sales, the deed of sale must be drawn up by a notaire as an acte authentique (formal legal deed). The fees for this are paid by the buyer.
The price of the initial bouquet is usually around 30% of the home’s value. The seller should also determine the regular rent for the property based on:
Property value
Bouquet value
Estimated life expectancy of the seller
Expected rental value of property
The price must reflect the use value of the home, which is largely determined by the age of the seller. A guide for this, outlined in Article 669 of the tax code, divides the market value of a home between use value and nue propriété values as follows:
Specialised estate agents can help set these levels, and in particular, settle the sensitive point of the seller’s life expectancy.
