Turn Your Spaces into Rental Income

Tomorrow evening (7 p.m. France time, 2 p.m. Eastern time), Joe Siart is joining us on our North American Expats in France Quarterly Financial Forum—2nd quarter 2024 webinar—to talk about how to “Turn Your Spaces into Rental Income,” Joe’s latest book.

In 2006, I started a short-term rental business in Paris to coincide with my own investment in a studio apartment designed as such. The launch of that aspect of our business was not only very worthwhile for the next 10 years, but enabled us to survive through the financial crisis of 2008 as Americans were still vacationing in France in spite of their greatly diminished portfolios and loss of purchasing power.

Until then, almost all of our clients buying in Paris were investing in a property they could use themselves and then rent the rest of the year. Everyone was happy. Their properties were renting well, our clients were making money while enjoying their properties, and our renters were thrilled to be staying in a beautiful apartment in the heart of Paris. We were singing, as were they, all the way to the proverbial bank.

Then, a terrible thing happened to that market. The rental laws in France—that had been on the books since 1948, but not enforced—came to light in 2009. A person in the industry used it as a way to promote her own long-term rental business by disparaging short-term rentals. That led to a lot of media coverage which then led to the authorities waking up to the proliferation of short-term rentals.

Airbnb was born about the same time, in 2007, when two hosts welcomed three guests to their San Francisco home. It has since grown to over five million hosts who have welcomed over 1.5 billion guest arrivals in almost every country across the globe, France being one of their more important markets. It was a brilliant idea at just the right time—when the world was more able to work remotely and many of us became more transient. The need was there and Airbnb exploded.

Under Mayor Bertrand Delanoë, things remained rather circumspect, but when Mayor Anne Hidalgo took office in 2014, she decided that short-term rentals were evil and taking badly-needed long-term housing off the market. She failed to evaluate the true reasons for the housing shortage (lack of new builds and other reasons that owners saw an advantage to leaving their properties vacant rather than risk squatters, etc.) and used short-term rentals as her scapegoat. She then set out to destroy AirBnb and all of the short-term rental properties by making the laws even more stringent, heavily fining owners for illegally renting their properties (50,000€ and more). She even went so far as to organize a large team of agents (about 25) to ferret out the “offenders” by following tourists with suitcases to their destinations! I was “controlled” by one of their agents who came to my personal apartment to accuse me of renting two properties (both mine) short-term.

At the same time, Hidalgo instituted rent control, even though almost every article you read about the effectiveness of rent control will tell you that it has negative affects on the housing market and ultimately does not work. Still, since I could no longer rent the properties short-term (legally) and rent control rates wouldn’t even cover my expenses, I sold both properties, much to my disappointment.

As a rental agency, we shut down our short-term rental business not long after this when it became too difficult and not profitable. The owners we represented were not at all happy with what had transpired and some sold their properties. Others resorted to offering their apartments on a “mobility lease” (more about this further down) or on long-term leases, meaning they no longer had use of their properties. Our clients now are purchasing (particularly in Paris) for their own usage, without the idea of renting for profit. They can afford it, even though that means having vacant property in Paris while they are not using it. Not fitting with Mme. Hidalgo’s vision.

I could write an entire volume on this subject and you can expect me to be vocal on the Webinar. I’ve lived through and experienced all of it, both as an owner and an agent. And let’s not forget that there is a global need for transient housing, growing exponentially all the time, that the authorities ignore!

I have very strongly-held opinions about how the city (and others worldwide) have poorly dealt with the problem in very self-defeating, counter-productive ways and how they could have done a better job to reduce their housing shortage without punishing both landlords and tenants…but they didn’t ask me!

 

There are two thoughts I can share with you now: 1) No one has the right to dictate who you let stay in your own property! And 2) No government should be able to prevent a landlord from being “reimbursed for their expenses,” if they allow someone to stay in their property and use the facilities, clearly costing the owner money (isn’t that what “rent” is?).

Cooperative/multi-family buildings all have bylaws by which all of the owners must abide. The owners govern themselves and monitor the offenders. This self-governing body, known as a Homeowner Association in the US and a “copropriété” in France, can be a whole lot stricter than any government. Anyone who owns a co-op in New York can attest to this, where even the Board of Directors can decide who can purchase in the building and not disclose their reasons for rejection! It is my belief that the city governments need to allow the co-owners to govern themselves, and as I noted above, will do a better job than the city without turning landlords into criminals! But, of course, the city loves their revenues from the hefty fines, don’t they?

