To the west (of the PPUCs), nothing new…

In the five years since the ALUR Act was enacted, there has been little progress in legislation regarding the ownership of PPUCs in residential complexes.

We have already had the opportunity to highlight the importance of ownership of “private areas for common use” (PPUC) in the power dynamics that can arise between the operating company and the co-owners who are landlords (see our article “Ownership of PPUCs: It’ll Be Me or No One Else!” here).

Although PPUCs are a characteristic feature of all types of assisted living facilities (nursing homes, tourist residences, student housing, etc.), surprisingly, the legislature chose to establish a rudimentary regulatory framework for them exclusively for tourist residences.

Thus, in 2014, the ALUR Act:

– introduced the principle that PPUCs for tourist residences built on or after July 1, 2014, must be part of the co-owners’ association.

– established a mechanism for the co-owners’ association to “claim” PPUCs for residences built before that date in the event that such PPUCs were abandoned.

Since 2014, the importance of holding PPUCs has therefore been “officially” recognized by the legislature.

“Yet, in five years, there has been no progress by the legislature regarding this nascent legal framework established in 2014.”

This realization could have been the starting point for a genuine systemic legal analysis, and the principle that PPUCs belong to the co-owners’ association should have been quickly extended to other assisted-living facilities, making the claim process more accessible.

Yet, in five years, there has been no progress by the legislature regarding this nascent legal framework from 2014, and case law—which remains the only source still addressing the issue of PPUCs from these two perspectives—remains extremely limited.

The issue of ownership of PPUCs in other assisted living facilities, particularly in nursing homes (EHPADs), was addressed in a ruling by the Paris Court of Appeals on April 13, 2018, concerning the notary’s liability for failing to inform and advise the co-owner-landlords.

The owner-landlords of the EHPAD accused the notary of failing to inform them that the service areas were classified, under the co-ownership regulations, as private common areas. These areas were owned by a third-party company (which was, moreover, an offshore entity and was subsequently dissolved).

Although the context of the ruling is highly specific, the Paris Court of Appeal clearly states that a “retirement home is legally considered ‘monovalent,’ this designation made it essential that, in a nursing home subject to the co-ownership regime, the service areas belong either to the co-owners’ association or to the operator, but under no circumstances to a third party, in order to guarantee the sustainability of the business and the investment.”

This and the other irregularities identified by the Court—"which should have been detected by the notary and disclosed to the purchasers as part of his duty to warn"— inevitably had the effect of paralyzing the operation of the condominium in the event of the operator’s default, since the service premises—having the status of private units—were beyond the control of the condominium association, which could not manage them freely; this situation prevented the renewal of the tripartite agreement (..), the leases could only be renewed with a reduction in rent, as the new operator attributed this rent reduction to the fact that the common areas were not owned by the condominium association but by a third-party company (…)”

“When selling units in a nursing home (EHPAD), the notary is required to verify who owns the common areas; the notary must alert investors if these areas are owned neither by the co-owners’ association nor by the operator.”

In fact, the Court of Appeals thus concluded that the notary had breached his duty to advise and warn.

Two points are particularly noteworthy in this ruling:

– When selling units in a nursing home, the notary must verify who owns the PPUCs; he must alert investors whenever these units are owned neither by the co-owners’ association nor by the operator, and he must inform them of the consequences of a third party holding these units.

– The Court recognizes the link between ownership of the PPUCs and the long-term viability of a nursing home’s operations and the investment, thereby extending the legislature’s 2014 reasoning to a new category of assisted living facilities.

However, by stating that the PPUCs must belong either to the operator or to the homeowners’ association, the court does not follow its reasoning through to its logical conclusion.

While ownership of the PPUCs by the homeowners’ association or the operator guarantees the sustainability of the business, only ownership of the PPUCs by the homeowners’ association guarantees the sustainability of the investment.

Clearly, the Paris Court could be more explicit on this issue.

Nevertheless, this is a first step that offers hope for the future.

Over the past five years, the mechanism for the co-owners’ association to “claim” the PPUCs of a tourist residence—in the event of the owner’s failure to act—has generally been little used, as its conditions are quite complicated to meet.

In fact, for the PPUCs to become the undivided property of the association, the General Assembly of co-owners must first obtain a ruling from the District Court—to which the matter was referred at the association’s initiative—confirming the proven default of the lot owner and the abandonment of the property.

However, a finding of abandonment appears difficult to obtain as long as the operator is in place, since the operator occupies the premises for business purposes and is responsible, under the commercial leases entered into with the co-owner-landlords, for ensuring their maintenance.

Furthermore, if the operator is the owner of the PPUCs, a finding of abandonment of the PPUCs would amount to a finding of abandonment of the residence. The co-owners’ claim to the abandoned PPUCs is therefore, in practice, limited to cases where the operator has already abandoned the residence.

“Investors are therefore warned: the compensation offered to the owner of the PPUCs is an essential element of their claim to ‘reclaim’ the PPUCs.”

It was within the framework of a “claim” proceeding—which is already heavily regulated—that the Court of Cassation clarified, in a ruling dated May 9, 2019, that for a request to declare abandonment and transfer ownership of the disputed units to the homeowners’ association to be granted, the association must offer to pay compensation or file a motion to have the amount determined. Otherwise, the association’s request will be denied.

The clarification provided by the Court of Cassation regarding the terms of the compensation to be paid to the former owner has the advantage of making the procedure clearer and reflects a desire to encourage co-owners to use this procedure and, indirectly, to promote its use.

Indeed, in this same ruling, the Court of Cassation rejects the request to reclassify private units used for common purposes as common areas, giving precedence to the classification set forth in the co-ownership bylaws over the criteria of use and utility (even though these criteria clearly point to the common nature of these units).

This is therefore the only avenue available to co-owners of a tourist residence to reclaim the PPUCs held by an entity other than the co-owners’ association.

Investors are therefore advised: the compensation offered to the owner of the PPUCs is an essential element of their claim to “reclaim” the PPUCs.