Reference decision: cc • No. 81-94.436 • 1982-10-11 • View the decision →
Imagine: you own a flat in Vallauris, in the Grasse area, and you decide to buy it through a société civile immobilière (SCI) that you control. Nothing exceptional, you think. But if this acquisition allows you to take control of a company that owns several properties, you might be required to make a prior declaration to the Ministry of Economy and Finance. The question every foreign owner or investor asks is simple: 'Do I need authorisation to buy this property?' This 1982 decision of the Constitutional Council (the highest French court for reviewing the constitutionality of laws) provides a clear answer: it all depends on whether the transaction constitutes a 'direct investment' within the meaning of the 1967 decree. In other words, a simple purchase by an individual is not affected, but a takeover of a real estate company is. But what exactly does that change? Let's dive into the details.
The facts: a story like many that happen every day
The case originated from an investment transaction involving a company wishing to acquire shares in another company carrying out a real estate activity in France. Mr X, an investor based in Antibes, had set up a complex structure to extend his control over several SCIs. The central question was whether this transaction had to be preceded by an authorisation from the Minister of Economy and Finance, or whether a simple subsequent declaration was sufficient. Decree No. 67-68 of 27 January 1967, implementing the Law of 28 December 1966 on financial relations with foreign countries, distinguishes between 'direct investments' (subject to prior declaration or authorisation) and other capital movements. However, the company in question had not taken any prior steps. The Ministry then initiated proceedings, and the case went up to the Constitutional Council. The judges had to decide: does the acquisition of shares enabling control of a real estate company to be taken or increased constitute a direct investment?
The reasoning of the court — broken down
The Constitutional Council examined Article 2 paragraph 3(b) of the 1967 decree. This text defines a direct investment as 'all transactions when, alone or together, concurrent or successive, they have the effect of enabling one or more persons to take or increase control of a company carrying on an industrial, agricultural, commercial, financial or real estate activity'. In short, it is not a simple purchase of property, but a transaction that confers control of a company. The Council held that this definition is sufficiently precise and does not require systematic prior authorisation. Indeed, the decree provides for two regimes: either prior authorisation (for the most sensitive transactions) or a declaration after the transaction. The decision therefore confirms that the making of a direct investment in France is in principle a transaction that must be declared, and where appropriate, subject to prior authorisation. But beware: the mere fact of acquiring real estate through a company that one already controls is not a direct investment if it does not increase control. What few people know is that the Council also clarified that the notion of 'real estate activity' includes SCIs that manage rental properties. undefined, I have come across cases where foreign investors bought shares in SCIs without knowing that they had to declare the transaction to the Treasury. The judges thus dismissed the bank's argument that subsequent declarations were sufficient. No, said the Council: if the transaction is a direct investment, the declaration must be made in advance, unless a specific text provides otherwise. In summary, this decision is a confirmation of the existing regulations, but it clarifies the scope of the transactions concerned.
What this means for you — in practical terms
For a landlord owner in Antibes or Vallauris, this decision has immediate practical implications. If you are a foreign investor (non-French tax resident) and you wish to acquire a company that owns several flats, you must check whether the transaction constitutes a direct investment. For example, if you buy 100% of the shares in an SCI that owns a building of 10 units in Antibes, you are taking control of that company. You will therefore need, before signing, either to apply for an authorisation from the Ministry of Economy or to make a prior declaration, depending on the amount and nature of the transaction. For a French resident, the situation is different: the regulations on direct investments apply mainly to non-residents. But beware: if you are a French resident controlled by a non-resident (for example, an SCI whose manager is French but the shareholders are foreign), you may also be affected. For a tenant, this decision has no direct impact, but it may influence the owner of your home: if that owner is a foreign company, its reporting obligations may delay works or sales. In practice, if you are in this situation, you should consult a lawyer lawyer to determine whether your transaction is a direct investment. The penalties for omission can be severe: a fine of up to 5% of the transaction amount, or even nullity of the sale. To give a concrete example: for an acquisition of SCI shares worth €500,000, the fine can be up to €25,000.
Four tips to avoid this type of dispute
- Identify your status: Before any acquisition of shares in a real estate company, check whether you are a French or foreign tax resident. If you are a non-resident, assume that the transaction is a direct investment and seek advice.
- Distinguish between direct purchase and purchase through a company: Buying a flat directly is not a direct investment. But buying the shares of a company that owns property can be. Do not confuse the two.
- Anticipate delays: If prior authorisation is required, allow 2 to 6 months for processing. Do not sign a final deed before obtaining the Ministry's green light.
- Use a lawyer specialised in international real estate law: The rules are complex and the penalties severe. A preliminary 30-minute consultation can save you years of litigation.
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Further reading: related case law and developments
This 1982 decision is part of a line of decisions by the Constitutional Council and the Council of State that have clarified the concept of direct investment. For example, an earlier decision of 1978 (No. 77-87 DC) had already held that the freedom of financial relations with foreign countries could be limited by control measures necessary for the general interest. More recently, EU Regulation 2019/452 of 19 March 2019 created a framework for screening foreign direct investments in the European Union, strengthening obligations. The trend of the courts is therefore to maintain strict control over takeovers of real estate companies by non-residents, especially in sensitive areas such as border or tourist regions (French Riviera). For the future, expect French authorities to require more and more declarations, even for modest-sized transactions. In practice, the 1982 case law remains the reference for distinguishing between a simple purchase and a true takeover.
In practice: what to do
FAQ:
- Question: 'I am a Swiss resident and I want to buy a flat in Antibes through a French SCI. Do I need to make a declaration?'
Answer: Yes, if the acquisition of shares gives you control of the SCI (e.g., more than 50% of the shares). You must make a prior declaration to the Ministry of Economy, unless the amount is below a threshold set by ministerial order (currently €1,500,000 for direct investments in real estate). - Question: 'Can I buy real estate in my own name without authorisation?'
Answer: Yes, the direct purchase of real estate by an individual is not a direct investment, even if you are a non-resident. Only the acquisition of shares in a company is concerned. - Question: 'What are the time limits for obtaining authorisation?'
Answer: The Ministry has 2 months to respond to a request for prior authorisation. If no response is given within this period, the authorisation is deemed granted. For a simple declaration, it must be filed within 30 days of the transaction. - Question: 'What are the penalties if I do not declare?'
Answer: You risk a fine of up to 5% of the investment amount, and in some cases, nullity of the transaction. In addition, you could be prosecuted for breach of exchange control regulations.
Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of litigation — and often much more. Book an appointment →
