Every French property lawyer has received the same phone call at least once a month: a foreign buyer, sometimes still based in London or New York, who has just walked away from a compromis de vente (preliminary sale agreement) and is now asking whether their deposit is gone forever — or worse, whether they can be sued. The answer, as with most things in French real estate law, depends on a precise distinction that no amount of googling will reliably surface: the difference between an indemnité d’immobilisation (immobilisation indemnity), arrhes (earnest money), and a clause pénale (penalty clause). This article explains what happens under French law when a property purchase collapses, from the ten-day cooling-off period through to litigation over a forfeited deposit, drawing exclusively on decisions of the Cour de cassation and codified provisions that define the rights of both buyer and seller.

I. The Pre-Contractual Framework: What the Buyer Stands to Lose If the Deal Fails

A. The Compromis de Vente and the Deposit: Indemnité d’Immobilisation Versus Arrhes

Under French law, the compromis de vente (also called a promesse synallagmatique de vente — bilateral sale promise) is governed by Article 1589 of the Civil Code, which provides that a promise of sale is equivalent to a sale when the parties have reached mutual consent on the chose (the property) and the prix (the price). Once signed, neither party can unilaterally withdraw without legal consequences. The instrument is binding, and this is not a matter of professional custom or regional practice: it is the law. Article 1103 of the Civil Code states that legally formed contracts “tiennent lieu de loi à ceux qui les ont faits” (are binding as law upon those who made them).

When a foreign buyer signs a compromis, they are almost invariably asked to transfer a sum — typically five to ten percent of the purchase price — to a sequestered notary account. The legal characterisation of this sum determines everything that follows if the sale does not proceed. The distinction is between two regimes that the Civil Code treats entirely differently.

Article 1590 of the Civil Code governs arrhes (earnest money): “Si la promesse de vendre a été faite avec des arrhes chacun des contractants est maître de s’en départir, Celui qui les a données, en les perdant, Et celui qui les a reçues, en restituant le double.” In practical terms, if the sum paid qualifies as arrhes, the buyer may walk away by forfeiting the deposit; the seller may walk away by returning double the deposit. It is a symmetrical right of withdrawal, and it ends there.

But in modern French conveyancing practice, the sum paid by the buyer is almost never arrhes. It is almost always an indemnité d’immobilisation — a fixed penalty designed to compensate the seller for having taken the property off the market. And unlike arrhes, this sum does not give the buyer a right to withdraw. If the sale fails for a reason attributable to the buyer, the seller is entitled to keep the indemnity and may pursue additional damages. If the sale fails for a reason attributable to the seller, the buyer can recover the deposit and seek further compensation.

The Cour de cassation applied this logic in a decision of 6 July 2023 (no. 21-23.924), where it upheld a judgment that the sellers had, by their own conduct — issuing a contradictory notice to quit in the middle of a pending suspensive condition — demonstrated “la volonté univoque des vendeurs de mettre fin à la relation contractuelle et de renoncer au transfert de propriété en exécution du compromis” (the unequivocal will of the sellers to end the contractual relationship and renounce the transfer of ownership in performance of the compromise). The court ordered restitution of the immobilisation indemnity and awarded additional damages under the penalty clause, laid exclusively at the sellers’ door.

The practical instruction for a foreign buyer is straightforward: before signing, you must determine whether the contract describes the payment as arrhes (rare, and favourable to withdrawal) or as an indemnité d’immobilisation (normal, and unfavourable). If the contract is silent, French courts will treat the payment as an indemnité d’immobilisation in a bilateral promise, because the arrhes regime under Article 1590 is the exception, not the default, for a binding bilateral sale agreement. Do not assume you can simply forfeit the deposit and walk away. You probably cannot.

B. The Ten-Day Cooling-Off Period: Article L271-1 of the Construction and Housing Code

French law grants one specific period during which a buyer can withdraw without penalty. Article L271-1 of the Code de la construction et de l’habitation (Construction and Housing Code) provides that a non-professional purchaser of residential property has a ten-day délai de rétractation (cooling-off period) starting from the day after the first presentation of the registered letter notifying the signed compromis to the buyer. The withdrawal right is absolute during these ten days: no reason need be given and no penalty can be imposed.

There are, however, three important limitations that are frequently overlooked by foreign buyers. First, the ten-day period applies only to the compromis — the preliminary agreement — and not to the final deed of sale (acte authentique de vente). Once the notary’s deed is signed, there is no cooling-off right. Second, the period runs from the formal notification of the signed contract, not from the date of signature. A buyer who signs on a Tuesday and receives the registered notification the following Monday has ten days from Tuesday of that following week. Third, if the compromis is handed directly to the buyer by a real estate agent acting under a mandate, the ten-day period runs from the day after that handover and the handover must be attested in a prescribed form. This distinction matters because agents sometimes hand over an unsigned draft and call it a day; a properly notified compromis is a different act altogether.

