Leaseback: Operator can terminate every 3 years

Leaseback accommodation: the Court of Cassation confirms that the three-year non-termination clause does not apply to renewed leases

A landmark ruling for holiday accommodation

In a judgment published in the Bulletin on 7 September 2023, the Third Civil Chamber of the Court of Cassation provided a key clarification regarding the rules governing commercial leases for holiday accommodation. The High Court ruled that the three-year prohibition on termination provided for in Article L. 145-7-1 of the Commercial Code does not apply to renewed leases.

This decision is of direct interest to owners of holiday residences as well as operators such as Pierre & Vacances, Adagio, Belambra and Appart’City, whose contractual relationships are frequently based on long-term commercial leases.

The facts: a notice of termination issued by Pierre & Vacances

The case concerned a couple of landlords who had let a property located in a holiday residence to the company Pierre & Vacances Maeva Tourisme Exploitation, whose rights were subsequently acquired by PV Résidences & Resorts France, which later became PV Holding.

The lease in question was not an initial lease but a renewed lease signed on 21 September 2010 for a term of eleven years.

On 24 March 2015, the operator served a notice of termination taking effect at the end of the second three-year period. The landlords contested this notice, arguing that Article L. 145-7-1 of the Commercial Code prohibited any three-year termination in holiday residences. They then sought the annulment of the notice of termination and payment of rent until the contractual end of the lease.

After their appeal was dismissed by the Paris Court of Appeal, the owners lodged an appeal to the Court of Cassation.

The legal question put to the Court of Cassation

The dispute concerned the interpretation of Article L. 145-7-1 of the Commercial Code.

This provision, introduced by the Act of 22 July 2009, stipulates that commercial leases entered into between landlords and operators of classified tourist residences must have a minimum term of nine years “without the possibility of termination at the end of a three-year period”.

The landlords argued that this prohibition applied to both initial leases and renewed leases. In their view, the provision made no distinction between these two categories of contracts and should therefore be applied generally.

Conversely, PV Holding argued that this derogatory rule applied only to initial leases and that renewed leases remained subject to the general law regime provided for in Article L. 145-12 of the Commercial Code.

The reasoning of the Court of Cassation

The Court begins by noting that Article L. 145-7-1 constitutes a derogation from the principle laid down by Article L. 145-4 of the Commercial Code, which normally grants the tenant the right to terminate the lease at the end of each three-year period.

It then notes that the legislature introduced this exception in order to guarantee the economic stability of tourist accommodation during the initial period of operation. Parliamentary proceedings demonstrate that the objective was to ensure the continuity of tourist operations for an initial minimum period of nine years.

The Court then examines the specific regime governing renewed leases. It points out that Article L. 145-12 of the Commercial Code provides that, unless otherwise agreed, a renewed lease is concluded for nine years and remains subject to the provisions of Article L. 145-4 relating to three-yearly termination.

Consequently, in the absence of any express provision extending the prohibition on termination to renewed leases, the Court considers that the mechanism of Article L. 145-7-1 ceases to apply after the first renewal.

Validation of the notice of termination served by the operator

Applying this reasoning to the present case, the Court finds that the disputed contract did indeed constitute a renewed lease.

It therefore upholds the Court of Appeal’s finding that the operator regained the right to terminate the lease at the end of a three-year period in accordance with the general law on commercial leases. The notice of termination issued by Pierre & Vacances was therefore deemed perfectly valid.

The landlords’ claims for payment of rent until the contractual end of the lease are consequently dismissed.

The issue of compensation for continued occupation

The owners also argued that the operator remained liable for sums due after the effective date of the notice of termination.

The Court of Cassation points out, however, that after the end of the lease, the occupant is no longer liable for rent but, where applicable, for compensation for continued occupation. Yet the landlords had only claimed payment of rent and had not made a separate claim for compensation for continued occupation.

The Court of Appeal was therefore not required to substitute one claim for another of its own motion. The Court of Cassation also upheld this reasoning.

Practical implications of the judgment

This judgment now constitutes a landmark decision regarding tourist residences. The Court of Cassation clearly states that the protection provided by Article L. 145-7-1 of the Commercial Code applies solely to the initial term of the lease and does not survive renewal.

For landlords, the consequence is significant: unless otherwise provided for in the contract, an operator holding a renewed lease regains the right to terminate the lease every three years, as provided for in Article L. 145-4 of the Commercial Code. This solution opens up more possibilities for operators wishing to reorganise their rental portfolio and reduces the contractual stability previously enjoyed by landlords following the renewal of the lease.