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French property law and treatment of capital for UK benefits

Chrissum
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(Sorry couldn’t think of a catchier title)
I have a client, in receipt of IR ESA and HB who inherited a joint interest in two properties in France. Her interest is held in French law on a “nue-propriete” basis. Effectively this means bare ownership so she literally owns the walls and is responsible for maintaining these, but she derives no income or benefit from the property until it is sold or her mother dies whereas her mother has “usufruct” so can derive an income from renting the properties and enjoys full usage of them during her lifetime. My client can sell the property but only with the consent of the other parties with an interest. The property at last valuation was worth 300K euros

The closest UK equivalent (and forgive my rusty knowledge of property law) would appear to be either a beneficial interest or a reversionary trust (though I am quite ready to be corrected on that!).

So my thinking is that she could be seen as a joint “owner” of both properties and thus has could be treated as having excess capital, but it is arguably an unrealisable asset due to the “sitting tenant” or usufructuary who happens to have full ownership. My client’s sister has the same legal interest as my client, so also has joint ownership. Furthermore, I would argue that the effective market value is nil as there is unlikely to be a willing buyer. The other owners do not want to sell and they, I feel, would be the only potential buyers.

Has anyone encountered this situation before? Does anyone know how the DWP will see this “asset”? any help or pointers will be greatly appreciated. many thanks

Chrissum
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D’oh! As mother is over pensionable age, the value would be disregarded in any case (don’t know how I forgot that one). However, there may be another property floating around so my question still stands!
Added: some further info - the second property is split into 3 flats. 1 has been sold by agreement (the gains from this were offset against the property maintenance costs so no real equity) and the other 2 are currently occupied. According to a French lawyer, my client’s nue-proprietaire interest can be sold but has no real value until she gains her full interest, which would of course be shared with her sister. So the question to be asked is - does a willing buyer exist who would purchase what is currently effectively a valueless share in a property that they might have to go to court to sell if the sister does not agree to the sale? And that is before French tenancy law is considered i.e. how easy is it to remove the tenants?

[ Edited: 17 Aug 2018 at 11:56 am by Chrissum ]
ClairemHodgson
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Chrissum - 17 August 2018 10:54 AM

So the question to be asked is - does a willing buyer exist who would purchase what is currently effectively a valueless share in a property that they might have to go to court to sell if the sister does not agree to the sale? And that is before French tenancy law is considered i.e. how easy is it to remove the tenants?

you wouldn’t think so, would you?

IMHO given the property is in France, the DWP would have no choice but take account of French property and inheritance laws.  and the tribunal if it got that far would want written evidence on the subject.

i’d be inclined to have your client get a french lawyer to do a formal report on the entire situation, citing chapter and verse of the relevant laws (and get it translated into english).  that will, of course, cost money but given we know that the DWP think that the unsellable has a value, might be worth it ...

Elliot Kent
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I don’t think that you can just write this off as having no value without more.

Whilst it’s unlikely that your client can just chuck this on Rightmove, the Upper Tribunal does seem rather keen on reminding us that there are more specialist property markets out there and that account must be taken of these. Your client’s interest does appear to have some value as a long term investment (albeit one that wouldn’t seem likely to show a return until the usufruitier is out of the picture). Whether that would be a significant percentage of the property’s overall market value or just a few hundred euros, I have no idea.

I agree with Claire that local knowledge is required - although I think it might be more helpful to find someone who is qualified to place a value on your client’s interest as an investment proposition rather than someone who will simply be able to explain the legal position.

Of course, the DWP approach to these sorts of issues is pretty inconsistent, so who knows what they will decide.

Chrissum
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Thanks both. I am planning on providing as much info as possible for the DWP, including the suggested solicitor’s letter and valuation. The situation is complicated by the “ownership” of the properties not being disclosed (yet) and the severe disability of my client. She relies on others to deal with her finances and forms, but not to the extent she needs an appointee. But I won’t bore you with the ins and outs of that…
Many thanks.

ClairemHodgson
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Elliot Kent - 19 August 2018 12:36 PM

I agree with Claire that local knowledge is required - although I think it might be more helpful to find someone who is qualified to place a value on your client’s interest as an investment proposition rather than someone who will simply be able to explain the legal position.

my thinking was that the legal position is highly relevant to the valuation position; without an understanding of the relevant law, it’s not going to be possible to persuade the DWP to understand a nil valuation (which, frankly, it will be).

 

Chrissum
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Claire, that was my way of thinking as well, particularly as DWP guidance suggests that they must take into account the law of the country in which the capital is. The valuation issue is needed once this hurdle is cleared as she does, technically, have the right to sell her share, but it is unlikely (though, granted, possible) that there would be a willing buyer. The client’s mother is in the process of taking advice from her French solicitor, so hopefully, we will have something in writing to present to the DWP on the saleability and “market” as well as the ease of removing tenants.

Elliot Kent
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ClairemHodgson - 20 August 2018 10:59 AM
Elliot Kent - 19 August 2018 12:36 PM

I agree with Claire that local knowledge is required - although I think it might be more helpful to find someone who is qualified to place a value on your client’s interest as an investment proposition rather than someone who will simply be able to explain the legal position.

my thinking was that the legal position is highly relevant to the valuation position; without an understanding of the relevant law, it’s not going to be possible to persuade the DWP to understand a nil valuation (which, frankly, it will be).

I think it’s perhaps just a difference of emphasis. My point is that a lawyer would be able to point to various factors which might make it an unattractive proposition but a valuer would be able to address the ultimate issue - i.e. what is it actually worth?  I accept that at some point these issues start to blend together.

The best case scenario is that someone acting for the claimant has been to a handful of independent property professionals and been laughed out of their offices on the basis that nobody would pay anything to take the interest off her hands. I don’t see how the DWP could go behind that.

ClairemHodgson
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Elliot Kent - 20 August 2018 12:26 PM

The best case scenario is that someone acting for the claimant has been to a handful of independent property professionals and been laughed out of their offices on the basis that nobody would pay anything to take the interest off her hands. I don’t see how the DWP could go behind that.

i wouldn’t be so sure…...their inability to understand the most basic principles of law doesn’t say a lot for their brain power generally….

Chrissum
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ClairemHodgson - 20 August 2018 01:07 PM
Elliot Kent - 20 August 2018 12:26 PM

The best case scenario is that someone acting for the claimant has been to a handful of independent property professionals and been laughed out of their offices on the basis that nobody would pay anything to take the interest off her hands. I don’t see how the DWP could go behind that.

i wouldn’t be so sure…...their inability to understand the most basic principles of law doesn’t say a lot for their brain power generally….

Let alone French law whereby the usufructuary’s share increases as they get older! (Yet another reason why a purchase of a bare-bones share is an unattractive prospect)

Thanks for the input folks. I think the tactic to employ is bombard the DWP with as much relevant info as possible so they can make an informed decision at as an early a stage as possible, (though I suspect this one will drag on a bit)

paulmoorhouse
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Perhaps your bombardment could include sending the Decision Maker a DVD of this? https://www.imdb.com/title/tt0855895/

Chrissum
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Thanks Paul. I’ll add that to my watch list!