A foreign buyer who wishes to withdraw must do so by registered letter with acknowledgement of receipt or by any means offering equivalent proof of date. An email is insufficient unless the contract itself provides for electronic notification and the recipient acknowledges receipt in a verifiable form. The safest course is the registered letter, sent within the ten-day window. After these ten days, the purchase commitment is binding, and any attempt to withdraw will engage the penalty and damages provisions discussed below.

II. The Suspensive Condition Mechanism: When the Failure Is Not Your Fault

A. The Loan Condition and the Protection of the Buyer

Nearly every compromis de vente signed by a foreign buyer contains a condition suspensive d’obtention d’un prêt — a suspensive condition of obtaining a loan. The legal framework is Article 1304-6 of the Civil Code, which provides that “En cas de défaillance de la condition suspensive, l’obligation est réputée n’avoir jamais existé” (If the suspensive condition fails, the obligation is deemed never to have existed). This is the single most important protective mechanism in French conveyancing law, and the Cour de cassation has refined its contours in a series of published decisions that every foreign buyer should understand.

The principle was articulated clearly by the Cour de cassation in a decision of 14 January 2021 (no. 20-11.224, published in the Bulletin). The court held that when a buyer obtains a loan for an amount lower than the maximum stated in the compromis, that loan is nonetheless “conforme aux stipulations contractuelles” (compliant with the contractual stipulations). The buyer who had obtained a 539,900 euro loan against a contractual maximum of 725,000 euros was held to have satisfied the condition. The lower amount did not defeat the purchase; the sale had to proceed.

But in a decision of 14 December 2022 (no. 21-24.539, published in the Bulletin), the Cour de cassation drew the line in the opposite direction that protects the buyer. In that case, the compromis stipulated a loan of up to 414,000 euros at 2% over 25 years. The bank refused the application at that amount but offered 407,000 euros. The buyer refused, and the seller sued for the immobilisation indemnity. The Cour de cassation held, at paragraph 9, that “l’indication, dans la promesse, d’un montant maximal du prêt n’était pas de nature à contraindre les acquéreurs à accepter toute offre d’un montant inférieur” (the indication in the promise of a maximum loan amount was not such as to compel the buyers to accept any offer for a lower amount). The buyer was not at fault for refusing a reduced loan; the condition had failed without fault, the compromis became caduc (void), and the deposit had to be returned.

These two decisions, read together, establish a nuanced balance. If the bank offers a loan below the maximum but within the same contractual parameters (rate, term), the buyer who has applied properly must accept it and proceed. If the bank offers a loan that deviates materially from the parameters — whether in amount, rate, or term — the buyer is not obliged to accept, and the failure of the condition will not be treated as the buyer’s fault. The deposit must be returned.

There is a further rule that is particularly dangerous for foreign buyers unfamiliar with French procedural formalities. Cass. 3e civ., 26 November 2020 (no. 19-19.024) held that if the compromis sets a specific form and deadline within which the buyer must notify the notary of his or her intention to waive the loan condition, that form and that deadline must be respected. The buyer in that case attempted to waive the loan condition on 11 March 2016, when the contract required notification by 15 December 2015. The Cour de cassation ruled that the waiver was ineffective: the contractual stipulation had the force of law between the parties, and a late waiver did not revive a condition that had already failed.

An important procedural decision was handed down in Cass. 3e civ., 18 March 2021 (no. 20-16.354, published in the Bulletin), concerning the formalities of waiving a loan condition in a notarial deed. The court held that the handwritten mention required by the Consumer Code for a buyer who declares they are not using a loan does not apply to a promesse de vente executed in authentic (notarial) form. The distinction is technical but critical: a foreign buyer who signs a notarised compromis waiving the loan condition is bound by that waiver, even if the waiver is not handwritten.

For a foreign buyer, the practical implications are threefold. First, the compromis must specify the loan amount, rate, term, and at least two rejected bank applications before the condition can be invoked. Second, the buyer must actively seek the loan within the stated period and must retain written proof of every application and rejection. Third, if the loan is approved but the buyer simply changes their mind, the condition is deemed fulfilled and the buyer cannot use it as an exit route — the deposit and penalty provisions then apply in full.

