Changing who is buying the property: the Substitution Clause

The substitution clause in French property law

When buying a French property (new-build or resale), the buyer can ask to insert a clause called a “substitution clause” into the reservation contract. In most standard contracts, that clause already exists, usually just below where the names of both parties are. It adds the option to replace the name of the buyer at the moment of signing the reservation contract to a physical person (“personne physique”), or a company (“personne morale”) for when the exchange of contracts will take place.

What is a substitution clause?
A substitution clause is a clause which allows the buyer of a French property to change the name stated in the reservation contract to another person or company at the time of the final act of purchase (signing of deeds). Concretely, this means that the buyer can sign the reservation documents in his/her name and have a different person intervene at the time of the final signing of the deed of sale or create a company to purchase in his/her name when signing the contract.

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Why insert a substitution clause?
Inserting a substitution clause allows you to modify and replace, until the last moment, the name of the final purchaser of a property by another name or by a company. In practice, the substitution clause is often used by a potential buyer who absolutely wishes to acquire a property, but who has not yet completely finalised his investment project. The creation of a company for the acquisition of French real estate, such as an SCI or SARL, can take several weeks until its official registration.

How to write a substitution clause?
The substitution clause is a classic formula such as the one presented in the examples below. It is most often drawn up by the developer’s or seller’s notary: the notary understands the issues, and is best placed to include all the elements related to French property law.

Total or partial substitution clause
A substitution clause can be total or partial. A person purchasing a real estate lot divided into two separate lots (for example, a house and a hangar-type outbuilding) may decide to provide a substitution clause that concerns only part of the purchase.

Substitution clause in the reservation contract
The substitution clause is indicated in the sales agreement (French “compromis de vente” for resale properties) or the reservation contract (“contrat de réservation” for new-build and off-plan properties. When buying a new-build property in France, the substitution clause is included in 99% of reservation contracts we deal with. Feel free to ask for confirmation.

Substitution clause deadline
The substitution clause must appear in the reservation contract to have legal value. It is this notarial deed which defines the obligations and rights of both parties in the context of a French property transaction. Please note that the buyer is not required to specify in the reservation contract the elements relating to the physical person or company chosen in the event of a substitution.

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The substitution clause for the benefit of an SCI (property company) or SARL (family limited company)
This is one of the most common applications of the substitution clause. Often, individuals acquire real estate before even having set up their SCI (real estate company) or SARL. The substitution clause then gives the buyer time to constitute the company before the final act. Sometimes, also, a person decides to purchase a property solely but then decides to include another person to sign the deeds. Thanks to the substitution clause all this is possible.

Example of substitution clauses

Here are two examples of a substitution clause as it may appear in a reservation contract:

1.

“Monsieur JONES Simon
demeurant 33, Weymouth Avenue, London W5 4DF, UK

ou toute personne physique ou morale qui se substituerait solidairement,
Ci-après dénommé « LE RESERVATAIRE »,”

Translation: Mr JONES SIMON
residing at 33, Weymouth Avenue, London W5 4DF, UK
or any physical person or legal person (company) who would substitute jointly,
Hereinafter referred to as “THE RESERVER”,

Or

2.

“Il est stipulé que l’acquéreur disposera de la possibilité de se substituer à un tiers. La réalisation de la vente authentique pourra ainsi être effectuée au profit de toute personne, physique ou morale, librement désignée par l’acquéreur.”
Translation: It is stipulated that the buyer will have the possibility to choose a replacement. The completion of the property sale may thus be carried out for the benefit of any person, physical or legal (company), freely designated by the buyer.

This substitution clause does not involve any extra fees.

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