Here is a very interesting ruling handed down by the First Chamber of the Court of Cassation on June 17, 2015 (Cass. 1st Civ., June 17, 2015, No. 13-19.759: jurisData No. 2015-014968), concerning real estate tax-exemption transactions subject to the Malraux Act.
In this decision, the Court of Cassation clarifies the scope of the duty to advise and inform on the part of intermediaries (wealth management advisors, financial advisors, real estate brokers, banks, and notaries…), within the framework of the Malraux Act tax exemption scheme, which allows for investment in a real estate project under the historic monuments regime.
The Court held, pursuant to Article 1147 of the Civil Code, that it had not been established that the investors had been informed that the recommended acquisition involved significant risk, insofar as it did not guarantee the successful completion of the transaction, whereas its economic success depended directly on rapid sales, which alone would enable the renovation of the building intended for use as a hotel residence.
Indeed, in this type of transaction, the financing of the construction work and the economic success of the transaction depend on the sale of the units; in particular, since no external guarantee of completion was provided, if the sale of the units stalls, the renovation of the building will be similarly affected.
This can lead to extremely significant delivery delays or, quite simply, to the outright failure of the project; if “x” units are not sold, an entire section of the building cannot be renovated… The planned commercial operation, upon which the investment’s profitability depends, will never be able to begin.
The consequences for the investor can be catastrophic, as he or she may lose the entire amount invested.
In this ruling, the Court of Cassation gives due weight to the obligation on various intermediaries to inform investors of this risk, the likelihood of which is by no means negligible.
It will therefore now be easier to hold financial advisors, investment advisors, and financial intermediaries liable in this type of situation, provided that the aforementioned risk has not been expressly disclosed to the investor.
Another notable aspect of this ruling is that notaries are now required to “advise against” subscribing to a program whose legal and financial feasibility appears uncertain.
This represents a significant expansion of the scope of notaries’ duty to provide advice and information, although it will still need to be confirmed by case law.
