Table of Contents
Stefano Lucatello provides a back-to-basics guide to some of the differences that apply in civil law jurisdictions, around purchasing property and making wills
I would like to start this article with a health warning: dabble in foreign property law and the drafting of wills that cover foreign property matters at your peril! This is a complex and specialist area of law, and this article is intended as a brief introduction for property lawyers working in England and Wales, not a primer.
The absolute basics
The first thing to understand is that most countries which are not a member of the Commonwealth have a Roman law code, otherwise known as a civil law code, and not a body of common law, like in England and Wales. These codes originate from the time of Emperor Justinian, as spread and promulgated by Napoleon Bonaparte, as he conquered European countries.
Our common law is more fluid, as it relies predominantly on precedent law,
supplemented by acts of Parliament. Precedent law or jurisprudence is there to be appealed and developed, whereas civil law is codified, very slow to develop, and relies very little on precedent.
Areas to consider
Wills
In England and Wales, we can make a will, in accordance with the Wills Act 1837, and we are free to leave our entire estate as we wish – for instance, to a charity, thus excluding a family member. In civil law countries, this is not possible, due to the doctrine known as forced heirship. This provides for children to be left a certain percentage of the deceased’s estate, to the detriment of the surviving spouse. How much the spouse inherits depends on how many children survive the deceased spouse.
We used to advise clients who bought abroad to consider drafting two wills: one for their estate in England and Wales and another for their foreign property, ensuring that one did not encroach on the terms of the other, thus creating doubt or a partial intestacy. In civil law countries, you can make the following wills:
- a holograph will (one written and signed totally in the hand of the testator)
- a secret will (one made by the testator and handed to a public authority, in a sealed envelope, to hold until the moment of death)
- a will prepared by the public authority, witnessed and then held by them
- an international will (see below).
Since August 2015, the European Union has ratified EU Regulation 650/2012, otherwise known as Brussels IV. The aim of Brussels IV is to simplify succession cases where a testator dies in one country leaving assets in another. A citizen who can prove a “connection” to an EU country can choose which jurisdiction of law shall apply in the administration of their foreign property, upon death. The “connection” has to be the deceased’s’ country of habitual residence or nationality. A will made under Brussels IV is known as an international will. To be valid, the will has to be drafted incorporating certain clauses.
England and Wales was one of three countries which did not ratify Brussels IV, as we do not allow a British citizen to use a foreign body of law to govern the administration of their home estate. This assists a citizen of England and Wales to leave their foreign property in accordance with English law, and frees them from the constraints of a foreign forced heirship regime. As a UK citizen, I could retire to France and make an international will
using English law to prevail over French law, because of my nationality, in the administration of my French estate.
Inheritance tax
Another point to mention that is that, in civil law countries, there is no inheritance tax: the tax payable on the death of a person is payable by the beneficiary of the gift. This is called succession tax. The succession tax payable depends on how close, in bloodline, the beneficiary was to the deceased. The closer they were, the more tax allowance they have, before the incidence of succession tax.
The role of the public authority
In civil law countries, the equivalent of a solicitor does not deal with the administration of a deceased’s estate. The is done by a person called a public authority: in France, a notaire; in Italy, a notaio; and in Spain and Portugal, a notario. They are lawyers, but they are not there to give guidance and advice, unlike solicitors in England and Wales.
This is because, abroad, sellers and buyers do not use lawyers to effect these transactions, but go straight from
Our common law is more fluid as it relies on precedent law the selling agent to the public authority, as they do all the pre-completion and planning checks, that we, as solicitors, are obliged to do. Therefore, all parties rely on the public authority, although they are not represented by that person. They are an extension of the government and tax authority, whose task it is to collect taxes and pursue activities at national level, such as purchase and sale of property and administration of estates, turning what is known as a private deed into a public deed.
Public authorities are not the same as our profession of notary public, and must not be treated as such.
As a UK citizen, I could retire to France and make an international will using English law to prevail over French law, because of my nationality, in the administration of my French estate
The completion ceremony
Public authorities are also involved when a client is buying foreign property. In the UK, solicitors handle property transactions, and we don’t need to see each other, as we can do everything
electronically.
In civil law countries, the completion ceremony, as it is called, is done at the office of the public authority, and all the parties have to attend in person or by proxy, including the bank representative if there is a foreign mortgage, to sign the sale deed. In France, the deed is called the acte authentique, and in Spain and
Portugal, the escritura.
At the completion ceremony, the parties listen to the public authority as they read the very long document, and then the parties initial and sign the deed, which is then registered at the country’s land registry, known as the cadastral registry. In some countries, such as Portugal, you must pay the taxation and registration fees at the tax office before you go to the completion ceremony. If the buyer is foreign, then they will need a translator and interpreter with them, as the public authority must be sure the person before them understands the contents of the deed.
The public authority acts as a repository for that deed, which is never handed back to the parties (only a stamped copy), and also as a tax collector, for any taxes due from the vendor or the buyer, such as unpaid local income or capital gains taxes and buyer’s stamp duty.
The purchase process
This procedure is also different. It starts with a reservation agreement being signed, with a small deposit being handed over to take the property off the market, and then a choice of contracts.
The contract options are known as unilateral sale offer and unilateral purchase offer agreements, or the usual
bilateral promissory sale agreements. The former are legally binding on both parties, usually for a period of 14 days, within which period the buyer is held to ransom until the vendor decides to accept the buyer’s offer (or not). If the vendor signs the document within that period, then there is a binding contract. If not, then the buyer is free to move on. If, in this period, the buyer sees a better property, they cannot move forward, unless they are released by the vendor – otherwise, they could be bound to buy two properties.
The contracts have to be in written format, and set out the parties, property, price, and any other conditions applicable which must be fulfilled by the vendor – known as suspensive conditions. There is no exchange of contracts: the contract is legally binding on both parties at the moment they sign and the deposit is paid over to the vendor. Searches as we know them are not carried out. They are not necessary, because the duty of the public authority is to guarantee good title to the buyer and check that there are no local, regional or national debts due by the vendor, including mortgages on the title. If bad title is conveyed, the public authority can be sued for negligence.
In this regard, France is the most consumer protectionist country when dealing with the sale of property. The French civil law code obliges the vendor to prepare a sale pack, called a diagnostic technique, prepared by an expert and backed by an indemnity insurance, which covers:
- energy performance
- presence or otherwise of lead, asbestos and termites
- flood and seismic risks
- an electrical and other utilities report.
The pack also includes photos of any problems. This is then appended to the contract and the final deed and becomes part of it. The buyer also has a 10-day cooling-off period, starting the day after they received the contract bundle, within which they can withdraw by written notice, given to the notaire, without forfeiting any money. If the buyer does nothing in that period, they are legally bound.
Failing to complete in civil law countries gives rise to a penalty of twice the deposit by the vendor and the deposit by the buyer, as well as specific performance.
The impact of Brexit
Since 11pm on 31 December 2020, the UK is no longer part of the EU, which means that UK citizens buying in the Schengen zone will, as third-country citizens, have to apply for special visas to remain for more than 90 days. In the meantime, they can only visit Schengen countries for 90 days in every 182 days, making a total of 180 days out of every 365. Owners of foreign property and potential buyers will obviously need to know about and comply with these new rules.
If you want to know more…
l …see the dedicated international and cross-border property page on the Property Section website.
tinyurl.com/y5s6jf2p