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Notary office in Saint-Jean-Cap-Ferrat - FRANCE

Alain-Xavier BRIATTE, Partner Notary


February 2021

Decision support table with an international perspective property loan / Business loan

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This table is intended to help the bank determine whether the mortgage loan it grants is subject to the protective rules set out in Articles L. 313-1 et seq. of the Consumer Code.

In case of doubt as to the automatic applicability of the provisions of the Consumer Code to property loans, the prudent attitude is to voluntarily subject said loan to these provisions. The lender can never be criticised for having offered the borrower protection to which he was not, a priori, entitled.

NB: Voluntary submission to the rules of the Consumer Code is necessarily comprehensive. Indeed, case law considers that the parties cannot decide to exclude a particular rule from the legal regime1.

- Preliminary in International Private Law –

- The law applicable to the property loan contract -

This note is intended to help the bank to determine the law applicable to the property loan contract it grants, when an element of foreign origin exists. This is the case when the bank grants a loan to a borrower residing in a country other than its own. The example, on which we shall reason, is that of a French resident obtaining a property loan from a bank from another country that is member of the European Union.

Warning: the solution principles are sometimes the subject of controversy in legal writing and case law has not yet had the chance to clarify all uncertainties linked to the possible interpretations of texts.

  • The law of the contract, in other words the law chosen by the parties, governs in principle the property loan contract, in accordance with article 3 § 1 of the Rome I Regulation. If the contract does not specify the applicable law, the legal writing agrees to say that it is the law of the lender’s usual residence, in other words the place where the legal entity has established its central administration, which shall govern the contract, either pursuant to article 4 § 1, b (service contract) or pursuant to article 4 § 2 (residence of the debtor of the characteristic service provision).

But this solution principle must be expressed with two exceptions, which may potentially lead to the application of all or part of the rules provided for by the French Consumer Code regarding property loans.

  • First of all, article 6 of the Rome I Regulation provides that “consumer contracts” are governed by the law of the country in which the consumer has its usual residence. However, several conditions must be met:

o The consumer must be a natural person who acts for a use that may be considered as foreign to its professional activity.

NB: A French SCI (non-trading property company) that could hypothetically benefit from the rules of French consumer credit (see infra), may not invoke article 6 of the Rome I Regulation to avoid the application of the law designated by the governing law clause or by the objective applicability. In fact, if this SCI may sometimes benefit in France by legal extension of the regime applicable to the consumer from rules relating to property loans, it cannot do so in the European system that considers that only natural persons are “consumers”.

There remains however the issue of possibility, for these SCI, to benefit from all or part of these rules pursuant to the public order act (see infra).

1 Cass. civ. 1, 3 Nov. 2016, no. 15-23405.

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