Invest in Paris

Renting your pied-à-terre: furnished or unfurnished?

Rather than keeping a pied-à-terre empty for several months in a row, why not rent it? It’s an opportunity to generate income and take advantage of the revenue generated to pay charges for the property’s upkeep or related building works. There are two possible options: furnished or unfurnished rental.

Should a pied-à-terre be rented furnished or unfurnished? Each option comes with a number of conditions that must be respected by the property owner. For example, the restrictions on rental term may affect this choice, notably for certain landlords who want to be able to take back their home in the short or medium term. In spite of such flexibility, the recent adoption of the ALUR[1] law has brought the rules for furnished rentals considerably closer to those for unfurnished properties. In either case, from 2015 onwards, the rent charged for Parisian properties is subject to rent-control (c.f. the article ‘The ALUR Law and rent control: the future rules’)

 

Furnished rentals

Rental period

Minimum of one year, or nine months for a student tenant. Such a lease is renewable by tacit agreement. It must be the tenant’s principal residence.

Notice of termination

In order to recover their property, a landlord must give the tenant three months notice before the end of the tenancy. From now on, the ALUR law obliges the property owner to justify “early termination for recovery”. The tenant is free to leave when he pleases, on the condition that he gives his landlord one month’s notice.

 

Deposit

The ALUR law limits this to two months rent. The legislator has integrated the fact that damage to the property may also include furniture. As of late, the maintenance charges of such properties may be specified in the tenancy agreement, giving the tenant the option of paying them as a lump sum.

 

Minimum equipment rules

A decree under the ALUR law will bring into force a list of “minimum equipment” that must be supplied in a property. Set aside a budget of €4000 – €5000 for a 25M2 apartment and €8000 – €10,000 for 45m2.

 

Rate of return

The annual rate of return on a furnished property is 1 to 2 points above that of a similar property rented unfurnished. This is due to the higher rents charged (15 to 30% more than an unfurnished rental) and the applicable tax regime. However, there is a higher risk of vacancy.

 

Tax on rental revenues

Rents are subject to tax under the regime applicable to commercial and industrial benefits (BIC). The lessor falls under the regime applicable to “non-professional furnished rentals” (“Loueur en meublé non professionnel” (LMNP)). Depending on the amount of rent generated, three tax regimes may apply: the “Micro BIC” (for annual receipts of less than €32,600) that offers the possibility of a 50% tax reduction, and the “simplified” and “standard” regimes.

 

Unfurnished rental property

Rental period

Three years. Without express indication otherwise from the landlord or tenant, at the end of the rental period the lease renews by tacit agreement.

Notice of termination

In order to recover their property, a landlord must give the tenant at least 6 months notice before the end of the tenancy. “Early termination for recovery” is only available in three cases: in the event of sale, when the owner recovers the property to live in it, or to house their relatives, or on “legitimate and serious grounds” (complaints from neighbours, unpaid rent). The tenant is free to leave the property at any moment during the tenancy so long as three months notice is given.

 

Deposit

Equal to one month’s rent. The landlord has two months from the tenant’s departure to repay the deposit, either in full or partially in case of damage.

 

Minimum equipment rules

None applicable in the case of an unfurnished apartment.

 

Rate of return

Around 1.5%-2.5% in Paris. The rent control regime provided for under the ALUR law could affect this rate.

 

Tax on rental revenues

Tax on property income is calculated under the income tax regime on a sliding scale. Two options are possible: the micro-property regime for annual receipts of less than €15,000 or the standard regime for revenues above this amount. Certain charges are deductible thanks to the ‘balancing of the books’ permitted under the regime applicable to real estate income.

 

“Access to Housing and Urban Renovation” Law (“Accès au Logement et à Urbanisme Rénové” – better known as the ALUR law) passed on 24 March 2014.