In France, a standard property transaction can only proceed once a seller has taken the initial step of accepting a buyer’s offer. Once accepted, a contract is created, and although these agreements are often treated casually, they sometimes carry legal obligations too.
As such, one of the most common questions that both parties have is whether they must honour the terms of the deal as agreed or whether it is possible to change their mind and withdraw? Also, what risks are there for parties that withdraw before a preliminary contract has been signed?
French Property Law
The French Cour de Cassation (Supreme Court) made two rulings in May and June 2023 regarding the binding effects of an offer, both of which highlight the care that must be taken by sellers when accepting an offer.
In the first case, the buyer had signed a letter of intent to purchase for a specific price, which had in turn, also been signed and accepted by the seller. Within the letter, a clause was included stating that in the event of an acceptance, the conditions of the sale and purchase must be set out in a preliminary contract.
After several months without news, despite the seller’s best efforts to progress the deal, the buyer attempted to renegotiate the sale price. Feeling frustrated by the delay, the seller agreed to sell to a different buyer – a situation that is not uncommon in English property transactions – and was subsequently sued by the initial buyer who argued there was a legal agreement in place.
The Court ruled in favour of the seller, but only due to the fact that the drafting of the letter of intent was not sufficiently specific and therefore could only be categorised as negotiations (“pourparlers”).
Meanwhile, in a separate case (June 2023), the buyer had made an offer by email which was accepted by the seller, but had not included any specific conditions. Unlike the previous case, the Court ruled in favour of the buyer and said they were entitled to force the seller to honour the agreement as the sale had concluded once the offer was accepted, despite it not being followed by the signature of a preliminary sale and purchase contract.
What lessons should be learned?
Both cases demonstrate the importance of sellers exercising caution before accepting an offer, as even casual agreements made via email carry some risks. To avoid any issues, legal advice should be sought from the outset, ensuring that the offer and/or its acceptance is worded carefully to protect the seller’s position and allow them to withdraw and remarket the property should the buyer cause delays.
Compared to the English system, the French process is very different and most buyers are well aware of their rights. The most obvious protections for sellers are the inclusion of a deadline for when an offer needs to be accepted and another by which the preliminary contract should be signed, making sure the offer is subject to the signature of the contract as seen in the May’s case.
For buyers, the situation is more relaxed as they are protected by a 10-day cooling off period which is triggered after the preliminary contract is signed. During this time they can withdraw without providing a reason and recover any deposit paid within specific timescales set out in French law.
Of course, buyers must still consider their position carefully before withdrawing, especially if an offer has been agreed, as French law provides some relief to sellers under the concept of “abusive termination of negotiations” (“rupture abusive de pourparlers”).
Although this mainly applies in the context of commercial transactions, it has since been applied in residential property transactions, where it can be shown that either the buyer or the seller acted in bad faith when terminating the negotiations. As such, it can be used to help the wronged party recover damages – though limited to costs expended, rather than what they would have benefitted from under the contract.
