Real estate due diligence and legal considerations

Title and Ownership:

Verify that the company has clear title to each property (reviewing purchase deeds, land registry excerpts, and cadastral plans). Check for any encumbrances such as mortgages, liens or charges on the properties. It’s important to confirm property boundaries and whether the company owns the land outright (freehold) or if there are long-term lease arrangements or concessions. Any ongoing litigation or disputes over property (e.g. boundary disputes or title claims) should be identified early.

Land Use and Zoning (Urbanisme):

Confirm that the current use of each site (industrial, logistics, commercial, etc.) is permitted under local zoning plans and that all necessary planning permissions and building permits (permis de construire) were obtained for existing structures. French law requires that significant construction or renovation have permits; lack of compliance can lead to fines or orders to demolish/modify. Review zoning certificates (certificats d’urbanisme) from the city to see applicable zoning rules, and check whether any zoning changes or public easements (e.g. future road expansion plans affecting the land) are anticipated. If any of the sites are classified for specific uses (for example, a site listed as a protected historic monument or located in a special zone), additional rules or limitations may apply.

Environmental Regulations:

Industrial sites and even large warehouses may be classified installations (ICPE – Installations Classées pour la Protection de l’Environnement) if they involve certain activities or materials (chemicals, fuel storage, waste, etc.). Due diligence should review the environmental compliance status: ensure all required operating permits are in place for any ICPE, and check for any past pollution or contamination. The buyer should assess potential environmental liabilities – under French law, the operator of an industrial site is responsible for regulatory compliance and any required remediation. In a share deal, the company (under new ownership) remains liable for its past environmental obligations, so the buyer may seek specific indemnities for known issues. If an asset deal, depending on deal structure, the seller might retain some environmental liability for past operations, but the buyer should be aware that acquiring a polluted site can come with cleanup obligations attached to the land. An environmental audit (phase I, and phase II with soil tests if needed) is often prudent for factories and similar sites.

Servitudes and Easements:

Investigate any servitudes (easements) affecting the properties – for example, rights of way allowing neighbors or utilities to access the land, or easements for power lines, pipelines, drainage, etc. Likewise, if the company’s property benefits from any easements on neighboring land (such as a right of way through a neighbor’s parcel), confirm these are properly registered. Easements can impact property value and how the site can be used or developed, so understanding these restrictions is essential.

Commercial Leases (Baux Commerciaux):

Determine whether each property is occupied by the company itself or leased out to/from third parties. If the target company leases some of its real estate to others (for instance, part of a logistics park rented to tenants), review all lease contracts. Key points include rent levels, duration and renewal options, tenant rights (French commercial leases typically run 9 years with renewal rights every 3 years for the tenant), and any tenant preemption rights or purchase options. The buyer must understand its obligations as future landlord and any constraints (e.g. clauses regulating rent increases or requiring landlord consent for tenant changes). Conversely, if the company itself is a tenant at any important site (like its headquarters or a flagship store in a commercial center), check the lease terms for change-of-control or assignment clauses – a share deal usually doesn’t trigger an assignment (the tenant is the same legal entity), but an asset deal might require landlord consent to transfer the lease to a new entity. Also verify lease duration and renewal rights, because losing a critical lease post-acquisition (due to upcoming expiry or landlord refusal to renew in certain cases) could disrupt operations.

Third-Party Rights and Preemptions:

In some cases, French law grants certain parties a right of first refusal or consent in property transactions. For example, municipalities have a preemption right (droit de préemption urbain) over sales of real property in designated zones – this applies if the transaction is an asset sale of the property itself. (It typically does not apply to share sales, as the property isn’t directly transferred.) Ensure that if an asset deal is contemplated, the contract accounts for the possibility that the city could exercise this right, and plan for the notification process to the city. Likewise, tenants of commercial property do not automatically have a legal preemption right on sale of commercial buildings (unlike residential tenants), but if there are any contractual rights of first offer/refusal in the leases, those must be honored.

Corporate Real Estate Status:

Assess whether the target company might be considered a “société à prépondérance immobilière” (company predominantly holding real estate). This status has tax implications (as discussed below) and can also affect deal strategy. It generally means more than 50% of the company’s assets consist of French real estate​. If the company is operating active businesses on its sites, this distinction may be a technical tax definition, but it’s important for the buyer to know if the target falls in that category.

Conducting this level of due diligence often involves engaging French notaries and technical experts. While notaries are legally required for real property conveyances in asset deals, in share deals a notary is not mandatory – however, given the complexity of real estate assets, foreign buyers often involve a notary to verify title and registry details. Technical due diligence (building structure surveys, environmental site assessments, soil tests, etc.) may also be commissioned to supplement the legal due diligence.