The offer letter – an important stage?

There are a number of similarities between the process of buying a house in France and the conveyancing procedure in England and Wales. There are also a number of differences.

When we are advising clients on a French purchase – clients who invariably have no prior experience of the process, let alone the language difference – we often find it helpful to compare and contrast the two systems. Our clients will, after all, usually have bought and sold houses in the UK before.

One area of similarity is that both transactions are structured around two main documents: a first sale contract that sets out the agreement and a second deed that recites the actual transfer of title between sellers and buyers. In England and Wales, the first step is known as the ‘exchange of contracts’, the final stage being the completion of the Deed of Transfer. In France, the first step is the signature of a contract, usually called the Compromis de Vente or Promesse de Vente; the final stage is the completion of the Acte de Vente, which becomes the buyer’s title deed once registered.

Naturally, in either system, the buyer will make tentative steps towards reaching an agreement in principle with their seller by making an offer, with some element of negotiation on the price, then following. That process is, of course, often managed via a property agent. While those initial discussions may well be verbal, at some point, the agent will want to offer something in writing to the seller. This, then, leads to the preparation of an offer letter and perhaps one of the differences between the two systems.

Indeed, it is a difference that does give rise to a fair amount of confusion in general. It is common knowledge that in England and Wales, either party is entirely free to withdraw from the transaction until the exchange of contracts: all correspondence between the solicitors advising on that Conveyancing transaction will be marked as ‘Subject to Contract’. Neither party is bound in until exchange. Yet, a similar situation in France is often not understood clearly. If the buyer sends an offer letter, is it binding?

If we start by looking at the relevant background law, we can see that a contract is completed in France as soon as there is an agreement on the price and the item being sold. Technically, therefore, it can well be argued that the offer letter is somewhat redundant: as soon as the buyer makes even a verbal offer and the seller accepts this, then there is an agreement, so the contract is complete. That, though, brings with it a certain burden of proof: it would be extremely difficult, if not impossible, to satisfy a court that an absolute agreement existed between the parties as to the purchase. And that would be even harder where negotiations progress via an agent.

So, let us accept that the offer letter provides the evidential burden that would be required. Where does that leave our seller and buyer – are they bound in at all, and if they are, when does that happen?

The seller must, of course, accept that offer. In accordance with a reform of French contract law legislation that came into force in 2016, the seller’s acceptance will be finalised when received by the buyer. Thus, an offer is submitted by the buyer, and if acceptable, the seller will countersign the offer and return it to the buyer. At that point, it becomes binding.

And yet, while it is binding, the buyer is at least nearly always going to be able to withdraw from the transaction for some time. That is because, save for limited circumstances, buyers are covered by consumer protection regulations that offer them the opportunity to withdraw during a ten-day cooling-off period. That period only commences once the first contract has been signed by both parties, and a copy served on the buyers. This cooling-off period does not apply on some occasions, for example, when open land is being sold for the purpose of building a house.

It follows from this that the offer letter is rarely binding on the buyers, as they can withdraw without any penalty, even well after the first contract has been signed. Put this way, the entire process may seem rather unduly skewed in favour of the buyer: the seller is unable to withdraw, while the buyer can do so.

Inevitably, though, that is not the case. The offer letter does not offer carte blanche to a buyer to deal with a purchase just as they may choose. The seller is, in fact, only bound to the extent that the offer letter establishes. If the buyer wants to ensure that the buyer remains bound, they cannot introduce new terms into the process.

The offer letter should not, therefore, just include the price the buyer is prepared to pay. It should also include any other points that the buyer may require. If, for example, the buyer requires a mortgage to finance the purchase, that should be established in the offer. The seller cannot then object to the first contract, including a condition that the sale is dependent on mortgage finance being obtained.

When anyone is buying a property in England and Wales, they will commonly commission a survey before they proceed to exchange. It may not be as common to have a survey for a property in France, but it is possible to do so. If you are going to have a survey – something that we generally advise is sensible – then you should declare that you intend to do so (and you should commission the survey before the contract is signed.

Similarly, if, as a buyer, you intend to carry out any works to a property, particularly where these may necessitate planning authorisations, then that should also be declared in the offer letter.

The reason for all of this is that when the buyer submits an offer and sets out all of these specific heads of terms, the seller will be obliged to allow those points upon acceptance of the offer. The offer itself will be time-limited, including a declaration that a first sale and purchase contract would have to be completed by a certain date.

The real property market will go through different phases: occasionally, it would favour the sellers when, for example, there is a shortage of available property, and so several buyers are all ready to increase their offers. While buyers in England and Wales may then be ‘gazumped’, another difference in France is that the seller – having bound themselves into the negotiations by countersigning the Offre d’Achat – is not then going to be able to accept another offer.

However, if the buyer does not complete the Compromis de Vente by the previously agreed date, then the seller can start discussions with other prospective buyers. In the same way, if the buyer looks to introduce any new issues – even, for example, seeking a survey when this had not been declared in the offer – then the seller could well argue that the terms of that offer are no longer binding. Clearly, that is all rather academic, where there are no other buyers interested in the property.

Signing an offer letter is sensible. The parties should declare at the outset any specific requirements to be addressed in the run-up to the preparation of the contract and provided these are observed; then there should be no problems. It may all seem rather burdensome when an agent requests a formal offer be submitted, but this is for good reason.

As always, buyers should seek professional advice from expert lawyers should they have any concerns about their proposed purchase.

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If you have any questions or would like advice on creating a French Will, cross-border estate planning or buying/selling a French property, please get in touch with our specialist French Legal Services team through this website or by calling 0330 404 0768.