The legal obligations of real estate dealers: A guide for professionals
Rudolphe ABEN
The profession of real estate dealer, which involves purchasing real estate with the aim of quickly reselling it for a profit, is governed by a strict legal framework. Unlike other real estate activities, real estate dealers are subject to specific obligations covering various aspects of their business, from declaring their existence to accounting and tax regulations. Non-compliance with these obligations can lead to severe sanctions, both financial and legal. This guide aims to inform professionals about the main legal obligations they must adhere to in order to conduct their business in full compliance.
1. Declaring the real estate dealer activity
Business registration
The first step in operating as a real estate dealer is to declare the activity with the relevant authorities. In France, for example, this involves registering the business with the Trade and Companies Register (Registre du Commerce et des Sociétés, RCS). This formality is essential for the activity to be legally recognized. The real estate dealer can operate as a sole trader or as a company (SARL, SAS, etc.), depending on their preferences and the specifics of their project.
Tax declaration
In addition to registration with the RCS, it is mandatory to declare the existence of the business to the tax authorities. This procedure informs the authorities that the business will generate income related to the purchase and resale of real estate and that these transactions will be subject to the specific tax regulations applicable to real estate dealers.
2. Maintaining accurate accounting records
Accounting obligations
A real estate dealer is required to maintain accurate and detailed accounting records that reflect all financial transactions related to their activity. This accounting must comply with current accounting standards and include, among other things, a purchase and sales journal, a general ledger, and annual financial statements comprising a balance sheet and an income statement.
The accounting records must also include inventory management, meaning the real estate acquired but not yet sold. These assets must be listed on the balance sheet at their purchase value, allowing for precise calculation of the profit realized upon resale.
Document archiving
All accounting documents, including invoices, purchase and sale contracts, and bank statements, must be archived for a minimum legal duration (in France, this period is 10 years). This archiving is crucial for justifying transactions in case of a tax audit or review.
3. Declaration of income and tax obligations
Income declaration
The real estate dealer must declare all income from their activities, specifically the amounts received from the resale of real estate. This income must be included in periodic tax returns and is subject to corporate tax (or personal income tax in the case of a sole trader).
VAT obligations
One of the specific tax aspects for real estate dealers is VAT liability. Unlike real estate transactions between individuals, sales made by a real estate dealer are subject to VAT on the margin or on the total sale price, depending on the applicable regime. It is essential to understand these regimes to accurately calculate the VAT due and avoid errors that could lead to tax adjustments.
Capital gains on real estate
Real estate dealers are also subject to specific rules regarding capital gains on real estate. The capital gains realized from the resale of real estate are taxed under a particular regime, different from that applicable to individuals. The taxable gain is generally calculated based on the difference between the purchase price (plus certain costs) and the selling price, and is subject to corporate tax or personal income tax, depending on the company's tax status.
4. Compliance with legal and contractual obligations
Legal guarantees
The real estate dealer must adhere to legal guarantees when reselling real estate. This includes the warranty against hidden defects, which requires the seller to compensate the buyer if a defect not apparent at the time of sale is discovered. This obligation is even stricter for real estate dealers, who are considered professional sellers and must exercise heightened diligence when purchasing properties.
Compliance with resale deadlines
According to current legislation, real estate dealers may be subject to resale deadlines to benefit from certain tax advantages, particularly concerning VAT. For example, in France, to avoid requalification of the activity and loss of tax benefits, a real estate dealer generally must resell acquired properties within five years. Failure to meet this deadline can lead to significant tax penalties.
Compliance with urban planning rules
Before reselling a property, the real estate dealer must ensure that all urban planning rules have been followed. This includes compliance with building permits, local regulations, and land use plans. If any work has been carried out on the property, it must have been done in accordance with current standards, or it may face penalties or even cancellation of the sale.
5. Sanctions for non-compliance
Tax sanctions
Failure to comply with tax obligations can result in severe sanctions for real estate dealers. These sanctions can range from simple financial penalties (for delays or omissions in declarations) to more substantial tax adjustments, with fines proportional to the undeclared amounts. In the most severe cases, criminal prosecution for tax fraud may be pursued.
Civil and commercial sanctions
Failure to meet legal and contractual obligations can also lead to civil sanctions, such as damages awarded to the aggrieved buyer. Additionally, in cases of non-compliance with urban planning rules, the sale may be annulled, requiring the real estate dealer to refund the amounts received.
Impact on professional reputation
Finally, non-compliance with legal obligations can severely damage a real estate dealer’s reputation. In a sector where trust is crucial, disputes, sanctions, and poor practices can quickly lead to a loss of credibility and clientele, jeopardizing the sustainability of the business.
Conclusion
The profession of real estate dealer, while potentially lucrative, comes with numerous legal and tax obligations that must be adhered to. From declaring the activity to maintaining accurate accounting records, and from complying with tax and contractual obligations to respecting urban planning rules, each step must be carried out with seriousness and professionalism. Adhering to these obligations is essential not only to avoid sanctions but also to ensure the success and longevity of the business. For every real estate dealer, understanding and respecting these rules are the keys to a successful and trouble-free career in the real estate sector.