Investing in a life lease permits the individual to become the owner of a property with a price reduction that can be as much as 30%. However, it’s only on the death of the seller that it becomes possible to calculate the “true” cost of this investment.

The market

5000 – 8000 such life lease transactions are recorded per year, that’s less than 1% of sales nationwide. This market is undersubscribed with one buyer for every 10 sellers.

How it works

Introduced in 1804 via the Code Civil, the property life lease is a rather distinct type of French real estate transaction. It consists of the transfer of a property by mutual agreement as a result of which the purchaser (the “débirentier” who becomes the “debtor” who owes rent) pays to the vendor (the “crédirentier” – the creditor) a “bouquet” in the form of a cash sum paid immediately at the notary’s on the day of the signature of the contract. What’s more, the purchaser commits to transfer each month (or each quarter) a “life lease rent” (“rente viagère”) to the seller until the death of the latter.

Note: the bouquet does not generally exceed 40% of the total estimated value of the property. Indexed each year, the “life lease rent” is calculated on the theoretical profitability of the property, namely 3 to 10% of its value (the minimum and maximum on the scale of profitability for leased properties), the total of which is subtracted from the sum of the bouquet transferred at the moment of sale.

For example: the life lease sale of a ground floor 2 bedroom 30m2 property in Paris’ 7^th arrondissement. Seller’s age: 77 years old. Bouquet transferred by the purchaser: €130 000 + monthly rent: €390. The market value of this property empty is estimated to be €260,000.

The benefits

– Given current property prices, it’s an opportunity to buy real estate at a discount.

– The younger the occupant the greater the discount.

– It’s a means of building, at a reduced cost and “over time”, a real estate portfolio in preparation for retirement.

The disadvantages

– You can’t be in a rush, as you’ll never know the date you’ll have full access to the property in advance.

– Cash purchase only.

– There’s a morbid side to all this, linked to the anticipated death of the seller.

– The investment is uncertain in the sense that the final price is unknown on the day of purchase. If the seller lives longer than thought, the overall price paid by the purchaser (bouquet + cumulative rent) is likely to exceed the value of the same property sold unfettered by such a lease.

Advice to purchasers

– Choose a seller who is at least 20 years older than you.

– Favour a lower bouquet and a higher life lease rent.