French leaseback schemes under investigation

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French leaseback schemes under investigation

Following growing pressure from the EU, DGCCRF - the French Anti-Fraud Department - carried out some investigations whose results were published in April least year.

DGCCRF investigators reviewed the selling arguments displayed on websites and marketers and, in a second stage, considered the issues encountered by leaseback owners. To this end, the investigators visited 20 leaseback resorts; they also gathered the views of leaseback owners-investors.

At marketing stage, DGCCRF noted the advertising of yields presented as a minimum and the failure to mention the minimum rental period.

A website advertised "profitability from 3% to 5%" in its ads for the sale of French leaseback properties. However, this rate, which is already high and does not really reflect the profitability of the investment, could under no circumstances be expected to be achieved. The report states that the company holding the site concerned was compelled to amend this statement in order not to mislead consumers.

Some French leaseback companies fail to comply with the obligation to indicate, in adverts relating to the purchase of a French leaseback properties, the minimum rental period of 9 years, which is a statutory requirement for being able to benefit from tax exemption measures.

At the operational stage, DGCCRF's investigations also revealed/confirmed the lack of transparency and financial issues encountered in the management of leaseback projects.

Article L. 321-2 of the Tourism Code requires leaseback operators of classified tourist residences to communicate to owners, upon request, the operating account specific to their residence and to also communicate once a year to all co-owners a balance sheet for the past year specifying the occupancy rates obtained, the significant events of the year, as well as the amount and variation of the main items of expenditure and income of the residence. However, many professionals do not comply with these obligations. One of the controlled residences had even failed to apply for a renewal of its classification.

Several types of malpractice were identified during the investigation, including:

  • Full, early cancellation of the leaseback scheme by the operator;

  • Delays in rent payments or renegotiation of rents during the first leases (for four of the controlled leasebacks);

  • Renegotiation of rents upon lease renewal (five of the leaseback companies), with reductions of up to 70% of the initial rent amount;

The French Anti-Fraud Department's investigators noted that complaints from leaseback owners, disappointed by their investments, are numerous.

The report indicates that the practices of several audited professionals, when likely to be be misleading, were corrected. DGCCRF states that 'a warning' has been sent to those professionals concerned. As a French lawyer, I take the view that civil or criminal prosecution would, in fact, have been more appropriate.

More broadly, the French Anti-Fraud Department considers that it may be necessary to strengthen regulation, particularly before the sale, on prior and pre-contractual information made available to investors. Over the operating period, regulation should be tightened, especially on leaseback companies' transparency towards owners regarding ownership of equipment and common areas, and the handling of major maintenance works.

The report concludes that 'these reflections could be continued, with the professionals, within a working group set up by the Directorate General for Enterprise (DGE) in coordination with DGCCRF'. Reading between the lines, creating such a 'working Group' probably is the best way to ensure nothing happens....

The following extract of my recent post's first sentence ''...whose results were published in April least year.'' should of course read ''..whose results were published in April last year'.

Yes - you can find this report on the DGCCRF website at

If you use Chrome, you can view a translated version.

It seems that the DGCCRF have been receiving complaints about these schemes for years - not surprisingly.

And the DGCCRF may even have been instrumental in their set up back in 1996. If anyone has any information on the links between the DGCCRF and the beginning of these finance laws, do please share [with variations Demessine (1999), De Robien (2003), Censi-Bouvard (2009), Scellier, Duflot, Pinel (2015)...].

The problems of Demessine were clear to the DGCCRF back in 2009 if you look at The answer from the Minister at that time was:

"...Finally, it is stated that the national syndicate of tourist residences (SNRT) has put in place a charter of good practices in order to provide more complete information and protection for natural persons investing in these operations so as to avoid that certain investments are made solely on the basis of tax incentives, and not on that of an economic project. The services of the Directorate-General for Competition, Consumer Affairs and Fraud Control (DGCCRF), in particular to verify the correct application of the rules on information on the prices of products and services and the legality of Contracts or regulated commercial practices (canvassing, distance selling, credit, package travel, timeshares, etc.) may be entered in case of doubt as to the validity and regularity of the transactions. These clarifications are likely to respond to the concerns expressed."

