Under French law, many “leaseback” properties (often in the tourism or hospitality sector) are let under the legal framework governing commercial leases (“baux commerciaux”). One of the core features of a French commercial lease is the tenant’s right to renew the lease at its expiration. If the landlord (owner) refuses to renew without a legally recognised ground for refusing renewal free of charge, the landlord must pay the departing tenant an “indemnité d’éviction” (eviction indemnity). Below is a concise explanation of why that indemnity applies in a typical French leaseback scenario:
1. Commercial Lease Status
A large number of French leaseback arrangements—especially those involving tourist residences—qualify as commercial leases under Articles L. 145-1 et seq. of the French Commercial Code. Once it is deemed a commercial lease, the occupant (often an operating company managing the residence) has certain statutory rights, including the right to renew the lease.
2. Tenant’s Right to Renewal
In French commercial lease law, the tenant has a near-automatic right to renew when the lease expires. This right is designed to protect business continuity, recognising that tenants often invest in and build up clientele over time. If the landlord refuses to renew without a statutory exception, the law compensates the tenant for the loss of the going concern (fonds de commerce) and other related investments.
3. Eviction Indemnity (Indemnité d’éviction)
Rationale: The indemnity is meant to place the tenant in the financial position it would have enjoyed had the lease been renewed. In other words, it compensates for the loss of the tenant’s business goodwill, clientele, and any unamortized investments in the premises.
Calculation: The amount can be significant. French courts assess the indemnity based on multiple factors, including the value of the tenant’s business, location, and any improvements.
4. Exceptions
A landlord may sometimes refuse renewal without paying the indemnity if one of the very limited statutory grounds is met—most commonly, serious and legitimate breach by the tenant (e.g., non-payment of rent, failure to comply with lease terms), demolition or reconstruction of the building under specific conditions, or if the landlord is exercising certain personal occupation rights in very special circumstances. However, these exceptions tend to be narrowly interpreted by French courts, and most refusals trigger eviction indemnity.
5. Practical Consequences
For the Owner: Before refusing to renew, the landlord must carefully evaluate whether an exception applies. Otherwise, eviction indemnity can be extremely costly.
For the Tenant: The tenant knows that, if renewal is refused without legal justification, it can claim an eviction indemnity to offset its relocation and business interruption losses.
In short, French law imposes the eviction indemnity obligation to balance the protection of tenants’ business interests with landlords’ property rights. For an owner of a French leaseback property, refusing to renew the lease without a qualifying exception under commercial lease rules triggers the duty to pay eviction indemnity to the outgoing operator.
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