19/ Withdrawing from the lease

It is technically possible to withdraw from the lease out of personal choice at the end of the first 9 – 10 – or 11 year lease term. To do this, you must give 6 months to one years’ notice to the management company (this will be in the lease contract). If you withdraw, you are free to do what you please with your property, live in it, sell it or rent it out by yourself - BUT

- If you do this and rent it out for less than 9 months per annum you will no longer benefit from the LMNP or leaseback tax status and will become like any other ordinary property owner in France, fully taxed on your income.
- You will have to refund the VAT that the French tax authorities have paid you pro rata temporis (with an amortisation rate of 1% per annum, this means that after 10 years, you will have to repay 50% of the VAT). Same if you sell the property and the 50% VAT will be passed on to the new owner.
- You may have to pay a penalty to the management company, which could amount to up to a year’s rental income. It is generally impossible to know whether you will be charged a penalty or not 9 – 11 years down the line. Some companies will allow you to withdraw without a penalty and in this case, this should be noted in the lease contract. A leaseback owner should look at their purchase as a long term investment and be prepared to renew the lease at least once. There will generally not be a penalty after the 2nd lease term, although some companies will continue to renew the lease ad infinitum. This arrangement suits most French investors (for whom the scheme was originally designed) perfectly, since they would never want to be responsible for the management of their property, nor would they wish to live there.