The benefit of this mechanism is to enable company owners and users of their premises to obtain immediately available funds via the sale of their real estate assets whilst retaining the use of the premises.

The lease finance agreement includes a purchase option enabling the assigning company to repurchase its premises, during or at the end of the agreement.

In order for the taxation not to deter companies from using this mechanism, the Finance Law for 2021[1] reintroduced a measure allowing the spreading of the capital gains from the sale of the premises to the real estate leasing company, with few adjustments. This regime is codified in Article 39 novodecies of the French General Tax Code.

A similar regime had already been established in 2009, following the financial crisis in 2008. This measure was applicable to sales made from April 23, 2009 until December 31, 2012.

Scope

This mechanism is limited to real estate property used for commercial, industrial, liberal or agricultural activities and excludes, contrary to the former regime, the premises held for investment purposes.

Nonetheless, the legislator introduced an exception to this exclusion for the groups for which the real estate management is entrusted to only one company leasing the premise(s) to other companies of the group which use these premises for their own economic activities.

The assignment of the premises must be made for the benefit of a leasing company approved as a credit institution.

Applicable terms

The spreading of the capital gain is optional.

When this option is exercised, the capital gains from the sale of the premises is not taxed in full the fiscal year of the disposal but is equally spread throughout the duration of the lease agreement, for a maximum period of fifteen years.

Accordingly, this mechanism enables companies to neutralize the reintegration of the portion of the capital gains incrementally with the deduction of the finance lease rents.

A time-barred measure

Like the 2009 regime, this measure is temporary. It applies to the sales of real estate assets made to real estate leasing company between January 1, 2021 and June 30, 2023 and is preceded by a finance agreement accepted by the lease finance lessee on September 28, 2020, and at the latest on December 31, 2022.

What about the registration fees?

Besides this temporary measure provided for the taxation of capital gains, the “sale and lease-back” operations also benefit from a sustainable preferential regime for the registration fees. These operations benefit from a reduced rate of 0.715% if some conditions are met.

If your company is operational and owner of its premises, and if you are seeking solutions to improve your cash flow position to regenerate your activity and meet the consequences of the public health crisis, then perhaps you will want to explore the opportunity of the “sale and lease-back” operation.

Our teams are available to assist you and provide you with any further information as required.

[1] Law 2020-1721 dated December 29, 2020