The Termination clause is subject to the approval of the court

Article L145-41 of the French Commercial Code sets out the procedures for implementing resolutory clauses in commercial leases.

Resolutory clause and payment order:

An automatic termination clause in a commercial lease only takes effect one month after the issue of an unsuccessful summons to pay. To be valid, the summons must mention this one-month period. This means that the tenant has one month to regularize the situation before the resolutory clause can be activated.

Power of the judge :

If a judge is seized of an application under article 1343-5 of the French Civil Code (which allows for the granting of payment deadlines), he may, by granting deadlines to the tenant, suspend the realization and effects of the resolutory clauses. This suspension is possible as long as the termination has not been established or pronounced by a court decision that has acquired the authority of res judicata.

As a reminder, article 1343-5 of the French Civil Code states:

“The judge may, taking into account the situation of the debtor and in consideration of the needs of the creditor, defer or stagger payment of the sums due, up to a limit of two years.

By special reasoned decision, he may order that the sums corresponding to the deferred instalments bear interest at a reduced rate at least equal to the legal rate, or that the payments be applied first to the capital.

The judge may make these measures conditional on the debtor taking steps to facilitate or guarantee payment of the debt.

The judge’s decision suspends any enforcement proceedings initiated by the creditor. The interest increases or penalties provided for in the event of delay are not incurred during the period set by the judge.

Any stipulation to the contrary is deemed unwritten.

The provisions of the present article do not apply to maintenance debts.

Suspension of the resolutory clause :

The resolutory clause cannot be enforced if the tenant releases himself under the conditions set by the judge, i.e. if he pays the sums due according to the additional deadlines granted by the court.

In short, this article protects the tenant by giving him one month to remedy his default before the resolutory clause can take effect. In addition, it gives the judge the option of granting additional time to the tenant, which may suspend the application of the resolutory clause, as long as the tenant complies with the conditions imposed by the judge.

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Article L145-34 of the French Commercial Code strictly regulates rent variations on renewal of commercial leases.

1. cap on rent variations :

– When renewing a commercial lease with a term not exceeding nine years, the variation in rent may not exceed the variation in the quarterly index of commercial rents (ILC) or the quarterly index of rents for tertiary activities (ILAT), since the initial setting of the rent for the expired lease.

– In the absence of a contractual clause specifying the reference quarter for this index, the variation calculated over the nine-year period preceding publication of the latest index is taken into account.

2 Renewal after the expiry date :

– If the lease is renewed after the initial expiry date, the change in rent is calculated on the basis of the last published index and over a period equivalent to that between the initial lease date and the actual renewal date.

3 Tacit extension and term exceeding twelve years :

– The capping provisions cease to apply when, as a result of a tacit extension, the lease term exceeds twelve years.

4 Significant modification of specific elements or clauses :

– In the event of significant modification of the elements mentioned in article L. 145-33, or if the contract includes a clause relating to the duration of the lease allowing for derogation from the capping rules, the resulting variation in rent may not exceed 10% of the rent paid the previous year, for each year.

These provisions are designed to protect tenants from excessive rent increases, while taking account of economic trends through official indexes. The 10% cap in the case of significant changes is an additional precautionary measure to ensure a certain predictability and stability of rents under commercial leases.

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Article L145-33 of the French Commercial Code sets out the principles for determining the rent applicable to the renewal or revision of commercial leases. This article is crucial to the balance between the rights of the lessor and lessee in a commercial lease.

Essential elements of the rent for a renewed lease :

1. Principle of the rental value of the renewed lease:

The amount of rent for a renewed or revised lease must be set according to the rental value of the property. The rental value is therefore the primary basis for calculation, and not previous rents or other criteria.

2. Criteria for determining rental value :

– Characteristics of the premises: This includes surface area, general condition, configuration, and any specific features of the property.

– Use of the premises: The use to which the premises are put, as indicated in the lease (retail, office, etc.), influences the rental value.

