Business Contracts

In addition to the retention of title, which delays the immediate transfer of ownership in application of the consensus principle, the Civil Code grants the seller the option to repurchase the item sold, in return for a refund of the price and reimbursement of the various costs incurred by the sale (Art. 1589 Civil Code.) . However, there is no legal provision prohibiting the parties to a repurcha …

Sale with option to repurchase

In addition to the retention of title, which delays the immediate transfer of ownership in application of the consensus principle, the Civil Code grants the seller the option to repurchase the item sold, in return for a refund of the price and reimbursement of the various costs incurred by the sale (Art. 1589 Civil Code.) . However, there is no legal provision prohibiting the parties to a repurchase agreement from derogating from the principle of taking back the property sold in kind, or from agreeing to a higher repurchase price . The repurchase option may not extend beyond five years. If it is fixed for a longer term, it is shortened to that term (Art. 1660) , which cannot be extended by the court, Article 1661 specifying that it is mandatory . Should the seller fail to exercise his right to repurchase within the prescribed term, the buyer becomes the irrevocable owner of the property (Art. 1662).

The option to repurchase is a condition subsequent, returning the parties to the state they were in before the sale . However, it does not prevent the sale from being complete, since there is agreement on the subject matter and the price, and all the rights attached to the seller's property are transferred to the buyer, who may thus dispose of the property sold, rent, mortgage, or even resell it. Only the irrevocable nature of the sale between seller and buyer is not acquired until after expiration of the time-limit for exercising the repurchase option . The seller only regains ownership of the property transferred to the buyer by the sale with option of repurchase through the proper exercise of his personal right of repurchase, which results in the rescission of the sale . The declaration of intention to exercise the right is, however, ineffective in the absence of actual payment or the deposit of the necessary sum within the period stipulated in the contract of sale . A seller who makes use of the repurchase agreement may not, in effect, take possession of the property until the final price and costs have been settled , particularly where the agreement stipulates that the declaration of intention to exercise the repurchase option, even if sent in good time, will be ineffective if it is not accompanied by payment or deposit of the necessary sum . The sale is consequently not rescinded and the buyer remains the owner until the seller has fulfilled the obligation to refund the price and costs  as a result of the repurchase agreement . On the other hand, a court of appeal cannot hold that the transfer of ownership of an immovable property only occurs on the date when the price, definitively ordered by a res judicata judgment, has been effectively paid in full, whereas the seller, having exercised his option to repurchase, has already paid, by way of reimbursement of the price and ancillary costs, an amount greater than that fixed by the court . Article 1673 lists the reimbursements to be made by the seller, who must reimburse not only the principal price but also the expenses and costs of the sale, the necessary repairs and those which have increased the value of the property.

Finally, a sale with right of repurchase must not be used to conceal a prohibited foreclosure clause ("pacte commissoire"). This is the case when, on the seller's principal residence, it conceals a credit transaction and is intended to evade the provisions protecting borrowers with regard to the usury rate . However, the reclassification of a sale with right of repurchase as a prohibited foreclosure clause cannot be inferred merely from the concurrence of a deed of loan, repayable without interest, and a deed of sale, unless it cannot be proved that the purchase price of the property is far removed from real estate market values, nor that the transaction provides for the seller to remain on the premises or for the property to be re-let to him: in such case the increase in the sale price plus the necessary costs and work, which corresponds to an advance of funds for eighteen months, does not amount to usury  .

Cass. com., 20 November 2007, LawLex202200002411JBJ.

Cass. 3e civ, 13 November 1970, LawLex202200008294JBJ.

Cass. 3e civ, 20 December 2006, LawLex202200008301JBJ.

Cass. 3e civ, 8 November 2018, LawLex202200002412JBJ.

Cass. 3e civ, 24 June 2021, LawLex202300007614JBJ.

Cass. 3e civ, 21 May 2014, LawLex202200000167JBJ.

Cass. 3e civ, 31 January 1984, LawLex202200008290JBJ; 13 November 1970, LawLex202200008294JBJ.

The draft reform of special contracts provides for a more severe sanction, since future Article 1615 of the Civil Code stipulates that, on penalty of absolute invalidity, the repurchase option must be agreed in writing, for a term which may not exceed five years.

Cass. 3e civ, 8 June 2023, LawLex202300007717JBJ.

Cass. com, 20 November 2007, LawLex202200002411JBJ.

Cass. 3e civ. 8 June 2023, LawLex202300007717JBJ.

Cass. 3e civ. 8 December 2016, LawLex202300007617JBJ.

Business Contracts

123. Sale with option to repurchase

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Les notions juridiques connexes

123. Sale with option to repurchase

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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