Is a rental investor a consumer?

The question of whether a natural person who takes out a property loan to acquire a property intended for rental can be classified as a consumer has given rise to a great deal of case law. The answer is not unequivocal and depends on a number of factors that the courts examine on a case-by-case basis.

A classification with important legal consequences

The importance of this classification is considerable, since it determines the application of the protective regime of the Consumer Code, particularly with regard to :

• Rules governing home loans
• The two-year limitation period under Article L. 218-2 of the Consumer Code
• Protection against unfair terms
• Pre-contractual information requirements

Criteria for distinguishing between consumers and professionals

The fundamental criterion: professional activity

Under Article 2 of Directive 93/13/EEC of 5 April 1993 on unfair terms, a consumer is "any natural person who, in contracts covered by this Directive, is acting for purposes which are outside his trade, business or profession"..

Article L. 312-3 (now L. 313-2) of the French Consumer Code excludes from its scope loans intended to finance professional activity, "in particular that of natural persons or legal entities who, on a regular basis, even as an adjunct to another activity, or by virtue of their corporate purpose, provide, in any form whatsoever, buildings or parts of buildings, whether or not built on, completed or unfinished, collective or individual, owned or leased"..

Indices used in case law

Several factors are taken into account by judges to determine whether the borrower is acting as a consumer or a professional:

1. Entry in the Trade and Companies Register (RCS) as a professional furnished lettings business is a strong indication of professional activity. In a ruling dated 21 March 2018, the Cour de cassation noted that the borrower "was registered in the Trade and Companies Register as a professional lessor of furnished accommodation". to deduce that the loan was intended to finance a professional activity.
2. The number of property transactions completed is decisive. In the same judgment, the Court held that borrowers "had carried out nine other similar operations".This constituted a professional activity. Similarly, in a ruling dated 29 June 2022, the Court overturned an appeal ruling that had failed to examine whether "the borrower, who was registered in the Trade and Companies Register as a professional furnished lettings business, took out these three loans with a view to acquiring three of the thirty-six properties he purchased at the same time, which were intended for furnished lettings, was not a professional activity"..
3. The habitual nature of the activityeven if it is ancillary to a main activity, is taken into account. The Court of Cassation regularly points out that "The rules specific to consumer mortgage credit do not apply to loans intended to finance the professional activity, even if ancillary, of a natural person who, on a regular basis, provides ownership or enjoyment of buildings or parts of buildings"..

Recent developments in case law in favour of occasional investors

An important ruling by the Court of Justice of the European Union on 24 October 2024 (CJEU, C-347/23) provided significant clarification on this issue. The Court ruled that a natural person who enters into a mortgage credit agreement to finance the purchase of a single residential property in order to let it for consideration falls within the concept of a "consumer when that person is acting for purposes that are not part of his or her professional activity.

The Court states that "the mere fact that the said natural person is seeking to derive income from the management of this property cannot, in itself, lead to the exclusion of the same person from the concept of consumer"..

This decision reflects a functional approach to classification, focusing on the purpose pursued by the borrower rather than on the type of legal transaction carried out.

Practical distinction criteria

The following criteria can be used to determine whether a rental investor is a consumer:

1. A consumer is the borrower who :
   • Acquires a limited number of properties (usually just one)
   • Is not registered with the RCS as a professional lessor
   • Does not carry on a regular rental activity
   • Make a one-off investment in your assets
2. A professional is the borrower who :
   • Acquires several properties
   • Is registered with the RCS as a professional lessor
   • habitually carries on a rental business
   • Its main aim is to generate income through this activity

Sources

• CJEU, C-347/23, 24 October 2024, LB and JL v Getin Noble Bank S.A.
• Cass. 1st civ. 21 March 2018, no. 16-10.342
• Cass. 1st civ. 6 June 2018, no. 17-16.519
• Cass. 1st civ., 29 June 2022, no. 19-25.207
• Cass. 1st civ. 30 June 2021, no. 19-10.565
• CA Lyon, 1re ch. civ. b, 16 Oct. 2018, no. 16/07581
• CA Agen, ch. civ. 8 March 2017, no. 14/01483