In the borrower's mind, buying a property and taking out a loan to finance it are two sides of the same coin. However, in law, these two contracts could have separate fates. Aware of this risk, the legislator has created a strong legal link between the contract of sale and the property loan that finances it. This interdependence is a cornerstone of the protecting borrowers on home loansas well as other mechanisms found in special situations when it comes to mortgages. Understanding how this link works, and in particular the resolutory condition, is essential for any purchaser. In the event of difficulty, the advice of a expert lawyer in mortgage law to secure the operation.
The principle of legal interdependence
For an individual or an SME manager, buying premises and obtaining the necessary loan go hand in hand. It is unthinkable to have to repay a loan if the sale does not go ahead. Consumer law has therefore officially enshrined this obvious economic fact by creating a legal dependency between the two contracts. This mechanism derogates from the classic principles of contract law to protect the non-professional purchaser.
Distinction from common law independence
Common contract law is governed by the principle of the relative effect of agreements. This means that two separate contracts, even if concluded with a view to the same overall transaction, are in theory independent of each other. Without the protective provisions of the Consumer Code, a borrower could find himself in a catastrophic situation: if the sale of the property were cancelled after the loan had been signed, he would still be obliged to repay the bank in full, even though the property project financed had disappeared. Case law has gradually recognised the concept of interdependent contractual packages, notably in the mixed chamber rulings of the Court of Cassation of 17 May 2013, but mortgage law provides an explicit and powerful legal framework that leaves no room for interpretation.
The resolutory condition: definition and operation (L. 313-36 Code de la consommation)
The central mechanism of this protection is the resolutory condition. It should not be confused with the much better-known suspensive condition, which makes the validity of the sale conditional on obtaining a loan. The resolutory condition works in the opposite direction. Article L. 313-36 of the French Consumer Code states that the offer of a loan is always accepted subject to the resolutory condition that the contract for which the loan is requested is not concluded within four months. In practical terms, this means that once the loan contract has been accepted, it is validly formed. However, if the deed of sale (or other transaction financed) is not signed within the time limit, the loan contract is automatically and retroactively cancelled. It is deemed never to have existed, thereby releasing the borrower from any obligation to the bank. This provision is a key element of formation of the mortgage contract.
Scope of the resolutory condition
The legislator has defined a precise framework for the application of this protective mechanism, both in terms of time limits and the transactions covered. This precision is intended to provide borrowers with clear legal certainty.
The legal four-month period and the possibility of an extension by agreement
The default period for fulfilling the resolutory condition is set at four months. This period begins to run from the date of acceptance of the loan offer by the borrower. It is during this period that the deed of sale must be signed. If this is not the case, the loan contract is automatically terminated. However, the law offers a welcome flexibility: the parties may agree to a longer period. This option is frequently used in practice, particularly for complex transactions that may require lengthy administrative procedures or negotiations. The stipulation of a longer period must be clearly stated in the loan offer.
Transactions concerned (acquisition, division with balancing payment, divorce)
The resolutory condition applies to loans intended to finance transactions listed in article L. 313-1 of the French Consumer Code. The most common situation is, of course, the acquisition of full ownership of a building for residential use or for mixed use (professional and residential). But the scope of application is much broader. It also covers the purchase of shares in companies (such as an SCI d'attribution) giving entitlement to the allocation of a property in ownership or in jouissance, as well as the purchase of land intended for the construction of these buildings. Notably, case law has extended this protection to transactions which, while not strictly sales, constitute a form of home ownership. This is the case with the financing of a balancing payment, a sum of money paid to compensate for an inequality in the division of property, for example following a divorce or inheritance. The logic is that, even in this context, the loan is intrinsically linked to the granting of a right of ownership over the property.
The effects of rescinding the main contract
The interdependence is not limited to the failure to sign the sale within the four-month period. Case law has extended this link to protect the borrower when the sale is cancelled after it has been completed, confirming the existence of a genuine triangular relationship between the buyer, the seller and the lender.
Cancellation of the property loan: consequences for the borrower and the lender
The Court of Cassation has consistently ruled that the cancellation or nullity of a contract of sale automatically entails the cancellation of the loan contract that finances it. Whatever the cause of the annulment of the sale (latent defect, fraud, breach of an obligation by the seller, etc.), the loan suffers the same fate. This has major practical consequences. For the borrower, the obligation to repay the monthly instalments disappears. They will only have to repay the capital paid to them by the bank. For the lender, the obligation is to repay to the borrower all sums received in respect of interest, administration fees and insurance premiums. This solution, although severe for the credit institution, is the logical translation of interdependence: as the very cause of the credit contract has disappeared, so must its accessories (interest and fees).
Retroactive effect of nullity or cancellation of the contract of sale
The termination of both contracts is retroactive. This means that they are erased and the parties must be returned to the state they were in before they were signed. It is as if the loan and sale had never existed. This legal fiction is the cornerstone of borrower protection. Without this retroactive effect, the annulment of the sale for the future would not release the borrower from past and future obligations under the loan, which would be unfair. It is the consecration of a simple economic logic: no property, no loan to repay.
The question of continued dependence during the term of the contract
While interdependence is very strong at the time of formation of contracts and in the event of annulment of the sale, its scope during the 'normal' life of contracts is more nuanced. This subtlety is important to grasp in order to understand the limits of the mechanism.
The limits of interdependence and a return to common law
The Consumer Code does not expressly provide that the link of interdependence continues with the same intensity throughout the performance of the contracts. Once the property transaction has been finalised and the sale and loan contracts have been performed without incident, the link between them tends to weaken. Each contract regains a degree of autonomy. Resolution of the loan in the event of resolution of the sale remains the most powerful manifestation of this post-formation link. Apart from this case, difficulties arising in the performance of the loan contract alone (for example, a disagreement over the calculation of interest) would not allow the borrower to call into question the sale contract, and vice versa.
Waiver of interdependence: an option to be handled with care
Although the interdependence mechanism is a matter of public policy, which means that it cannot be waived in advance in the contract, case law has accepted that the borrower may choose not to invoke it once the dispute has arisen. A ruling by the Court of Cassation (Civ. 1re, 6 January 1998) recognised that a borrower could decide not to invoke the resolution of the loan following the cancellation of the sale. Such a situation is exceptional and would often be unfavourable to the borrower, who would find himself repaying a loan for which there was no real estate consideration. However, this option could be useful in very specific cases, for example if the borrower wishes to keep the funds for another acquisition and the lender agrees. This is an option that should only be considered with extreme caution and after careful analysis of the legal and financial consequences.
The legal link between the property loan and the sale is an essential protection for the buyer. Whether it's a question of the resolutory condition or the effects of cancelling the sale, these rules are designed to ensure that the borrower is not trapped by a loan that serves no purpose. The complexity of these mechanisms and the considerable financial stakes involved call for particular vigilance. For an analysis of your contractual situation and advice tailored to your project, we strongly recommend that you contact a lawyer specialised in mortgage law.
Sources
- Consumer Code (in particular articles L. 313-36 et seq.)
- Civil Code (principles of contract law)
- Court of Cassation case law on contractual interdependence
EN 
FR