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In Paris, Confusion Over Apartment Rental Laws

By Kevin Brass
International Property Journal

The thriving Paris rental industry is trying to determine the ramifications of recent moves by the local government, which is threatening to crack down on foreign owners who rent their apartments without permission.

Several owners in the capital have received letters about the long-standing policy calling for penalties of €25,000 a day ($34,000) for homeowners who don’t properly register their apartments as short-term rentals. Any apartment rented for a less than a year iis supposed to be classified as commercial property, which can be a long, complicated process.

The law has been on the books for years, but has done little to stop foreign investors and second home owners from pursuing a buy-to-let strategy in the City of Light. The short-term apartment rental business has grown rapidly in recent years, in part due to a variety of Web sites marketing rental units, providing an alternative to Paris’ notoriously high hotel rates.

“I’m not so sure [the recent moves] will have much impact,” said Marie-Reine Jezequel of New York Habitat, which rents apartments in Paris.

Despite periodic saber-rattling, the law has never been enforced, Jezequel says, although it is a fact of life for the Paris market. Nevertheless she knows that can change, and she advises clients not to buy property if they expect to rent it out short term.

“You have to make sure people get into this with eyes open,” she said.

Government officials estimate there are 38,000 apartments illegally rented on a short term basis, reports French blogger Tony Tidswell, who has been closely following the issue. After meeting with housing agency officials, he concluded the plan is to “make some high profile prosecutions and ‘encourage’ other owners to obey the laws.”

Many large cities impose similar restrictions. In Paris, the laws are designed to encourage affordable housing, in a city where inexpensive apartments are hard to find. Renting to students, for example, is one of the few exceptions allowed by the law.

But enforcement has always been an issue.

“Because the rental tenants themselves are usually not residents of France, it is very difficult for the authorities to know when an apartment is occupied by a ‘paying guest’ or by a 'friend of the family,’” said Richard Van Ham, a retired French accountant.

Van Ham said the crackdown “comes as no surprise,” given that many owners flaunt the law.
“Obviously, many of these owners have been less than forthcoming about declaring their rental income, particularly when the rents never even circulate through a French bank account,” he said.
The real issue may be tax revenue, said one rental agency owner, who asked not to be named.

“It’s just more ambiguity,” the company executive said. “It adds uncertainty to a market already filled with ambiguity on enforcement of the law.”

News that the government may step up enforcement has “prompted panic” in second home owners, according to a recent London Times article.

But rental site holidaylettings.co.uk hasn’t received a single query for Paris clients, says Kate Stinchcombe-Gillies, head of communications for the site.

If enforced, the measure could hurt tourism by removing affordable apartments from the market and turn away foreign investors, she notes. And there’s no doubt the discussion adds a new level of complexity to the market.

“British owners of Parisian property are probably best placed seeking legal advice on the matter and find out just how much these changes have been communicated,” Stinchcombe-Gillies said. “The fines are severe and the commercial to residential shift ratio is absurd, so this is not something owners can afford to be apathetic about.”

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