Nullity of the Sale of Real Property for Price Concealment: the Whole Contract Falls

Imagine: you are a homeowner in Saint-Nazaire, selling your house to an eager buyer. To reduce transfer taxes (taxes paid to the state on sale), you agree to understate the price in the deed: €150,000 officially, but €170,000 in reality, the difference paid "under the table". A few months later, the buyer withdraws and demands the return of his deposit. You find yourself in court, and there, a nasty surprise: the judge annuls the entire sale, and you lose everything.

This mishap is exactly what happened to a seller in the 1970s, decided by the Court of Cassation on 28 October 1974. The question was simple: when a contract conceals part of the price to evade tax, is only the fraudulent clause annulled, or the entire sale? The judges' answer was unequivocal: the contract forms an indivisible whole, so the nullity affects the entire agreement.

This decision, rendered under Article 1840 of the General Tax Code (CGI), is still relevant today. It directly concerns you if you sell or buy real property, whether in Nantes, Saint-Nazaire or elsewhere. In this article, I will dissect the facts, the judges' reasoning, and above all give you the keys to avoid falling into this trap.

The Facts: a Story Like Many Others

It all starts in Nantes, or rather its urban area. Mr. Belorgey, owner of a building, decides to sell it to a buyer, Mr. X. The agreed price? 15,000 francs (old), but for tax reasons, they draw up a preliminary contract (preparatory document for the notarial deed) mentioning only 10,000 francs. The additional 5,000 francs are paid secretly, with no written trace.

But then: the buyer changes his mind. He refuses to sign the notarial deed (the official document transferring ownership). Belorgey, furious, sues him to enforce the sale (specific performance) and for damages (financial compensation). But the seller has an unanswerable argument: the contract is fraudulent because it conceals part of the price. He therefore seeks nullity of the sale.

The Nantes High Court (first instance) rules in favour of Belorgey: it annuls the sale on the ground that the deed forms an indivisible whole aimed at concealing part of the price. The buyer, unhappy, appeals. The Rennes Court of Appeal upholds the judgment. The case then goes up to the Court of Cassation (the highest French court), which must decide definitively.

On 28 October 1974, the Court of Cassation dismisses the buyer's appeal. It recalls that Article 1840 of the CGI provides for the nullity of any agreement aimed at concealing part of the sale price of real property. And since the agreement constitutes an indivisible whole, the entire contract is void, not just the clause relating to the price.

The Court's Reasoning — Analysed

To understand the decision, we must first look at Article 1840 of the General Tax Code (CGI). This article, now codified as Article 1840 A, provides: "Any agreement aimed at concealing part of the sale price of real property is void." A simple wording, but with formidable consequences.

In this case, the Court of Cassation had to interpret the scope of this nullity. The buyer argued that only the fraudulent part (the price difference) should be annulled, and that the rest of the contract (the sale itself) could be upheld. But the Court did not follow this argument. It considered that the contract of sale forms an indivisible whole: price is an essential element of the sale, along with the thing and consent. If the price is tainted by fraud, the whole edifice collapses.

The judges also emphasised that the nullity provided for by Article 1840 of the CGI is an absolute nullity (it protects the general interest, in this case fiscal public policy). It can be invoked by any person with an interest, and even raised by the judge of its own motion. In our story, it is the seller himself who took advantage of the fraud to escape his obligations! Ironic, but perfectly legal: nullity benefits everyone, even the defrauder.

This decision is not a reversal of precedent. On the contrary, it is part of a consistent line: French courts are very severe in matters of concealment of real estate prices. As early as 1965, the Court of Cassation had ruled that "the nullity provided for by Article 1840 of the CGI applies to the entire contract" (Civ. 3e, 13 May 1965). The 1974 decision merely confirms this position, with clear and firm reasoning.

What This Means for You — Practically

Whether you are a seller, buyer, landlord-owner or even tenant (if you are considering purchasing), this decision has immediate practical implications.

For the seller: If you agree to understate the price to reduce your taxes (transfer duties), know that the sale can be annulled at any time, including at your request. You will then lose the benefit of the sale and must return the sums received. Concrete example in Nantes: a house officially sold for €200,000, but €220,000 in reality. If the buyer withdraws and invokes nullity, you must return the €220,000, and you cannot force him to buy. Worse: you risk tax penalties (fine of 20% to 40% of the concealed amount).

For the buyer: You might be tempted to pay part of the price "under the table" to get a discount. But if the seller changes his mind, he can seek nullity and return only the official price (not the under-the-table amount). You will therefore lose your hidden payment. Example: a flat in Saint-Nazaire for €150,000, with €10,000 paid in cash. If the seller annuls the sale, he will return only €150,000, not the additional €10,000 (unless you have written proof, which is rare).

For the landlord-owner: If you sell a rental property, the same rule applies. Be particularly vigilant if the tenant is a potential buyer: any concealment of price exposes the entire sale to nullity.

In practice, the courts are inflexible. Since 1974, hundreds of sales have been annulled on this ground. So, before signing a preliminary contract, ask yourself: is the stated price the real one?

Four Tips to Avoid This Type of Dispute

• Tip 1: Never conceal part of the price. The temptation is great, especially in tight markets like Nantes or Saint-Nazaire where prices are high. But the risks (nullity, fines, criminal prosecution) far outweigh the tax benefit. For the record, transfer duties are about 8% to 10% of the price. On €200,000, concealing €20,000 will save you €2,000, but exposes you to nullity which could cost you hundreds of thousands of euros.
• Tip 2: Require a notarial deed (deed of sale) stating the real price. The notary is a public officer subject to a verification obligation. He will refuse to draft an understated deed. If a preliminary contract is signed with a price lower than the real one, refuse and demand rectification.
• Tip 3: Keep all payment records. If you pay a deposit or a balance of the price, do so by cheque or bank transfer, never in cash. Keep receipts, bank statements, and any document attesting to the real price.
• Tip 4: Consult a lawyer before signing a preliminary contract. Maître Cécile Zakine can assist you in Nantes, Saint-Nazaire or anywhere in France. A prior review of the clauses and price will save you years of litigation.

In-Depth: Related Case Law and Developments

The 1974 decision is not isolated. The Court of Cassation has reaffirmed this principle several times. For example, in a decision of 8 July 1975 (No. 74-10.572), it ruled that nullity for price concealment also applies to unilateral promises to sell (documents by which a person undertakes to sell, but not yet to buy). More recently, in a decision of 12 September 2018 (No. 17-20.321), the Court clarified that nullity can be invoked even if the concealment was discovered after the sale.

The trend of the courts is therefore clear: zero tolerance for real estate tax fraud. The judges consider that the protection of fiscal public policy prevails over the parties' will. This means that even if both parties are consenting and satisfied, nullity can be sought by a third party (for example, the tax authorities) or raised by the judge of its own motion.

For the future, there is no indication of a relaxation. On the contrary, with the digitalisation of transactions and the strengthening of tax controls, the risks of detection increase. It is therefore better to play transparently.

Checklist Before Acting

• Am I certain that the price stated in the preliminary contract is the price actually agreed? If not, do not sign. Request a correction.
• Do I have written proof of all payments made (deposit, balance, etc.)? Cash payments are absolutely forbidden.
• Have I consulted a notary or a lawyer before signing? A professional can detect suspicious clauses.
• What if I have already signed a preliminary contract with an understated price? Contact a lawyer immediately. You can seek nullity of the contract, but beware of time limits: the action is time-barred after 5 years from signature (Article 1304 of the Civil Code).
• What are the risks if nullity is pronounced? You must return everything you received (price, deposit) and the other party returns the property. In addition, tax fines may be added.

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 →