B. The Penalty Clause: What Happens When Withdrawal Is Your Fault

When a buyer withdraws from a compromis after the ten-day cooling-off period and without a valid suspensive condition failure, the seller’s remedy comes primarily from the clause pénale (penalty clause) written into the contract. This is not a common-law-style liquidated damages provision that the parties may freely calibrate: it is governed by a mandatory statutory framework. Article 1231-5 of the Civil Code provides that “Lorsque le contrat stipule que celui qui manquera de l’exécuter paiera une certaine somme à titre de dommages et intérêts, il ne peut être alloué à l’autre partie une somme plus forte ni moindre. Néanmoins, le juge peut, même d’office, modérer ou augmenter la pénalité ainsi convenue si elle est manifestement excessive ou dérisoire” (When the contract stipulates that the party who fails to perform shall pay a certain sum as damages, the other party may be awarded neither more nor less. However, the judge may, even of his own motion, reduce or increase the agreed penalty if it is manifestly excessive or derisory).

This is a power the French judge exercises frequently and without needing either party to request it. A standard compromis penalty of ten percent of the purchase price, which on a 500,000 euro property amounts to 50,000 euros, can be reduced to a few thousand euros if the judge considers that the seller suffered no real prejudice — for example, if the property was resold quickly at the same price. Conversely, if the penalty is ruled “dérisoire” (derisory), the judge may increase it.

The Cour de cassation revisited the scope of the judge’s power to moderate in a decision of 16 January 2025 (no. 23-15.256), holding that an indemnity clause in a commercial lease that produced a monthly occupation charge three times the market rent could constitute a clause pénale subject to judicial moderation, even though the lower court had categorised it as simple compensation for occupation. The key test, the court explained at paragraph 8, is whether the sum bears “un rapport avec le loyer prévu au contrat” (a relationship with the rent provided for in the contract). By analogy, a penalty clause in a compromis calculated as a fixed percentage of the sale price may be scrutinised against the actual loss to the seller.

In a decision of 22 January 2026 (no. 24-18.014), the Cour de cassation added an important procedural dimension: when both parties in the litigation agree on the qualification of a clause as a clause pénale, the trial judge cannot reclassify it as ordinary damages and thereby deny the court’s power of moderation. The court held that the lower court had “dénaturé les termes du litige” (distorted the terms of the dispute) in violation of Article 4 of the Code of Civil Procedure. A foreign buyer defending a penalty claim should therefore be alert to the qualification issue: if the contract uses the terms clause pénale, indemnité forfaitaire (fixed indemnity), or dommages et intérêts (damages) in a pre-determined amount, the judge retains the power to moderate.

In a related ruling, Cass. 3e civ., 15 December 2021 (no. 20-22.013) held that when moderating a penalty clause, the judge cannot award the creditor “moins que les intérêts moratoires” (less than the statutory default interest). The penalty can be reduced but not below the legal interest rate that would have applied to the unpaid sum. This establishes a floor, not just a ceiling, for judicial moderation.

For a foreign buyer who needs to withdraw from a compromis after the ten-day cooling-off period and without a loan-condition excuse, the risk is not merely the deposit. The seller may keep the deposit and pursue a clause pénale for the full contractually-agreed amount and claim additional damages for proven financial loss, including bridging-loan costs, re-marketing fees, and the difference in sale price if the property is later sold for less. The only brake on the seller’s claim is the Article 1231-5 moderation power and the requirement, under ordinary rules of civil liability, that the seller prove the loss. A foreign buyer who is considering withdrawal should therefore obtain, before acting, a precise assessment of the maximum financial exposure under the specific contract they have signed, with reference to all three heads of claim: deposit forfeiture, penalty clause, and additional damages.

Conclusion

French property law treats the collapse of a purchase transaction as a serious event with defined legal consequences, not as a commercial negotiation that can be resolved by a phone call. The ten-day cooling-off period is a narrow exit window; once it closes, the binding force of the compromis is near-absolute, subject only to the proper failure of a suspensive condition and the judge’s statutory power to moderate a manifestly excessive penalty. The single most important protective mechanism for the buyer is the condition suspensive d’obtention d’un prêt, but it must be drafted with precision, and the buyer must actively pursue the loan and retain documentary proof of every step. A foreign buyer who signs a compromis without understanding the distinction between arrhes and an indemnité d’immobilisation, or between a suspensive condition and a simple change of mind, is taking a risk measured in tens of thousands of euros. French courts, as the decisions cited above demonstrate, will enforce the contract strictly but will also intervene when a penalty is disproportionate or when the seller’s own conduct caused the failure. The right legal advice before signing, not after, is what determines whether a withdrawal costs nothing, the deposit, or substantially more.