Citadines and Vila Luca dispute over new commercial rents

Setting commercial rents for two apartments in a tourist residence

The judgment handed down by the Paris judicial court on March 14, 2024 concerns a dispute between SA Citadines (plaintiff) and SARL Vila Luca (defendant) over the setting of commercial rents for two apartments in a tourist residence.

Initial leases signed with SNC PV Prog

The initial leases, signed on October 1, 2008 between SNC PV Prog and SA Citadines, were tacitly extended after their expiry on September 30, 2018. SA Citadines requested renewal of the leases from July 1, 2019 with reduced rents, but received no response from SARL Vila Luca.

Citadines referred the matter to the Rent Tribunal.

SA Citadines then sought to have the rents judicially fixed at amounts lower than those initially agreed, on the basis of a rental value assessment carried out by an expert. SARL Vila Luca did not set up a lawyer and did not appear at the hearings. The court ordered the proceedings to be reopened so that SA Citadines could prove that SARL Vila Luca was the lessor, which it attempted to do by producing a seizure report.

Citadines did not prove that Vila Luca was the successor to the PIERRE ET VACANCES group company SNC PV Prog.

However, the court ruled that the evidence provided by SA Citadines was insufficient to establish that SARL Vila Luca had succeeded to the rights of SNC PV Prog as lessor of the two apartments. Consequently, SA Citadines’ claims were dismissed, and it was ordered to pay the costs.

The judgment underlines the importance of providing clear and sufficient evidence to establish lessor status in commercial rental disputes.

TJ de Paris, Loyers commerciaux, 14-03-2024, n° 23/00542

Ask your questions using the contact form at the bottom of the page.

A hotel residence

The judge of commercial rents

On January 24, 2024, the Rennes Court of Appeal handed down a ruling concerning a dispute between SARL Résidence Reine Marine and the couple [N] over the renewal of a commercial lease for an apartment. Résidence Reine Marine, which operates a hotel residence, had asked for the annual rent to be reduced to 7,874 euros exclusive of tax, which the couple [N] had refused. The commercial rents judge set the rent at 13,300 euros excl. tax per year from July 1, 2016, a decision contested by Résidence Reine Marine.

Résidence Reine Marine lodged an appeal, requesting that the rent be set at 7,400 euros excluding VAT per year, or failing that, that a new expert be appointed. It put forward a number of arguments, including inconsistencies in the legal expert’s report, an occupancy rate of 58.55% instead of 60%, and a levy rate of 25% instead of 32.5%. She also pointed out the property’s geographical isolation and high operating costs.

The couple [N] asked for the initial judgment to be confirmed, arguing that the residence’s seafront location and numerous services justified the rent set. They also contested the amicable appraisal presented by Résidence Reine Marine.

60% occupancy rate

The Court of Appeal confirmed that a hotel residence is a single-use property, and that the rent must be determined in accordance with hotel industry practices. It applied an average sales figure of 1,764,424 euros and an occupancy rate of 60%.

A 32.5% revenue or effort rate

The 32.5% levy rate was deemed appropriate, taking into account the services offered and the quality of the hotel residence.

A 10% surcharge for work carried out by lessors

The Court also took into account the obligations of lessors, notably major repairs and replacement of furniture, as well as property tax and a fixed charge of 8 euros per m² for co-ownership expenses. It corrected the rent by applying a 10% mark-up for work to be carried out by the lessors.

A rent of 13,171.17 euros excluding VAT

In conclusion, the Court set the rent at 13,171.17 euros excl. VAT per annum from July 1, 2016, partially overturning the initial judgment. Résidence Reine Marine’s claims were dismissed, and the company was ordered to pay the couple [N] 3,000 euros under article 700 of the French Code of Civil Procedure, as well as the costs of the appeal. The parties will be required to draw up a new lease within one month of the judgment being served, failing which the judgment will become the lease. 

Ask your questions using the contact form at the bottom of the page.