The DGCCRF may not have received consumer complaints from other EU member states via the CPC framework for resolving cross-border consumer complaints before last year (if they have do let us know the outcome of those complaints).

I expect that your opinion that the DGE setting up a working group is 'the best way to ensure nothing happens' is shared by many.

In my view there was a breach of EU consumer law (Directive 93/13/EEC on Unfair Terms in Consumer Contracts), in particular regarding the hidden clause allowing the operators to renew the lease unless significant eviction compensation is paid.

In addition, my view is that there was fraud in many cases, where the 'guaranteed rent' stated was never achieveable for the duration of the lease, and this was known at point of sale.

The French state has failed consumers, it's own citizens, and continues to.

The European Commission must involve itself in the investigation, and we have highlighted to it that the DGCCRF may not be equipped to carry out this kind of consumer investigation since they are close to the tax incentive which gave rise to the issues. In particular it is the tax incentive which mandates a lease as part of the sale (it is in the deeds) but there are 'hidden' clauses. 

Perhaps the DGCCRF would like us to take the hit and go away (and pay the capital cost of French tourist infrastructure and allow the French exchequer earn TVA revenue on rentals etc), but we're not likely to...


I'm interested to know how this develops. Wondering about exit strategies that were originally advertised too. Were they legal?

Not read of too many buyers who have actually sold their leasebacks. Maybe the French government has some form of legal obligation to foreign owners?

Any professional estate agents want to buy our place in MMV/VCR/Village Center ? Lots of questions.



Those exit strategies that were originally advertised often were misleading.

I recall that many UK-based French leaseback selling agents used to advise prospective buyers that the scheme offered investors a rent 'guaranteed by the French Goverment'... This, of course, was false: The statutory framework, i.e. the 1953 Decree and the French Commerce, Code grant Owners/Lessors a level of protection, but where Lessee defaults and is put into Receivership or gets liquidated, leaseback owners find themselves in the same situation as all creditors holding unsecured claims: They are often left with unpaid rents and little powers to re-negotiate new rental terms, with another leaseback company, on fair terms.

The same "French leaseback specialists" often also completely failed to draw investors' attention to the leaseback companies' statutory right to get compensation in case Owner wants to end the lease when the said lease comes up for renewal.

But to my knowledge, none of these English-speaking leaseback marketers ever faced a claim, from their former clients, on grounds of professional negligence, misrepresentation,or fraud.


loatie (not verified)

Thank you for this information.

We were initially sold our apartment off plan in France and then dealt with the London branch of MGM to conclude the sale which went on for a few years as it was a complex construction.

To be fair, the development is on the whole well run and there have been no issues regarding payment of rent etc.

So far so good ..... However, we bought our apartment on the specific understanding that we would be able to have it outright after the first lease phase ended.  

We are now approaching the end of this first lease term and far from the seemless transfer we were promised, we are being faced with the question of the eviction indemnity fee and if we stay in the scheme, the cost of refurbishing the apartment, re-negotiation of rental income etc. Even if we did gain 'full ownership' of our apartment we would have to somehow arrange for the electricity and water supply to be individually metered and billed.  And as for the annual communal charges - well, there is no mention of how much more they would be charged if you are outdise the Residence de Tourisme arrangement.


A far cry from the 'seemless' transaction to full ownership. 

I have in writing from MGM that we would be able to have our apartment after 11 years. 

Compared with other leases I have seen, we have no clause in our lease that mentions an eviction indemnity fee. 

We do have in our lease a clause which stipulates that the Lessee (CGH) would be responsible for the costs of refurbishing the apartment after the first lease period ends.

However, it seems to me that whatever is written in the lease we signed, in reality it can all be ignored as there is no sign at all from CGH that there will be anything but the usual battle that all the other MGM built and CGH run Residences have already faced.

Thankfully we have a very pro active and professional owners group who are acting on our behalf but it is still very frustrating that a contract which was signed in good faith at the beginning - and we were at pains to ensure meant what it said re ownership and re-furbishment - actually appears to count for nothing.



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