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Not To Be Missed Facts on Transferring a Wine Estate

17 May 2023

by Frédéric Schuller, Notary, ÉTUDE BENEDETTI, WI&NE Occitanie

English version translated by Nathalie Parent Dumoulin, Founder, NEXT EDITION, WI&NE Nouvelle-Aquitaine

Transferring a wine estate is an important and sensitive event, whether for the transferor, a future retiree or an entrepreneur in search of a new venture, for the investor transferee, and of course, for all the professionals involved in the operation.

Of these, the notary plays a key role. Often perceived as the last milestone in a long process, namely the actual contract signing, the notary holds, in fact, in a strategic position at the crossroads of several transdisciplinary paths. As such, one should seek his assistance well upstream in the project.

It would be tedious and boredom sum to cover all the critical points of a transfer in this article. Unsurprisingly, the following issues must be addressed before a takeover: Social structure(s), conformity of the buildings with urban planning regulations, validation of the seller’s title deeds or leases, and capital gains.

But let’s look at some of a takeover’s more subtle but equally important aspects.

First Things First: What Is a Wine Estate?

A land where wine is produced, made up of vineyards and infrastructures for cultivating and vinifying grapes.

A wine-producing domain is, therefore and in the legal sense, a universal asset, i.e. a sum of various elements whether they are fixed such as real estate (land, chateau, cellars, etc.) or movable (facilities, equipment, stocks), whether they are tangible (tractors and machinery) or intangible (brands, work contracts, clientele, leases), etc.

As you may have gathered, the first difficulty during the handover will be the precise identification of what is to be transferred, and what may not be, thus leaving the buyer all the means to operate a perfectly functioning company.

Any oversight can have dire consequences!

A Sensitive Issue: The Contamination of Wines by Polychlorophenols (PCP)

Upon a transfer, sticking one’s nose in the wine cellar is advisable to get a hint of what is beyond sight.

It stands to reason that wine is a delicate, living form of heritage sensitive to its surroundings and must be treated carefully. Oenological progress has made it possible to eliminate many wine faults linked to vinification and storage conditions. For instance, the “cork taint”, manifesting itself by a musty smell or taste that may appear even in well-maintained tanks or before packaging, is not always caused by the so often accused cork itself. The musty aroma and flavors are most commonly caused by chloroanisole (CA), tetrachloroanisole (TeCA), and trichloroanisole (TCA); these three compounds result from the degradation of chlorophenols. In the winery, PCPs can potentially be found in a number of places, such as cellar frames and paneling, insulating boards, wood pallets, cardboard boxes and paper shippers, to end up in the wine and corrupt it.

To avoid any disappointment after the sale, an environmental analysis of the wine cellar before the transfer is advisable with, if necessary, an audit, not only in the apparent interest of the buyer but also in that of the seller, who could see his legal guarantee sought after the transfer for hidden defects.

Avoiding the (Costly) Pitfalls of VAT

When transferring the domain, two sensitive points relating to VAT will not fail to interest the parties:

  1. On the one hand, is the disposal of specific elements of the business (notably the wine stock) subject to VAT?
  1. On the other hand, does the transfer of fixed assets undergoing depreciation having qualified for VAT deduction (in particular buildings or work on buildings and cellar fittings) lead to the deducted VAT’s regularization if this occurs before the 20th year?

Generally speaking, the answer to these questions is “yes”, which means that the buyer has to deal with significant financing and cash flow constraints, and the seller is at risk of making adjustments.

However, Article 257 bis of the General Tax Code (Code général des impôts or CGI in French) provides a VAT exemption when the transfer can be analyzed as a universal transmission of assets between two VAT payers. Thus, the transaction is not subject to VAT and does not call into question the seller’s right to deduct. Nevertheless, both parties must respect the precise criteria the regulations laid down and make the necessary financial declarations.

A French Chateau Is Not Always a Chateau

When selling a domain, the seller cannot reserve the right to use the domain name as a trademark. Therefore, a clause to this effect would be null and void. Indeed, wine brands, unlike trademarks, cannot be transferred separately from the farm insofar as they cannot be dissociated from the place of production. As such, legal authorities have long recognized that a chateau’s name is a trademark inseparable from the estate producing the wine. Moreover, the trademark linked to a winery is an intangible fixed asset. Can it then be depreciated in the accounts, you may ask? Well, no, because its foreseeable duration of use cannot be fixed in time.

Showing Your Credentials

The conformity of wine-growing facilities, whatever the nature and purpose of the development project (installations, extensions, conversions, property consolidations), are thus subjected to authorization. Monitoring is based on surface and personal criteria such as professional experience or diplomas.

Furthermore, it is necessary to establish the owner’s intention to give the property a purpose, i.e. connecting land use planning and asset management processes. Finally, the objective must be durable, genuine and, above all, necessary for the development of the estate.

The authorization process may be lengthy; hence one must plan before implementing any project!

Visibility and Fame Come With a Price

Unfortunately, not all wineries can pride themselves on being known and recognized beyond borders by the mere mention of their name. Instead, most of them, in addition to the quality of their product, must rely on the strong brand image they have acquired through their communication: website (e-commerce or not), social networks, Google profile or referral sites for those offering on-site accommodation and/or restaurant facilities.

Not losing these precious reviews, stars, rankings, and referrals during the property transfer is essential if one does not wish to build a reputation from scratch. This oversight would generate considerable waste of time and money, which the buyer would better spend on tending the vines, keeping an eye on the cellar, or pampering his markets.

Therefore, communication tools and materials are essential in the transfer and should not be overlooked.

Reading this article, you can well grasp that when it comes to selling a wine estate, surrounding yourself with the right people changes the name of your game!

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