45,960 euros main compensation and 30,359 euros additional compensation

The case concerned a dispute between Mrs Z and the town of Deauville over a commercial lease. Mrs. Z had leased premises in Deauville, but the town refused to renew the lease in 2011, offering an eviction indemnity of 12,716 euros. After several rulings, the Tribunal de Grande Instance de Lisieux ordered the town to pay 45,960 euros in main compensation and 30,359 euros in ancillary compensation to Ms. Z in 2017. Mrs. Z appealed, requesting a principal indemnity of 175,000 euros, additional indemnities of 43,500 euros, and 100,000 euros in damages for disturbance of enjoyment.

Multiplier factor of 4 for average EBITDA over the last three years

The Caen Court of Appeal revalued the main eviction indemnity at 60,772 euros, based on the value of the business, calculated on the basis of the average EBITDA for the last three years and a multiplier factor of 4.

Ancillary compensation

The court also set ancillary compensation at 31,475.45 euros, including a reinvestment indemnity of 6,077.20 euros, compensation for commercial disruption of 3,798.25 euros, and moving expenses of 21,600 euros.

No fault on the part of the City of Deauville in carrying out the redevelopment work

The court rejected Ms. Z’s claim for damages, ruling that the City of Deauville had not committed any fault in exercising its rights as lessor and carrying out the development work. The court also overturned the provisions of the initial judgment concerning costs, ordering the City of Deauville to pay the costs of the first instance and appeal, as well as the irreducible costs of 1,000 euros in the first instance and 2,000 euros in the appeal.

In conclusion, the Caen Court of Appeal partially overturned the initial judgment, increasing the main eviction indemnity and ancillary indemnities, while rejecting Ms. Z’s claim for damages. The town of Deauville was ordered to pay the costs of the proceedings and irreducible expenses. 

Feel free to ask your questions via our contact form at the bottom of the page.

Once the commercial lease is terminated No more expanses of the operator

Leaseback in France

The French leaseback property is a hotel, belonging to a co-ownership of individuals.

Some co-owners   of a flat under a leaseback scheme have terminated their contract with the operating company.

The tenant wants to bill them for some of his commercial and touristic services in the building.

These co-owners of leaseback in France are not required to bear the expenses related to several contracts.

Especially, they don’t have to pay for the reception contract on the ground floor. Meaning, the labors contracts of operator’s employee. These costs were in the common expenses of the co-ownership before. Now, several co-owners are out of the original scheme in which the operating company takes care of everything and send invoices at the end of the year (paid on the rent directly). The leaseback in France is now managed by the operator, but you are no longer a part of it. You cannot continue to pay for the commercial et hotel services provided by the operating company.

The reception corner at the entrance of the building is  a commercial service of the operator, which has no utility or value for this co-owner of a leaseback in France.

The operating company of the leaseback in France lost the case against these co-owners.

French Law

Article D. 321-2 du code du tourisme ; articles 10 et 41-3 de la loi n° 65-557 du 10 juillet 1965

Cour de cassation, chambre civile 3, 18 février 2015, N° de pourvoi : 13-27104

How to terminate the lease of the operator ?

There are several ways to terminate the lease of the operator of a French Leaseback.

Usually, it after the commercial lease ends.

Termination of the Lease by the court

But, if there are several breaches of contract, it is possible to fill a case in court in order to ask for a termination of the commercial lease before the end.

It is a lost of income for the tenant, as a result, it has to a major breaches of contract.

First of all, unpaid rents can be seen by a judge as a major breach. Especially, if the operator didn’t pay after a CDP (commandement de payer) from a bailiff (official warning of termination if the debt isn’t paid within one month.

Late payments of the rent for several years are usually not a major breach of contract. Though, it depends of the judge

The tenant might keep his lease, if he pays the debt just before the hearing. Same result if the judge agrees to a schedule of payment.

Furthermore, non renting to tourist if it is a “tourism residence” according to the commercial lease, is also a major breach of contract. Likewise, Renting to everyone or to the town for emergency purposes of a student house is another breach of contract.

Finally, all the breaches of the provisions of the contract could be regarded as major, if there a lot of them. The court decides case by case, depending on the tenant and his defense.

This case law is usually applied to small business. Meaning when the tenant is the weak party in the negotiation. Therefore the protective commercial lease law should not apply if the tenant is a big group, like in leasebacks.
Unfortunately, it is still the case right now.

