Transfer of SCI Shares: Notary Must Verify Mortgages Before Drafting the Deed

You have just acquired shares in a French property investment company (SCI) in Douai. The deed is signed, the notary has authenticated the transfer, everything seems in order. But a few months later, you learn that a mortgage encumbers the property and that you will not be able to resell it without repaying the debt. Did the notary warn you? Was he required to do so by law?

In 1985, the Court of Cassation ruled: yes, the notary must verify the mortgage situation of the property before authenticating a transfer of SCI shares, even if that transfer does not confer any real right on the purchaser. This decision profoundly marked French property law and continues to protect purchasers.

Let us delve into this emblematic case, which arose within the jurisdiction of the Douai Court of Appeal, to understand what the notary must tell you… and what he risks if he does not.

The facts: a story that happens every day

Mr and Mrs Y. were owners of shares in a SCI named 'Les Hameaux de Villarceau', which itself owned a property in Valenciennes. In 1979, they decided to sell their shares to Mr and Mrs X. The transfer was negotiated privately, without a notary. Then, the parties went to a notary to have the deed authenticated and to record the SCI's approval (the consent of the other members).

A few years later, Mr and Mrs X wished to resell the property. That is when the bombshell dropped: they discovered that a mortgage (a guarantee taken by a bank over the property) had been granted by the SCI before the transfer of shares. This mortgage, never disclosed, significantly reduced the value of the property and complicated its resale.

Mr and Mrs X then sued the SCI, alleging it had failed to inform them of the existence of the mortgage. But they did not direct their grievances against the notary. The Douai Court of Appeal, and then the Court of Cassation, had to determine whether the notary had a duty to verify and inform the purchasers.

The court's reasoning — broken down

The Court of Cassation relied on the notary's duty to advise, an essential professional obligation (now enshrined in Article 1240 of the Civil Code, which requires compensation for damage caused by one's fault). The notary, as a public officer, must enlighten the parties on the scope of the deed he authenticates.

In this case, the notary had two tasks: authenticate the transfer of shares (already agreed in his absence) and record the SCI's approval. The Court clarified that, even if the transfer of shares does not confer any real right on the purchaser (i.e., a direct right over the property, such as ownership), the notary must verify the mortgage situation of the property. Why? Because the value of the shares directly depends on that of the property. An undisclosed mortgage can render the shares unsellable or significantly depreciate them.

The decision is a confirmation of prior case law: the notary's duty to advise extends to all deeds he executes, even those that do not transfer real rights. The Court rejected the notary's argument that he did not have to check a security (a guarantee) affecting a property that was not directly transferred. It held that the purchaser of shares is entitled to be informed of any element affecting the value of his investment.

What this means for you — practically

If you are a purchaser of SCI shares: you can require your notary to check the mortgages and other securities encumbering the property before signing. If he does not, his liability may be engaged. Worked example: in Valenciennes, a 80 m² flat worth €150,000. If a mortgage of €40,000 encumbers the property, your shares lose that much. Without information, you could claim damages from the notary.

If you are a seller of shares: you must spontaneously inform the purchaser of any mortgage or charge. The SCI itself may be sued for breach of its duty to inform (as in this case).

If you are a notary: do not limit your verification to deeds transferring ownership only. For any transfer of SCI shares, search the land registry (the property register) and mention the result in the deed. Otherwise, you risk incurring professional civil liability.

If you are a co-owner in a SCI: note that a transfer of shares can be an alternative to selling the freehold, but it does not escape transparency obligations. Ask your notary to provide a mortgage certificate before any commitment.

Four tips to avoid this type of dispute

• Demand a recent mortgage certificate: before signing a transfer of SCI shares, ask your notary to provide a mortgage certificate for the property (cost: about €12). This will reveal all entries (mortgages, privileges, etc.).
• Have the deed drafted by a notary from the outset: even if the transfer is negotiated privately, do not finalise without a notary. Only he can check the charges and advise you.
• Include a warranty against eviction clause: in the transfer deed, provide that the seller warrants the absence of any undisclosed mortgage. If discovered later, you can claim against him.
• Check the SCI's articles of association: ensure the transfer is approved by the general meeting. Lack of approval may render the transfer unenforceable against the company.

Further reading: related case law and developments

Before 1985, the extent of the notary's duty to advise in relation to transfers of SCI shares was unclear. The 1985 decision clarified the principle. Since then, the Court of Cassation has extended this obligation to other situations: for example, in a decision of 14 January 2003 (No. 00-22.266), it held that the notary must check easements and planning rules when drafting a sale deed. The trend is therefore towards a constant strengthening of notarial liability.

For purchasers, this case law means that you can rely on the notary for a complete check. But note: the notary is not required to verify matters external to the deed (e.g., the seller's solvency). His duty concerns objective elements affecting the property or the shares.

In the future, with the digitalisation of mortgage registers (online service), it will be even easier for the notary to carry out these checks. Liability may even be aggravated if the notary fails to do so.

In practice: what to do

FAQ:

• Can the notary refuse to check the mortgages? No, it is an obligation. If he refuses, change notary.
• What if the mortgage is discovered after the transfer? You can sue the notary for civil liability for breach of his duty to advise, and claim damages (within 5 years from discovery).
• Is the SCI also liable? Yes, if it did not inform you. You can take action against it on the grounds of fraud (fraudulent misrepresentation) or error as to substance.
• What is the cost of a mortgage check? About €12 for a certificate, plus the notary's fees if you ask him to do it.
• Can I waive the check by a clause? Yes, but it is risky. If you waive it, you cannot blame the notary for not informing you.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →