Real estate sales. Protection of sellers against substantial undervaluation

Very good deal on a property and important capital gain on resale?

The law protects sellers against greatly undervalued sale prices with the rescission action for lesion of 7/12ths of the real estate sale contract (articles 1516 to 1525 of the Civil Code), not to be confused with the action for nullity of the sale for lack of cause due to the derisory price of the latter (article 986 of the Civil Code), or for defect of consent in case of error, violence or fraud (article 964 of the Civil Code).

A drafting change in the matter of rescission on the grounds of lesion was recently made by Law no. 1.523 of May 16, 2022 on the promotion and protection of women's rights by amending and repealing obsolete and unequal provisions (deletion of a patriarchal provision which was no longer of legal use)[1].

An opportunity to present this course of action that is little known to the general public.

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The action for rescission for lesion:

The action for rescission for lesion can be brought before the Court of First Instance (TPI) within two years from the date of the sale if the seller has been harmed by more than 7/12ths of the real value of the property according to the local market prices (i.e. the seller has received less than 5/12ths).

The buyer has the choice between cancelling the sale or keeping it by paying an additional price, under the deduction of the 10th of the total price.

Illustration:

Mrs. X sells one of her apartments for 1,200,000 € to Mr. Y. The children of Mrs X estimate that the property was actually worth 3.600.000 € and alert her. She files an action for rescission for lesion of 7/12ths.

If this evaluation is confirmed by the experts, the Court will be able to conclude to the lesion, since Mrs X received only 4/12th of the real value of her apartment (that is to say a lesion up to 8/12th). Mr. Y will then be able to opt for the cancellation of the sale, or the compensation by paying a complement up to the fair price (i.e. 2.400.000 €) from which he will be able to deduct 10 % of the total price (i.e. 360.000 €).

Mr. Y choosing to maintain the sale, he will have to pay 2.040.000 € to Mrs X. The total collection for the sale of the apartment will thus have been 3.240.000 €.

The time limit for legal action:

The time limit for taking legal action, two years "from the day of the sale", is a so-called prefixed time limit, i.e. "not subject to suspension or interruption". If the time limit is exceeded, the claim will be declared inadmissible by the judges, without examination of the merits. [2]

The time limit for action begins to run on the "date on which the notarial deed of sale of the property was drawn up" (the day the deed of sale was signed at the notary's office), and "not on the date of the synallagmatic promise to sell (...), which is only a private agreement that is not valid as a sale on the date it is signed". [3] The time limit applicable to the right of option is the same as that applicable to the right to sell.

The time limit applicable to the right of option:

Recently, the French Court of Cassation provided an interesting clarification regarding the time limit within which the buyer may exercise his right to opt for the cancellation or the maintenance of the sale, which is not mentioned by the Civil Code.[4]

Its landmark ruling is of interest to Monaco, as the provisions of the Monegasque Civil Code are identical to those considered in the French Civil Code.

The Court held that the right of option provided for in Article 1681 of the French Civil Code (Article 1521 of the Monegasque Civil Code)[5] must be exercised within the period provided for in the decision admitting the injury, or, failing that, within a reasonable period. This last point is new.

In this case, the choice made (by the liquidator of the SCI which had bought the property in question) more than four years after the judgment rescinding the sale (which did not provide for a time limit for opting in) was deemed reasonable.

While substantial capital gains are not uncommon in the real estate sector, the law thus gives sellers the means to challenge those that are too high.

Proof of lesion may be difficult to provide. But a short-term resale with a large capital gain will inevitably give the original seller arguments.

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[1] Law No. 1.523 of 16 May 2022 deleted the second paragraph of Article 1518 of the Civil Code, which provided that "This period [of two years from the date of the sale to bring an action for rescission for lesion] runs against married women and against absentees, interdicted persons and minors coming from the head of a person of full age who has sold." In France, Law No. 2018-703 of 3 August 2018 reinforcing the fight against sexual and gender-based violence made this deletion in Article 1676 of the French Civil Code.

[2] TPI, 14 November 1996.

[3] TPI, 14 November 1996. Articles 1436 and 1432 of the Civil Code contain specific provisions for the sale of real estate located in Monaco: "when the agreement has as its object real estate located in the Principality with a value of more than 23 €, it only produces its effects from the moment when it is established by an authenticated deed passed before a Monegasque notary." "When the synallagmatic promise has as its object a property situated in the Principality with a value of more than 23 euros, it is only valid as a sale from the moment when it is recorded or carried out by a notarial deed drawn up in accordance with the second paragraph of article 1426. "

[4] Cass. 3rd Civil Division, Sec. 5 January 2022, Appeal No. 20-18.918 (published in the Bulletin).

[5] Article 1521 of the Monegasque Civil Code and Article 1681 of the French Civil Code, drafted identically (from the Napoleonic Civil Code): "In the event that the action for rescission is admitted, the purchaser has the choice either to return the thing by withdrawing the price he paid for it, or to keep the land by paying the supplement to the fair price, subject to the deduction of one tenth of the total price. The third party possessor has the same right, except for his guarantee against his seller."