Non renewal of the Lease

At the end of the lease, the lessor (landlord) can give notice according to the notice period stated in the commercial lease. BUT, the lessor has to pay damages (indemnité d’éviction). It can represent 2,5-3 years of EBE of the operating company.

Consequently, there are here two options. The first option is to negotiate with the tenant (the operator).

The second option is to ask the court to appoint a judicial expert. He will calculate the legal price of the eviction (the kind of damages).

However, lessor (landlord) and lessee (tenant) sign usually a settlement agreement after the demand of appointment of a judicial expert or during the expertise.

Furthermore, the lessor can give notice even after the end of the lease (or there not enough time to give notice within the notice period before the end of the lease).

For example, if the notice period is 6 months, the lessor can give notice after the end of the lease, for a date after six months starting on the next quarter.

You may ask for legal advice from 18 months before the end of the commercial lease.

The lawyer has to be specialized in the field of French commercial lease and French Leaseback in order to be able to give proper legal counsel.

TERMINATION OF A FURNISHED LEASE UNDER THE FRENCH LAW

FURNISHED AND MAIN RESIDENCE OF THE TENANT

IF the apartment or house is:

rented furnished

AND

Is the tenant’s main residence,

The lease is governed by article L. 632-1 of the Code de la construction et de l’habitation.

• TERMINATION BY THE TENANT

AT ANY TIME

The tenant can terminate the lease AT ANY TIME during the one year lease and WITHOUT ANY REASON (No justification is needed).

1 MONTH NOTICE PERIOD

The tenant must do so with a 1 MONTH’s notice. The notice period is 1 MONTH for the tenant.

• TERMINATION BY THE LANDLORD/LESSOR
  

TERMINATION SUBJECT TO SELLING, MOVING IN OR LONG TERM REPAIRS

However, the landlord is allowed to terminate the lease ONLY IF:

• The apartment or house is to be sold,
• The landlord or his children or parents are to move into the apartment,
• Long term repairs in the flat are necessary,

3 MONTHS NOTICE PERIOD

The lessor/landlord has to give a 3 months notice period before the end of the one year lease renewed every year.

LATE NOTICE OR LEGALLY UNJUSTIFIED NOTICE

If the lessor gives a late notice or legally unjustified notice, the lease is renewed for 3 years.

Ask a question to our English-speaking lawyers (free of charge)

Related Articles :

• Termination of a commercial lease due to unpaid rents
• Termination of a commercial lease in France
• Selling Real Estate in France
• What kind of contract with the real estate agent in France?
• Eviction of a Tenant: a long process (French Law)
• Buying property in France that needs refurbishing
• Real estate Latent Defects(vice caché)-French Law
• What should I do if my tenant is not paying rent ? (in France)
• Can I terminate the lease ? French Law

Me Bruno Traesch on radio FRANCE BLEU:

http://www.francebleu.fr/emissions/les-experts-france-bleu-107-1/maitre-bruno-traesch-expert-en-droit-de-l-immobilier

Investment Property France: How to deal with a tenant who is not paying rent in France?

Unpaid rent, how to avoid it ? Badly, a real good guide buying property in France doesn’t exist.

A leaseback scheme is based by definition on a return rental and a mortgage and tax breaks. The French parliament is encouraging the building and offer of holidays homes in France.

The goal isn’t to live in France, but to invest in real estate in France.

The house price is often higher than market value, because it is based on the long term rental return (the rental yields for the home owner).

The buyer would ideally been informed by a French lawyer in the process of french investment and acquiring properties for sale in France.

Unpaid rent

When buying an investment property in France, you don’t think the tenant could not pay rent. It happens sometimes with rental properties in France (French Alps, riviera, Paris …).

The rental income of this French property funds the payment of your mortgage. You have to move quick and efficient. Only a specialized lawyer in France can provide you with this results on the long term.

Unpaid rent in France ? What should I do ?

Unpaid rent Insurance

There are some unpaid rents insurance. Usually, such insurance are more for housing properties than commercial premises.

Some lessor/landlord ask the lessee/tenant to provide a third-party guarantee (“caution”). It means that X will pay the debt (unpaid rents for instance) of Y.