– The respective obligations of the parties: The contractual obligations of the lessor and lessee (e.g., charges assumed by each party) are taken into account.

– Local commercial factors: These include the commercial environment, footfall, local competition, etc., which can affect the profitability of a commercial activity on the premises.

– Prices currently charged in the vicinity: The rent must be consistent with those charged for similar premises in the same sector.

3.regulation by decree :

A decree by the Conseil d’Etat is responsible for specifying these elements to ensure uniform and fair application of these criteria in determining rents.

Practical importance

This article is essential for real estate law professionals, particularly during negotiations or disputes concerning rent renewal or review. It imposes a strict methodology designed to balance the interests of lessors and lessees, while taking into account local economic realities.

In the event of disagreement between the parties over the setting of a new rent, this framework enables judges or experts to determine an amount in line with market reality and the specific characteristics of the premises in question.

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A lessor who owns both the building and the business

Article L145-46 of the French Commercial Code, as it has been in force since September 21, 2000, deals with a specific situation in commercial leases where the lessor is both owner of the leased building and of the goodwill operating therein. This article imposes an obligation on the lessor to compensate the lessee on his departure, subject to certain conditions.

Here is an explanation of the terms of this article:

1 Owner of the building and the business :

The lessor is the owner of both the leased building and the goodwill running on it. This means that the lessor owns the two essential elements of the business: the real estate and the goodwill.

2. Lease covering both elements :

The lease contract covers both the building and the goodwill, which contractually binds these two elements.

3. Compensation due to the tenant :

At the end of the lease, if the tenant vacates the premises, the lessor must pay an indemnity to the tenant. This indemnity is linked to any material improvements the lessee has made to the leased premises.

4. Capital gain or rental value :

The indemnity corresponds to the profit that the lessor can derive from the increase in value of the business or the rental value of the building. This increase in value results from material improvements made by the tenant with the express agreement of the landlord.

5. Express agreement of the landlord :

For this indemnity to be payable, the material improvements must have been made with the express agreement of the landlord.

In short, this article protects tenants who have added value to the business or the rental value of the building through improvements, by guaranteeing them compensation from the landlord at the end of the lease. The purpose of this provision is to prevent the lessor from benefiting from an increase in the value of the property or business without any compensation for the lessee who carried out the work.

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Article L145-46-1 of the French Commercial Code concerns the tenant’s right of pre-emption in the event of the sale of the commercial or craft premises he occupies.

Key points :

1. Notification of the offer to sell to the tenant

– Landlords planning to sell commercial or craft premises must notify the tenant by registered letter with acknowledgement of receipt, or by hand delivery against receipt.

– This notification must indicate the price and conditions of sale, failing which it will be null and void.

– This notification constitutes an offer to sell to the tenant.

2. Tenant’s response period

– The tenant has one month from receipt of the offer to make a decision.

– If he accepts, he has two months to complete the sale.

– If the tenant informs us of his intention to take out a loan, the sale is subject to obtaining the loan, and the deadline is extended to four months.

3. Consequences in the event of more advantageous conditions for a third party

– If the owner decides to sell at a price or under conditions more advantageous to a third party, the notary must notify the tenant of these new conditions.

– The tenant then has one month to accept the new offer.

4. Exceptions to the right of pre-emption

– The article does not apply in certain specific situations, such as a single sale of several premises in a commercial complex, a sale to a co-owner, or a sale to a relative of the lessor (spouse, ascendant, descendant).

Importance of the article

This article strengthens the protection of commercial tenants by offering them the possibility of acquiring the premises they occupy on the same terms as those offered to a potential third-party buyer, thereby guaranteeing commercial and economic stability.