Joe is going to talk about all the ways a property owner can legitimately and legally generate a revenue from their investments. His book goes into great depth on the subject, so for anyone wanting to make the most out of his investment, it’s THE book to read and have on the shelf for reference.

One thing for sure, none of this is simple. This is France, and Napoleonic code trips all over itself in the interest of making sense of the rules.

Here are the various types of leases available in France:

1. Furnished Residential Lease (bail habitation meublé)

This lease is for tenants planning to use the apartment as their primary residence. Typically, the contract automatically renews after each term. Tenants sign this lease for a minimum of one year and can legally end it with a 30-day notice at their discretion, or if the landlord provides a valid reason.

2. Unfurnished Rental Lease

An apartment is considered unfurnished if it lacks the essential amenities for daily living, such as facilities for eating, sleeping, and proper hygiene. Unfurnished leases last three years if the landlord is an individual or a family. Exceptions allowing for a minimum 12-month lease include:

• Student tenants
• Tenants temporarily relocated due to work
• Retired tenants
• Tenants expected to vacate soon

3. Student Lease (bail d’étudiant)

This is a specific type of furnished residential lease for students, with a minimum term reduced from one year to nine months. It provides flexibility for the academic calendar.

Note: Not all students have nine-month needs!

4. Bail Mobilité (Mobility Lease)

The Mobility Lease is for short-term rentals, ranging from one to ten months. It’s designed for people temporarily in France for employment or study. This lease is not renewable beyond the initial term. If the tenant wishes to stay longer, a standard long-term lease must be arranged.

Eligible tenants must be:

• In vocational training
• Enrolled in higher education
• In an apprenticeship
• Interning
• Volunteering as part of civic service
• On a professional transfer or temporary assignment

Note: a situation such as mine, where I must move to another apartment while renovation work is being done in my own apartment, is not allowed under this lease!

5. Civil Code Lease

Based on the French Civil Code, this lease is less regulated than conventional leases and is used for secondary residences. It is suitable for individuals renting a pied-à-terre or companies providing housing for employees, known as a company lease (bail de société). Embassies frequently use this lease type.

6. Holiday Lease

This lease is for short-term vacation rentals, including Airbnb-style accommodations, with a maximum duration of 120 days (approximately four months) and is only available to primary residence owners. It is non-renewable, but it can be extended up to 90 days beyond the initial expiration date if needed.

According to Joe Siart, there are tons of exceptions which allow owners to do short-term rentals from their secondary residence. He explains it in great detail in his book, so I won’t go into that detail here. Nonetheless, to have any of these unusual leases written in such a way that the owner is more protected, it’s best to “lawyer up.” This way, if challenged, an arbitrator or judge could re-classify the newfangled lease as a traditional habitation lease. In addition to reducing your flexibility, the owner may have to refund the difference or pay fines.

Rent control in Paris began in July 2019. The new reference rents were fixed by prefectural order. This system is part of the Elan law allowing cities located in tight zones (“zones tendues”) to apply rent control on an experimental basis for a period of five years.

The framework applies to all leases signed on or after July 1, 2019 and subject to the July 6, 1989 law, i.e. rentals of the main residence or rentals under a mobility lease. It applies to both empty and furnished rentals, for re-rentals as well as first-time tenancies (including shared tenancies) and lease renewals.

Rent controls do not apply to: social housing (HLM, APL and ANAH); housing governed by the 1948 law; seasonal rentals.

Rent control is in many more cities than Paris, and is likely to continue to spread. There are legal ways around it while still using the traditional leases, but it’s risky to stray too far from the municipal guidelines. The most common technique is by including a “complément de loyer” to cover “exceptional” amenities, or a great view, or some other “plus.”

 

Check rent control amounts by visiting this website.

Owners manage to skirt the rent control by proposing a Civil Code Lease, rent the property as a Secondary Residence or rent as Corporate Housing (Mobility Lease).

It’s all very confusing! And that’s why we need Joe to sort it all out. Even the attorneys can’t do this job!

To register, visit our site.

If you can’t attend, the Webinar will be recorded and it will be available on our YouTube channel.

A la prochaine…