Under the French law, you cannot have both insurance and a third-party guarantee. The owner has to choose between these two guarantees.

1°) First thing to do: Notification called a “Commandement de payer” (CDP)

If needed, the next step is an official order delivered by a bailiff.

The “Commandement de payer” is a notice that sets a time limit for your tenant to pay you (two months for a flat lease and one month for a commercial lease). This official order has to be delivered by a bailiff (our firm can hire a bailiff and follow his work).

If there a third-party guarantee (“caution”) of the lessee, the CDP has to be notified to the third-party guarantee too.

If not, the landlord lose his right to ask for the conviction of the third-party guarantee.

The “Commandement de payer” is mandatory before filing a case in court.

It states that if the tenant does not pay the arrears of rent within one month (or two months) the landlord can ask for the cancellation of the lease in court.

The CDP gives the landlord leverage and the tenant enough time to repay his debt (unpaid rent and unpaid building/common expenses).

If the tenant doesn’t comply with the demands stated in the CDP, your lawyer will bring a lawsuit against the tenant (payment and/or eviction).

Watch out! If you merely change the lock to avoid legal proceedings, the tenant may sue you. You risk being fined by the court and ordered to allow the tenant to stay (even if the rent is not paid).

2 months (housing lease) or 1 month later (commercial lease): We can initiate proceedings before the Judge des “référés” (quick and simple court proceedings)

2°) Unpaid Rent : File a case in Court

In court, you can ask for the debt, as well as the termination of the lease because of the unpaid rent.

A quicker proceedings is open in case of unpaid rent: the judge of Refere:

Article 808 :
In all cases of urgency, the president of the High Court may order in a summary procedure all measures that do not encounter any serious challenge or which the existence of the dispute justifies.

Article 809:

The president may always, even where confronted with a serious challenge, order in a summary procedure such protective measures or measures to restore (the parties) to (their) previous state as required, either to avoid an imminent damage or to abate a manifestly illegal nuisance.
In cases where the existence of the obligation is not seriously challenged, he may award an interim payment to the creditor or order the mandatory performance of the obligation even where it is an obligation to do a particular thing.

Third-party guarantee (“caution”) of the lessee

In case of a third-party guarantee (“caution”) of the lessee, the lessor has to file a case against this party too.

If the landlord doesn’t do it, he loses his right to ask for the conviction of the third-party guarantee.

Quite often, the tenant pays his debt in court during the (oral) pleadings.

• A repayment schedule (36 months max.) can be decided by the Judge

The tenant is entitled to ask for a 36 months term of payment (24 months for a commercial lease). The lessee will have to pay each month his rent and a part of the unpaid rent.

If the tenant appears in court the day of the oral pleadings in court, the judge often sets a repayment schedule. If the tenant doesn’t pay on a  timely basis, meaning every month, the lease is terminated without having to refile a claim in court. The landlord is entitled to evict the tenant, with the help of the police and a bailiff.

What about the legal fees ? Who’s paying the lawyer and the bailiff ?

Under the French law the Judge has the freedom to decide based on fairness (meaning he does what he sees fair):

Article 700 du code de procédure civile:
As provided for under I of Article 75 of the Act n° 91-647 of 10 July 1991, in all proceedings, the judge will order the party obliged to pay for legal costs or, in default, the losing party, to pay to the other party the amount which he will fix on the basis of the sums outlayed but not included in the legal costs. The judge will take into consideration the rules of equity and the financial condition of the party ordered to pay. He may, even sua sponte, for reasons based on the same considerations, decide that there is no need for such order.

The owner has some legal expenses. Consequently, the judge can require of the tenant that he refunds all the legal fees. Badly, it is not always the result of the judgment. Too many judges are soft on the operating companies. the operator usually argue that the economy is difficult for tourism. Even if the market is at his highest right now in France !

The judgment for eviction is called “Ordonnance d’expulsion”.

3°) Eviction process (Bailiff and the Police)

The tenant has 2 months to move out voluntarily (following the notice called “Commandement de quitter les lieux”).

Then, the bailiff and the police will forcibly remove the tenant from your property.

Regarding commercial properties:

Usually, the evicted company leaves voluntary the premises. 