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2 years after the notice by a bailiff

The 2 years rule comes from the law

Article L. 145-60 of the French Commercial Code

The tenant’s position becomes much more uncertain when he fails to file a claim for eviction compensation within two years of the effective date of the notice to vacate with refusal to renew. In such a case, his action is foreclosed under the provisions of article L. 145-60 of the French Commercial Code, resulting in the loss of his right to eviction compensation (Cass. 3e civ., March 10 2004, no. 02-16.548: Bull. civ. 2004, III, no. 51, p. 47; Loyers et copr. 2004, comm. 111, obs. Ph.-H. Brault). As a result, he becomes an occupant without right or title, and can no longer claim to remain in the premises.

The statute of limitations on the right to claim compensation for eviction is a key issue in commercial leases, because of its significant impact on the rights of the evicted tenant. Under French law, an eviction indemnity is payable to the tenant if the lessor refuses to renew his commercial lease, unless the latter can justify a legitimate reason for refusal, as set out in article L. 145-14 of the French Commercial Code.

This indemnity is intended to compensate the lessee for the loss of his business and the investments made in the leased premises.

A two-year deadline

However, the exercise of this right is not unlimited in time. The legislator has set a two-year limitation period for the action to set the eviction indemnity, as set out in article L. 145-60 of the French Commercial Code. This period begins to run from the effective date of the notice to vacate with refusal to renew notified by the lessor. Thus, if the tenant does not bring the matter before the competent judge within two years, his action will be time-barred, i.e. he will no longer be able to validly claim this indemnity.

The consequence of prescription is particularly severe for the tenant. Indeed, the loss of his right to eviction compensation means that he can no longer obtain financial compensation for the loss suffered, and that he becomes de facto an occupant without right or title. This situation is legally fragile, as it deprives him of any possibility of remaining in the rented premises. From the date of prescription, the tenant is in a situation of irregular occupation and can be evicted at any time, without being able to invoke any right to remain in the premises.

It should be emphasized that prescription is a defense that the landlord can raise to extinguish the tenant’s action. The judge cannot raise it ex officio, which means that the lessor must invoke prescription in order to take advantage of it. If the tenant has not brought his action in good time, the landlord can ask the judge to declare that the claim is time-barred, and consequently that the claim for eviction compensation is inadmissible.

The starting point of the two-year period

In practice, this statute of limitations on the action to fix the eviction indemnity calls for great vigilance on the part of tenants. It is essential that they take the necessary steps to lodge their claim within the time limit, or risk losing a right that could represent a substantial sum. The statute of limitations can, moreover, be complex to calculate in certain situations, notably when the effective date of the notice is uncertain or disputed by the parties.

It is also important to note that the starting point of the limitation period can be influenced by various factors, such as the regular notification of the notice or the existence of negotiations between the parties after the notice has been given. In some cases, the tenant may be tempted to argue that ongoing talks have suspended the limitation period, but such an argument must be well-founded to be admissible in court.

Finally, although the two-year limitation period is the general rule, there are exceptional situations in which this period could be extended, notably in cases of force majeure or if the lessor has expressly recognized the principle of compensation in discussions subsequent to the delivery of the notice. However, such exceptions are rare and must be interpreted restrictively by the courts.

In conclusion, it is crucial for tenants to comply with the limitation period for the action to fix the eviction indemnity.

Any negligence or delay in bringing this action can have irreversible consequences, including the loss of the right to eviction compensation, leaving the tenant with no legal protection and no financial recourse to compensate for the loss of his goodwill.

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Eviction compensation clauses for tourist residences: on November 16, 2023, the French Supreme Court handed down 3 rulings on these clauses.

Waiver of eviction compensation prior to 2014

It follows from Article 2 of the Civil Code that new law governs the legal effects of legal situations that came into being before its entry into force and have not been definitively realized. Here, the 2014 Pinel law applies to commercial leases signed before this law.

Law no. 2014-626 of June 18, 2014, known as the Pinel Law, substituted, for the nullity of clauses having the effect of defeating the right to renewal, their deemed unwritten nature. Clauses waiving eviction compensation or setting a lump sum for eviction compensation are covered by this rule according to this ruling.

