Reduced rate of transfer tax: caution if the lease has not been registered for two years

Picture the scene: you own a small agricultural plot in Beausoleil, which you lease to a neighbour. The neighbour decides to buy the land from you. To save on notary fees, he relies on the reduced rate of 0.60% reserved for farmers who acquire the land they cultivate. But the lease you signed three years ago was never registered. On the day of the sale, the notary announces that the reduced rate is not applicable. Result: your purchaser must pay transfer tax at 5.80% instead of 0.60%. The bill jumps by several thousand euros. This is a misadventure that happens more often than one might think, as illustrated by a 1982 Court of Cassation ruling.

Yes, when it comes to transfer tax, the devil is in the administrative details. Article 705-1 of the General Tax Code (CGI) allows a reduced rate for the purchase of rural property by the sitting tenant. But there is one essential condition: the lease must have been registered or declared at least two years before the acquisition. No retrospective regularisation on the day of sale, no leniency. The decision of 13 December 1982 (appeal no. 81-14.516) forcefully reminds us: the judge must check the date of registration, and nothing else.

This rule, though over forty years old, remains relevant today. Whether you are in Menton, Rennes or elsewhere, it applies with the same strictness. So how can you avoid this tax trap? And what should you do if you are already in this situation? Let's dive into the details.

The facts: a story like many others

In the early 1980s, a farming couple worked a rural property in the Rennes area. They were tenants under a rural lease. In 1979, they decided to buy the property. In the deed of sale, they declared that the property was leased to them and sought the benefit of the reduced rate of 0.60% provided for by Article 705-1 of the CGI. The tax authority refused, considering that the lease had not been registered or declared at least two years before the acquisition. The purchasers challenged this and brought the case before the Tribunal de grande instance of Rennes.

The tribunal ruled in their favour in a judgment of 13 April 1981. It considered that the declaration in the deed of sale amounted to a regularisation, and that this could produce the effects of a lease declaration. But the tax authority did not agree and appealed to the Court of Cassation. The Court of Cassation set aside the judgment: it held that the wording was clear, the lease must be registered or declared two years before the acquisition, regardless of whether a late declaration is made in the deed. The case was remitted to another court.

This dispute illustrates a classic mistake: believing that a simple mention in the deed of sale is enough. The purchasers lost several thousand euros in tax, not to mention legal fees and wasted time. In Beausoleil or Menton, where agricultural land is scarce and expensive, the difference is even more pronounced.

The reasoning of the court — explained

The Court of Cassation relied on Article 705-1 of the General Tax Code (CGI). This provision, in its then applicable version, made the reduced rate conditional on the lease having been "registered or declared for at least two years prior to the deed of acquisition." The Court interpreted this condition literally: it is not a mere formality, but a substantive requirement. It does not matter that the lease actually exists, that it is being performed, that the purchaser is indeed the farmer: if the registration or declaration did not take place two years beforehand, the reduced rate is refused.

The judges' reasoning is simple: the legislature intended to prevent fraud. By requiring a prior registration of two years, it ensures that the lease is genuine and not created artificially to benefit from the reduced rate. Late regularisation, even in good faith, is insufficient. The Court therefore rejected the purchasers' argument that the declaration in the deed of sale amounted to regularisation. It set aside the judgment of the Rennes tribunal, which had erred in law by accepting this regularisation.

This decision confirms a consistent line of case law: fiscal strictness prevails over equity. Judges cannot substitute for the legislature to create exceptions. Since 1982, this rule has not been overturned. On the contrary, it has been reinforced by other decisions, as we will see later.

What this means for you — practically

If you are a landlord-owner of rural property (agricultural land, vineyard, orchard, etc.) and your tenant wants to buy it from you, you must ensure that the lease has been registered or declared for at least two years. If not, your purchaser will pay transfer tax at the standard rate (generally 5.80%, versus 0.60%). On a property worth €200,000, the difference is €10,400 (5.80% = €11,600, 0.60% = €1,200). This sum could scupper the sale or reduce your sale price if you have to bear it.

For the purchaser, it is even more direct: you must check that the lease is properly registered before considering the purchase. Do not hesitate to ask your landlord for a copy of the registration or consult the register of rural leases at the chamber of agriculture. If the lease is not registered, you have two options: either wait for the two-year period to expire (if you absolutely want the reduced rate), or negotiate a price reduction to offset the additional tax. In Menton, where agricultural prices are high, this negotiation can be crucial.

For the notary, this is an additional vigilance: he must require proof of registration or declaration two years beforehand. If he fails to do so and the tax authority demands a back payment, his liability could be engaged. Real estate professionals (agents, advisors) must also inform their clients of this rule, failing which they may be accused of a failure to advise.

Four tips to avoid this type of dispute

• Register your rural lease as soon as it is signed. Do not delay, even if the lease is oral or verbal (which is possible in rural law). Registration is done at the tax office (SIE) or through a notary. Keep the receipt carefully.
• Check the registration date before buying. If you are a tenant-purchaser, ask the landlord to provide proof that the lease has been registered for at least two years. If in doubt, enquire at the land registry service.
• If the lease is not registered, regularise immediately. Even if you can no longer benefit from the reduced rate for an immediate acquisition, registration will allow you to benefit from the reduced rate for a future acquisition (for example, if you buy in two years).
• Consult a specialist lawyer before the sale. A professional can analyse your situation and save you from nasty surprises. A 30-minute consultation can save you thousands of euros.

Further reading: related case law and developments

The 1982 decision is part of a consistent line. For example, a Court of Cassation ruling of 11 June 1985 (no. 84-11.234) held that the two-year condition applies even if the lease has been renewed: the date of the first registration counts. More recently, the Lyon Administrative Court of Appeal, in a decision of 9 July 2015 (no. 14LY00876), reiterated that the registration must be effective and not merely requested. The courts are therefore very strict.

This strictness is explained by the desire to combat artificial schemes. The reduced rate is a tax advantage, which must be reserved for genuine long-standing farmers. Since 1982, the legislation has evolved: Article 705-1 has been replaced by Article 1594 F quinquies of the CGI, but the two-year condition has been maintained. The case law therefore remains relevant.

For the future, it can be expected that the courts will continue to apply this rule strictly. Notaries and purchasers must be particularly vigilant, especially in tight markets like the Côte d'Azur coastline, where agricultural land is sought after and prices are high.

What you absolutely must remember

FAQ:

1. Is the reduced rate automatic if I have been farming the property for more than two years?
No. The lease must have been registered or declared for at least two years before the purchase. Actual farming is not enough.

2. Can I regularise the lease on the day of sale?
No, the Court of Cassation has clearly stated: regularisation in the deed of sale does not count as registration two years beforehand. It must be done beforehand.

3. What should I do if the lease has never been registered?
Two possibilities: either wait two years after registration to buy, or buy at the standard rate and negotiate a price reduction.

4. Can the notary be held liable if I lose the benefit of the reduced rate?
Yes, if he did not inform you of this condition. You can bring a claim for breach of his duty to advise.

5. Does this rule apply to commercial leases?
No, it is specific to rural properties (rural leases). For commercial leases, different rules apply.

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 →