The “loi Scrivener” of 13 July 1979 defines a condition precedent during the property purchase process. It aims to protect property buyers, who may previously have been under certain pressure from sellers and estate agents to sign commitments to sell without financing conditions. Therefore, for nearly 40 years, a buyer who makes an offer, and who ultimately does not obtain a bank loan, can recover his deposit of 10% thanks to the condition precedent. Maître Nathalie Berkani, expert on the subject, has answered our questions.
What is the scope of this law ?
It is a mandatory requirement, so that the buyer cannot be coerced to waive it. If he waives it, but he can prove that he waived it under duress, it is invalid.
It only applies to individuals as part of the financing of properties for residential or mixed use (residential and business), and not to professionals.
What form does the condition precedent take ?
The buyer can waive it during the pre-contract, in a private deed, which is called an agency’s commitment to sell. To avoid any misunderstanding, he must waive it in a formal way, via a written statement. This provision is meant to draw the buyer’s attention to the commitment he is making. Nevertheless, I am not sure that all buyers are aware of it in this instance.
It is often preferable to use a notarised pre-contract, which brings together all the parties. There is no need for a written statement, because the notary takes care to inform the buyer of the risks incurred in this case. Sometimes, our intervention brings about change.
At the time of the provisional sales agreement, a deposit, in general of 10%, is almost systematically required from the purchaser, which seals the prior sales agreement.
At this stage, the sellers will want to have information on the buyer or buyers. Certain verbal indications may be considered, such as the fact of knowing if the buyer already has a property, his profession or his financial situation.
Is it risky to waive it ?
It is clear that sellers are going to favour offers from buyers who do not need to make a loan application. Nevertheless, it is risky to play with fire to really try to purchase the property, when a loan is necessary. It involves major sums.
Nevertheless, some buyers already have the funds, either because they are wealthy, or because they have already sold the property that they previously owned. They can then expressly waive the condition precedent.
Is the 30-day period sufficient ?
The Scrivener Law provides for a period of 30 days to find a loan. This is not realistic. I recommend between 45 and 60 days.
Furthermore, it is more prudent to contact several banks, or better still use a broker. They will keep chasing up the buyer’s file with the banks to avoid drawing a blank and leaving the buyer in a complicated situation.
What conclusions can be drawn from a bank refusal ?
In the case of a refusal from the bank, it is necessary that the loan application that has been submitted to the bank corresponds to the exact terms that have been stipulated in the notarised deed, notably in terms of own capital, amount borrowed, interest rate and term, otherwise the seller will be confident of keeping the deposit.
It is sometimes stated in deeds that two refusals are required within the time period, even if case law stipulates that one is sufficient. It needs to be avoided that the seller seeks to prove that the buyer has not been sufficiently diligent. It is more prudent, should the sole bank contacted refuse the loan or answer late.
Undoubtedly convenience refusals exist, but the bank is then at risk, and it is impossible to know how frequently this occurs.
How can unwelcome surprises be avoided ?
I personally advise to get an update at least one week before the end of the expiry date to check that the buyer has in fact submitted his application and that the bank is ready to answer within the periods given.
In the event of a delay, the seller is often ready to extend the period for the condition precedent by several days. Otherwise, in the pre-sales agreement, we stipulate from the start that the seller can give formal notice, which enables the buyer to have a further 5 days to answer.
What happens if there is no response from the bank ?
In the event of no response or a late response, the seller, who has lost 2 months, will ask to recover the funds. It needs to be understood that the seller has lost 2 months and has to start over.
In general, in the event of a clash, the parties do not easily agree on releasing the funds, so that the notary deposits them in the Caisse des Dépôts (Deposit Office).
Buyer and Seller then hire lawyers and this often ends in a settlement, for a sum less than the amount of the deposit.
Does this law apply to foreign buyers ?
Yes. But, this mechanism is not adapted to foreign buyers, to whom the procedure needs to be explained and the documents translated, notably the handwritten statement (if the deed is not notarised).
SELAS Alliance Notaires – Élysée François 1er
Maître Nathalie Berkani
Telephone: +33 188.8.131.52.00