Nullity of Sale for Price Concealment: the Ostensible Deed Remains Valid (Cass. 1981)

Imagine: you buy a house in Saint-Jean-de-la-Ruelle for €200,000, but the seller offers to declare only €150,000 to the notary, the rest "under the table". Tempting to reduce notary fees and taxes, isn't it? But what happens if the tax authorities discover the manoeuvre? Is the preliminary contract void? And the notarial deed?

This question is one that every owner or buyer tempted by a "dual declaration" asks themselves. The Court of Cassation gave a clear answer in 1981: the nullity provided for by Article 1840 of the French General Tax Code (CGI) only applies to the secret agreement, not to the official deed. In other words, your sale remains valid, but the concealment exposes you to tax and criminal penalties.

In this article, we will analyse this decision, understand why the judges protected the ostensible deed, and above all, give you the keys to avoid falling into this trap. Because even if the sale stands, the consequences can be severe for your wallet.

The Facts: a Story like Many Others

In 1978, the X spouses, owners of a property in Montargis, sold their property to a certain Mr. Lussier. The agreed price was 120,000 francs (approximately €18,000), but to reduce registration fees, the parties agreed to mention only 80,000 francs in the notarial deed, with the remaining 40,000 francs paid "under the table". A secret "preliminary contract" was drawn up, recording the true price.

A few years later, the X spouses changed their minds. They sued Mr. Lussier for nullity of the preliminary contract, relying on Article 1840 of the CGI, which provides that any agreement intended to conceal part of the price is void. Their aim? To recover their property or obtain an additional price. The court of first instance in Orléans ruled in their favour: the preliminary contract was annulled.

But Mr. Lussier did not stop there. He appealed, and the Court of Appeal in Orléans confirmed the nullity of the secret preliminary contract. The case went up to the Court of Cassation, which had to decide a fundamental question of law: does the nullity affect only the secret agreement, or does it extend to the ostensible deed (the official sale)?

On 12 June 1981, the Court of Cassation set aside the appeal judgment. It held that the lower courts had misapplied the text: Article 1840 only targets the secret agreement, not the apparent deed. Thus, the secret preliminary contract is void, but the official sale remains valid. The X spouses therefore cannot go back on the sale.

The Reasoning of the Court — Explained

The crux of the dispute rests on the interpretation of Article 1840 of the French General Tax Code (CGI). This text, in its wording then in force, provided: "Any agreement intended to conceal part of the sale price of a property is void with absolute nullity." But what is meant by "agreement"? The entire transaction, or only the secret agreement?

The X spouses argued for indivisibility: in their view, the concealment was the very foundation of the sale, so the whole should be annulled. They relied on the principle that "what is void can produce no effect". By annulling the secret preliminary contract, the Court of Appeal had implicitly annulled the sale, they thought.

The Court of Cassation did not follow them. It recalled that the text sanctions the secret agreement, i.e., the side agreement whose purpose is to hide part of the price. The ostensible deed, on the other hand, is not targeted. Why? Because the legislature's objective is to strike at tax fraud, not to question the transactions themselves. If the official deed were annulled, this would seriously disrupt legal certainty in property sales.

The judges also specified that there is no need to search for any indivisibility between the two agreements (the secret and the ostensible). Even if they are linked in the parties' minds, the law does not treat them in the same way. In short, one can very well annul the bribe without affecting the main contract.

This reasoning is part of a logic of protecting the stability of transactions. The Court of Cassation thus confirms an earlier precedent (Civ. 3e, 10 February 1976, n°74-14.327) and lays down a clear principle: the seller cannot use his own fraud to go back on the sale.

What This Means for You — Practical Implications

This decision has major implications for all players in the property market. Let's look at them profile by profile.

For the seller: you cannot, after concealing part of the price, invoke nullity to recover your property. The sale remains valid. However, you are liable to tax penalties: recovery of duties (up to 80% of the concealed sums), surcharges and late payment interest. Not to mention a possible criminal fine (Article 1741 of the CGI) of up to €500,000 and 5 years' imprisonment. Example: if you sell a flat in Montargis for €200,000 but declare €150,000, the tax authorities can claim duties on the missing €50,000, i.e., about €5,000, plus a 40% surcharge (€2,000) and interest.

For the buyer: you are safe from a property perspective: your title is valid. But you are an accomplice to tax fraud. You can be pursued jointly with the seller for payment of the evaded duties. Moreover, if you paid the hidden part, you risk not being able to recover it if the seller refuses to return it (because the secret agreement is void, so no obligation to repay).

For the notary: he must ensure that the declared price corresponds to the real price. If he participates in the concealment, he incurs professional liability and may be struck off. He is required to inform the tax authorities if he suspects concealment.

For the co-owner: if a sale in your block has been made with concealment, you are not directly affected, but the value of your property may be distorted if the real price is underestimated. Moreover, the managing agent must ensure that the transfer declarations are correct to avoid a tax adjustment for the block.

If you are in this situation, you should consult a specialist lawyer to assess the risks and consider a spontaneous regularisation ("tax repentance" procedure) which can reduce the penalties.

Four Tips to Avoid This Type of Dispute

• Always declare the real sale price in the notarial deed. Never accept an "under-the-table" payment, even if the seller promises you a reduction. The savings made are negligible compared to the risks.
• Require proof of every payment. If you pay a deposit or the balance, do so by cheque or bank transfer, and keep the statements. Any cash payment should be avoided or, failing that, be the subject of a receipt.
• Use an independent notary. The notary has a duty to advise and verify. Do not hesitate to ask him questions about the price and costs. If he refuses to draw up the deed if the price is undervalued, that is a good sign.
• If in doubt, consult a lawyer before signing. A first 30-minute consultation can save you years of litigation. A professional will tell you whether the proposed arrangement is legal.

Further Reading: Related Case Law and Developments

The 1981 decision is not isolated. It confirms an earlier ruling of the Third Civil Chamber of 10 February 1976 (n°74-14.327) which had already held that the nullity of Article 1840 only affects the secret agreement. Since then, the case law has been consistent: Cass. 3e civ., 9 October 1991, n°90-13.584; Cass. com., 3 May 1995, n°93-14.236.

However, be careful: if the sale itself is tainted by a defect of consent (fraud, mistake), it can be annulled on the basis of general law, independently of the concealment. For example, if the seller lied to you about the size or condition of the property, you can sue for nullity for fraud (Article 1137 of the Civil Code).

Since 1981, the fight against tax fraud has intensified. The tax authorities have enhanced powers (right of communication, on-site checks) and penalties have increased. The 2020 Finance Act notably created a fixed fine for "deliberate breaches" of price declaration rules. The trend is therefore towards increased repression, but without questioning the validity of ostensible deeds.

In the future, it is possible that the legislature will go further by providing for nullity of the main deed in cases of systematic concealment. But for now, the principle laid down in 1981 remains the rule.

Key Points to Remember

• Nullity only affects the secret agreement, not the official deed of sale. You retain your property, but you are liable to tax and criminal penalties.
• The seller cannot go back on the sale by invoking his own fraud. The Court of Cassation refuses to let the fraudster benefit from his dishonesty.
• The buyer is jointly liable for payment of the evaded duties. He may seek recourse against the seller in civil law, but since the secret agreement is void, he has no title to claim restitution of the hidden part.
• Tax penalties can be severe: recovery of duties, surcharge of 40% to 80%, late payment interest, and possibly criminal prosecution.
• Prevention is essential: always declare the real price, require proof, and consult a notary or lawyer before any doubtful transaction.

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 →