ALUR Has Little Alure for the Investor

Symbol of Notaires de FranceALUR may result in lost salesApartment for rentFurnished short-term rentalUnfurnished long-term rental

The ALUR law was enacted and comes into effect today.
Our Notaire was most concerned because the new requirements for the notarial system is becoming much more cumbersome and time consuming.
Now, in order to satisfy the law, when purchasing a property, the pre-sale agreement will not be valid until the Notaire can secure the following documents:
1. “Reglement de Copropriété” — the homeowners association by laws
2. Three years of the minutes from the annual general assemblies of the homeowners association
3. Any amendments of of the rules
4. And other information from the “Syndic” (manager of the homeowners association)
The result of this is that it will take a much longer time to organize all the documents before a pre-sale agreement can be signed.
While this new legislation is designed to protect the buyer, it poses a number of problems for the Notaries as well as for the buyers and sellers. Not only does it increase the work for the notaries, but there is discussion about decreasing their fees, for which they are even less enthusiastic!
From our perspective, there is concern that a purchase may fail because of the length of time it takes to formalize the pre-sale agreement — both the seller and buyer may lose interest or there may be other calamities that prevent the purchase from taking place.< /p>
One benefit is that this may shorten the time between the signing of the pre-sale agreement and the final Acte de Vente (title/closing), however, there are still time restrictions if a mortgage is involved that require sufficient time to process the loan.
In addition to this aspect of the Loi ALUR, both long and short term rentals are affected.
Seasonal rentals are subject to authorization by the city of Paris to change the usage of the property to “commercial,” however, the “copropriétés” (homeowners associations) can no longer oppose this change of usage. Authorizations by the city are still subject to an owner’s ability to convert additional properties of equal surface to long term rental residences (one if outside of Le Marais and two if within Le Marais).
The act also provides for possible temporary authorizations (i.e. for a limited time and in limited areas, and subject to conditions yet to be defined by the City of Paris), but it is far from certain that the City of Paris will allow for temporary authorizations.
While the city is maintaining control over seasonal rentals, removing control by the copropriétés, we fear that this will further the need and interest for individuals to denounce their own neighbors. Of all the properties we represent for short term rental, one has been denounced and another has been threatened to be denounced.
In each case, with the help of legal counsel, we’ve created a “mid-term” style lease that requires a renter to commit to no less than 30 days (this is the legal length of term for cancellation of a rental contract), but the renter must sign a one-year lease and separately sign a pre-cancellation notice that goes into affect after the initial 30-day stay. Legally speaking this fully complies with the law and reduces the number of guests coming in and out of the building, thereby satisfying both the neighbors and the law.
The owners of these properties have discovered high occupancy rates and while the rental rates are a bit lower than for short-term stays, their revenues have been acceptable and certainly this solution is a good alternative to no rentals at all.
Clearly, most of the owners’ apartments are not at risk from their neighbors, who are also likely renting their properties. In a survey conducted by the city hall, it was reported that there is an estimated 20,000 furnished rental properties in Paris, but they also said that there may be more they don’t know about. Some say it’s up to 40,000 properties. The city will likely continue to make an effort to convert a large portion of these properties to long term rentals for permanent residents by enforcing these regulations…but there will always be a need by those wishing to live in Paris less than one year for accommodations that hotels cannot provide. And there will always be a need by owners to recuperate their investments through rental revenues as well as have usage of their own properties.
We believe that compliance with the law regarding short-term rentals is virtually impossible as it requires an owner to invest further in another property for long term rental. The owner may not be able to recuperate their investment via rental revenues if they are not sufficient to cover their carrying costs.
In addition, the new law is placing a cap on the rates of long-term unfurnished rentals. Rents cannot exceed more than 20% above the median rent set by the city. This does not apply to furnished properties of long or short-term rental. Some properties considered “high quality” may be exempt from the rent capping. Who and what determines a property as “high quality” is of question at this point.
Further to protection for the renter, tenants no longer have to pay a deposit or guarantee to the landlord as the government will underwrite non-payment of rent. While this will make it more affordable for the tenant, it may lead to more squatting by dead-beat tenants and therefore lead to less interest by landlords to invest in long-term rental properties…one of the primary reasons for the current housing shortage.
We do not see that these new law enactments will solve any of the current housing issues, but in fact, compound them.
A bientôt,
Adrian Leeds
Director of The Adrian Leeds Group, LLC
 
Respond to Adrian: [email protected]
 

 
 
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