Regarding housing properties:

According to the French law, no eviction can be enforced between November 1st and March 15th (not applicable to a commercial lease).

Related Articles :

• Termination of a commercial lease due to unpaid rents
• Termination of a commercial lease in France
• Selling Real Estate in France
• What kind of contract with the real estate agent in France?
• Eviction of a Tenant: a long process (French Law)
• Buying property in France that needs refurbishing
• Real estate Latent Defects(vice caché)-French Law
• What should I do if my tenant is not paying rent ? (in France)
• Can I terminate the lease ? French Law

• Termination of a Leaseback Without Eviction Compensation
• Termination of Vacancéole’s Commercial Lease
• PV Exploitation France convicted
• French Leaseback: statute of limitation
• My French leaseback contract is over. What is happening now ?

Real Estate Disputes : Court Jurisdiction in France

Real estate disputes can be related to commercial lease, housing lease or selling contracts.

Lease disputes: several court jurisdictions

Housing Lease disputes

Housing lease disputes are decided by the Tribunal d’instance. (in Paris one in each arrondissement townhall)

Commercial lease disputes

The Tribunal judiciaire has jurisdiction over commercial lease cases.

Real estate disputes (selling contracts)

Two different courts can have jurisidiction over  real estate disputes, regarding the sale contract or the real estate agent, depending of the claim:

• Tribunal d’instance if less than 10.000 euros;
• Tribunal de grande instance, if more than 10.000 euros.

Role of the bailiff: eviction and freezing an account

1) Judicial notifications

Notifications of an official warning in case of arrears of rent or writ (written pleadings and information of the date of the pleading) or notice of eviction (after a judgment) have to be done by a sworn bailiff (called in France “huissier de justice”).

The costs are around 60-100 euros each notification, depending of the amount of the claim.

2) Eviction process

If a tenant who is not paying rent of the commercial or housing lease and not leaving the building after the judgment, the landlord has to start an eviction process.

The bailiff is in charge of the eviction process with the police and a locksmith, if needed.

3) Cease/freeze the bank account of the tenant

The bailiff can cease or freeze the bank account of the tenant.

Ask your question to our English-speaking lawyers in France (free).

Related Articles :

• Termination of a commercial lease due to unpaid rents
• Termination of a commercial lease in France
• Selling Real Estate in France
• What kind of contract with the real estate agent in France?
• Eviction of a Tenant: a long process (French Law)
• Buying property in France that needs refurbishing
• Real estate Latent Defects(vice caché)-French Law
• What should I do if my tenant is not paying rent ? (in France)
• Can I terminate the lease ? French Law

1) If the tenant is not paying rent

First thing to do: Notification called a “Commandement de payer” (CDP)

If needed, the next step is an official order delivered by a bailiff.

The “Commandement de payer” is a notice that sets a time limit for your tenant to pay you (two months for a flat lease and one month for a commercial lease). This official order has to be delivered by a bailiff (our firm can hire a bailiff and follow his work).

The “Commandement de payer” is mandatory before filing a case in court.

It states that if the tenant does not pay the arrears of rent within one month (or two months) the landlord can ask for the cancellation of the lease in court.

The CDP give the landlord leverage and the tenant enough time to repay his debt.

If the tenant doesn’t comply with the demands stated in the CDP, your lawyer will bring a lawsuit against the tenant (payment and/or eviction).

Watch out! If you merely change the lock to avoid legal proceedings, the tenant may sue you. You risk being fined by the court and ordered to allow the tenant to stay (even if the rent is not paid).

2 months (housing lease) or 1 month later (commercial lease): We can initiate proceedings before the Judge des “référés” (quick and simple court proceedings).

2) If the tenant / resident breaches the leasing contract

The lessor/landlord has to notify a notice to remedy the breach (ie an official warning).

The termination of the lease is granted only for serious problem during the tenancy.

3) Filing a case in Court

In court, you can ask for past rent, as well as the termination of the lease.

Quite often, the tenant pays past rent in court during the (oral) pleadings.

• A repayment schedule (36 months max.) can be decided by the Judge
  

The tenant is entitled to ask for a 36 months term of payment (24 months max. if commercial lease).

