The Life Annuity Contract

The contract must consist of eight parts:
A - The civil status of the future annuitant.
B - The civil status of the buyer.
C - The phrase: "Mr X sells to Mr Y, who accepts".
D - A detailed description of the property being sold.
E - The price, and the payment conditions.
F - A clause relative to the indexation of the annuity income.
G - A resolutive clause, which allows the sale to be cancelled in case of non-payment of the annuity.
H - A clause asking the mortgage lender to register a mortgage, thus making it impossible for the buyer to arrange the loan or resale of the property

The rest of the deed is made up of details of the origin of the property, a reminder of the laws relative to the use of property, and the reciprocal obligations of both parties, although these sections do not have to be included in order for the deed to be valid.

Some relevant articles from the Civil Code:

• Article 1591 The purchase price must be determined by both parties.
  
  
• Article 1654 If the buyer does not pay this price, the annuitant can demand the cancellation of the sale.
  
  
• Article 1656 If the contract stipulates that the sale will be cancelled in the event of non-payment, the buyer may still pay after the defined period, as long as he or she has not been provided with a formal warning notice. After this warning has been provided, the judge cannot grant any further extension to the buyer.
  
  

  With reference to the risk:

• Article 1964 – The aleatory contract is a reciprocal agreement, the effects of which (advantageous or otherwise, for one party or both) depend on an uncertain event.

  With reference to the annuity income:

• Article 1968 The annuity can be paid in monetary form, or in the form of an item that will appreciate with time.
• Article 1971 The annuity can be paid either directly to the annuitant, or to a third party who would not normally have the right to use it.
• Article 1972 The payment can be made to one, or several, people.
• Article 1975 A contract is declared null if the annuitant dies from an unexpected illness within 20 days of signing the contract.
• Article 1976 The amount of the annuity can be at whatever rate the two parties see fit.
• Article 1978 The buyer's inability to pay outstanding annuities does not give the annuitant the right to demand the reimbursement of the capital. He or she may only ask for the seizure and sale of the debtor's property and then order the payment of arrears.
• Article 1979 The buyer cannot cease annuity payments by offering to reimburse the capital and renounce his or her right to claim back payments already made. The buyer is responsible for the payment of annuities during the entire life of the annuitant, or the people on whose lives the period of payment is determined, regardless of how long this period may be.
• Article 627 Those who have the right of residence in the property must fulfil their duties as head of family.
• Article 631 The annuitant cannot transfer or sublet the property to anyone else..
• Article 632 The person who has the right of residence in a house may live there with his or her family even if he or she was not married at the time when the contract was signed.

Invalid or questionable annuities:

The following contracts would be considered null from the outset:

Those in which the monthly annuity payment is equal to, or less than, the rental value of the property.

• Nullity clause: incorrect price, absence of risk.
  Contracts where the annuity payments are only guaranteed for a fixed number of years.
• Nullity clause: very reduced risk.
  In this case, the contract is not annulled, but considered to be a simple credit sale, and annuity payments are still due after the annuitant's death for the determined period. Contracts that are signed when the seller is terminally ill (for example, suffering from inoperable cancer) and the buyer is aware of the situation.
• Nullity clause: absence of risk.
  When the annuitant dies within 20 days of signing the contract, due to an illness contracted after the deed was signed (see article 1975 of the Civil Code).
• Nullity clause: absence of risk.
  Purchases made by someone who is registered bankrupt. Such contracts are not annulled from the outset, but can be cancelled upon the demand of a third party (a benefactor, for example).
• Nullity clause: Fictitious sale.

Observation
The annuity income can be paid during the life of one, or several people. Payment arrangements can be changed according to the terms of the contract, but in general, for married couples, the payments are "reversionary" i.e. the life annuity of a deceased annuitant can be reverted to the surviving spouse.
As a result, the annuity rate applied is less than the amount the youngest partner would have received individually. Here is why:

If the youngest annuitant dies prematurely, the oldest is still alive and the annuity continues to be paid. The presence of this older annuitant is an extra risk compared to a contract including just one person, i.e. the youngest.

Once the description of the property and the price has been agreed, the sale is concluded.

Some reflexions
Statistics from INSEE (Institute of National Statistics and Economic Research) regarding mortality rates are made for the entire country, without considering socio-professional background. For example, the coalminer from Northern France is supposed to have the same life expectancy as a mountain dweller from Haute Savoie, which is obviously not true.

In order to collect realistic mortality statistics, it would be necessary to carry out the survey on a region per region basis, profession by profession, but is it desirable to push the investigation this far?

The questions would begin to impinge on people's intimate details - do they drink? do they smoke? who were their ancestors? On the pretext of measuring the "risk", the dignity and privacy of everyone would be threatened.

Empty property and usufruct
The concept of full property rights” is made up of the empty property rights plus the usufruct (right to use). As a result, if the value of the empty property rights is calculated, and subtracted from the value of the full property rights, we have the value of the usufruct.  

Vocabulary

Like every specialist area, life annuity has its own vocabulary. Here are some of the key terms:

Toute (ou pleine) propriété / "Full property rights": The full rights to own and live in a property, without any restrictions.
Nue-propriété / "Empty property rights": Ownership of the bricks and mortar shell of a property, without the right of use. .
Usurfruit / "Usufruct": The right to use, live in, and profit from a property.
Droit d'usage et d'habitation / "Right of use and of residence": The right to personally live in a property for one's entire life.
This is a restricted version of "usufruct", in the sense that the annuitant has the right to reside in the property, with his or her family, but does not have the right to make money from the property. Nonetheless, he or she has no extra charges to pay other than those of an ordinary tenant. The right of use is personal, non-transferable, and is automatically forfeited upon the death of the beneficiary.

Crédirentier : "Annuitant": The person who receives the annuity income due to them.

Débirentier : The person who owes and pays the annuity.
Clause résolutoire / "Resolutive clause": Clause that allows the sale to be annulled in certain cases.
Along with the annuity indexation clause, this resolutive clause is one of the most important parts of the contract. The fate of the annuitant, in the event of the buyer's inability to pay, depends entirely on this clause.
As its name suggests, this clause brings about the resolution of the sale (i.e. its cancellation) should the annuity payments cease to be made, or if this person fails to pay the applicable sale charges.
Indexation: Revising the amount of the annuity based on inflation changes.
Until 1936, inflation was low and annuity rates were not indexed. Afterwards, particularly after 1940, prices generally increased, and the annuitant had less purchasing power as a result.

In 1949, the INSEE (Institute of National Statistics and Economic Research) addressed this problem by studying cost variations. The "cost of living index" was thus born, which is published every month and is used to re-evaluate the calculation of annuities.

Should this index cease to be published, an expert will choose a suitable replacement.
Tête/ "Head": The person who receives the life annuity (the annuitant), or who nominates a third party to receive it, until his or her death, whereby payments are cancelled (see article 1971 of the Civil Code).