Seller’s obligation to declare insured events
Under French law, when buying and selling a property the principle is not of caveat emptor (buyer beware) like in England, but rather of a “devoir d’information réciproque” i.e. a mutual obligation of disclosure of all key information which if known would have impacted the parties’ willingness to enter into this specific transaction. A breach of this obligation could lead to either the parties being found responsible and liable for damages and may render the contract null and void if the consent of one of the parties (mainly the buyer’s) was invalidated, with any ambiguous provision in the contract will be interpreted in the buyer’s favour.
To assist the parties with their disclosure obligations, a typical French preliminary sale and purchase contract will include various surveys, as well as standard declarations made by the buyer and seller. As part of the surveys a seller must provide a risks statement, that informs the buyer on the natural, mining and pollution risks that affect the property being sold. The risks statement will also include a list of events where the Commune (town) where the property was located was declared in a “state of natural catastrophe”. While this sounds scary, declaring such a state is actually a way for the French government to facilitate insurance claims and pay-outs where a large area of France is damaged by a natural event as the pay-out is then almost automated and therefore much quicker.
However, providing this information is not sufficient, and the seller also has an obligation to declare whether the property itself was to their knowledge damaged by a natural event which gave rise to an insurance pay out. This specific declaration from the seller can take the form of a specific provision in the contract but can also be limited to ticking a box to this effect on the risks statements.
A published Order from the Court of Appeal of Montpellier from September 2023 serves as a good reminder that French Courts take the disclosure obligations very seriously and will not hesitate to apply strict sanctions even for a misrepresentation that could seem minor. In this specific case, the property sold had been affected by floodings which had been covered by a state of natural catastrophe notice by the French government and the seller has received a pay out in 2002 this respect. Except that they did not disclose this when selling in 2010 to the buyer, who, four years later, having in turn also been subjected to a natural catastrophe flooding event and realised then the seller’s misrepresentation, sued them to have the sale declared null and void.
The Court of Appeal of Montpellier quashed the order from the first instance Court that ruled in the favour of the seller, noted that this information was not provided at the time of signing the preliminary contract or Transfer Deed (the seller claimed having informed the buyer over the telephone post completion, which was not proved and would not have been sufficient to discharge their obligation in any event) and ordered that the property should be handed back to the seller and that the buyers should be refunded for the full sale price plus estate agency’s commission and purchase fees, i.e. a total of just over €450,000. The Court however rejected the buyer’s claim for further damage for their economic loss in having been unable to make any rental income on the property (as when a sale is declared void the parties are put back in the position they would have been should they not have purchased, and the buyer would therefore never have made the rental income), as well as interest the buyers argued they could have earned on the funds used towards the sale price if they had invested it instead of purchasing the property (as they did not prove that this is what would have happened otherwise).
A stern warning to all sellers of French property that they must be as transparent as possible with any issues affecting the property being sold, and ensuring that every disclosure is formally and accurately recorded in the preliminary contract and Transfer Deed, ideally with a corresponding statement from the buyer that they acknowledge the issue and wish to proceed with their purchase, this is why it is always suggested to seek legal advice when selling or buying a property in France.
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