If the tenant appears the day of the oral pleadings in court, the judge often sets a repayment schedule. If the tenant doesn’t pay on a timely basis, meaning every month, the lease is terminated without having to refile a claim in court. The landlord is entitled to evict the tenant, with the help of the police and a bailiff.

Regarding the legal fees, the judge can require the tenant to reimburse all the legal fees.

The judgment for eviction is called “Ordonnance d’expulsion”.

4) Eviction process (Bailiff and the Police)

The tenant has 2 months to move out voluntarily (following the notice called “Commandement de quitter les lieux”).

The bailiff and the police will forcibly remove the tenant from your property.

According to the French law, no eviction can be enforced between November 1st and March 15th (not applicable to the commercial lease)

Related Articles :

• Termination of a commercial lease due to unpaid rents
• Termination of a commercial lease in France
• Selling Real Estate in France
• What kind of contract with the real estate agent in France?
• Eviction of a Tenant: a long process (French Law)
• Buying property in France that needs refurbishing
• Real estate Latent Defects(vice caché)-French Law
• What should I do if my tenant is not paying rent ? (in France)
• Can I terminate the lease ? French Law

TERMINATION OF A FURNISHED HOUSING LEASE UNDER THE FRENCH LAW

FURNISHED AND MAIN RESIDENCE OF THE TENANT

IF the apartment or house is:

rented furnished

AND

Is the tenant’s main residence,

The lease is governed by article L. 632-1 of the Code de la construction et de l’habitation.

• TERMINATION BY THE TENANT

AT ANY TIME

The tenant can terminate the lease AT ANY TIME during the one year lease and WITHOUT ANY REASON (No justification is needed).

1 MONTH NOTICE PERIOD

The tenant must do so with a 1 MONTH’s notice. The notice period is 1 MONTH for the tenant.

• TERMINATION BY THE LANDLORD/LESSOR
  

TERMINATION SUBJECT TO SELLING, MOVING IN OR LONG TERM REPAIRS

However, the landlord is allowed to terminate the lease ONLY IF:

• The apartment or house is to be sold,
• The landlord or his children or parents are to move into the apartment,
• Long term repairs in the flat are necessary,

3 MONTHS NOTICE PERIOD

The lessor/landlord has to give a 3 months notice period before the end of the one year lease renewed every year.

LATE NOTICE OR LEGALLY UNJUSTIFIED NOTICE

If the lessor gives a late notice or legally unjustified notice, the lease is renewed for 3 years.

Ask a question to our English-speaking lawyers (free of charge)

TERMINATION OF AN UNFURNISHED HOUSING LEASE (FRENCH LAW)

If the apartment or house is unfurnished, the termination of the lease is governed by article 15 of the 6th July 1989 law.

TERMINATION BY THE TENANT

The tenant can terminate the lease AT ANY TIME during of the three year-lease and WITHOUT ANY JUSTIFICATION.

The duration of the notice period is:

• ONE MONTH (in Paris and big cities or if there is a medical reasons, loss of job, new job, RSA …)
• 3 MONTHS notice in other case.

TERMINATION BY THE LANDLORD/LESSOR

The landlord is allowed to terminate the lease ONLY IF:

• Selling of the real estate
• The landlord or his children or parents are to move into the apartment
• Long term repairs in the flat are necessary

Late or unjustified notice by the landlord: Lease Renewed for 3 years

Beware, the lessor has to be careful. A late notice or a legally unjustified notice, will renew automatically the lease for 3 years.

Me Bruno Traesch on radio FRANCE BLEU:

http://www.francebleu.fr/emissions/les-experts-france-bleu-107-1/maitre-bruno-traesch-expert-en-droit-de-l-immobilier

Related Articles :

• Termination of a commercial lease due to unpaid rents
• Termination of a commercial lease in France
• Selling Real Estate in France
• What kind of contract with the real estate agent in France?
• Eviction of a Tenant: a long process (French Law)
• Buying property in France that needs refurbishing
• Real estate Latent Defects(vice caché)-French Law
• What should I do if my tenant is not paying rent ? (in France)
• Can I terminate the lease ? French Law