The lessee’s action to have a lease clause deemed unwritten is not subject to the statute of limitations (Cass., 3rd Civ., November 19 2020, pourvoi n° 19-20.405, published).

The judges conclude that the sanction of deemed unwritten (cancellation) is applicable to leases in force at the time of the 2014 Pinel law, even if the statute of limitations on the action for nullity of waiver or eviction indemnity setting clauses had previously expired.

Cour de cassation, 3rd civil chamber, November 16, 2023 – n° 22-14.046

Clause waiving eviction compensation after 2014

An application to have a clause having the effect of defeating the right to renewal, introduced after the entry into force of the law of June 18, 2014 and relating to a lease in progress on that date, deemed unwritten is admissible even though the limitation period for the action for nullity of that same clause would have expired on the day the new law came into force.

This second ruling by the Cour de cassation on November 16, 2023 confirms the application of the Pinel law sanction even though the two-year prescription would have been acquired on the day the 2014 Pinel law came into force.

Court of Cassation, 3rd Civil Chamber, November 16, 2023 – n° 22-14.091

A tenant who acts by way of action cannot invoke the exception of nullity

As the commercial lease stipulated a clause waiving the tenant’s right to renew the lease, and the notice of termination issued by the lessors without an offer of renewal or eviction compensation had terminated the lease on December 31, 2013, the court of appeal correctly held that the legal situation had ended on that date, i.e. before the law of June 18, 2014 came into force, and that this law was not applicable.

The rule that the exception of nullity is perpetual can only be invoked as a defense to a request for enforcement of an irregularly executed act and not by the plaintiff acting by way of action.

The tenant sued the landlords for nullity of the notice to vacate and of the clause waiving payment of an eviction indemnity.

The Court of Appeal correctly deduced that the tenant had acted by way of action, so that she could not rely on the exception of nullity.

Consequently, the waiver of eviction indemnity clause drafted by the operator of the tourist residence at the time of renewal of the commercial lease applies in this case.

Court of Cassation, 3rd Civil Chamber, November 16, 2023 – n° 22-14.089

Selling a Commercial Lease in France

You own a French leaseback property ?

Under French law, if the tenant is selling his commercial lease, he has to notify the lessor and ask for the approval of the new tenant. But, the lessor needs a legal justification according to the case law.

In the field of French leaseback property, there are numerous such disputes wich result in a trial. We can help avoid this situation, wich could be costly and time-consuming.

Clause for Approval of the Commercial Lease Buyer

Following the approval clause, the transfer of the commercial lease to the buyer is submitted to the lessor for prior approval. However, the lessor cannot reject the new tenant without a strong reason. The case law is more in the tenant’s favor.

Tacit approval of the commercial lease buyer by the lessor

If the tenant has not carried out the approval formality according to the terms of the commercial lease, he may try to prove that the lessor has accepted tacitly and unequivocally the transfer of the lease (Cass. Com. 4.1.1965). We can advice you on the best legal protection against this occurence.

Examples of insufficient evidence of the unequivocal approval of the lessor

We cannot prove that the buyer has been unequivocally accepted by the lessor even with:

• evidence that the lessor has received money from the buyer (Cass civ 3, 29/4/1969),
• an offer to reach a settlement agreement which has come to nothing.

Evidence of the unequivocal approval of the lessor of a French leaseback property

We can establish that the lessor has given his unequivocal approval with:

• the authorisation given to the buyer to have the gas company install gas fittings

Legality of the clause requiring the express and written authorization for any commercial lease transfer

The clause requiring express and written authorization for any lease transfer is legal. Nevertheless, if the lessor does not give his authorization without legal ground, the tenant can take legal action to obtain the authorization to sell the commercial lease.

Grounds for rejecting the agreement which are accepted by the court

The court recognizes the following reasons:

• well-known insolvency of the buyer,
• the activity of the buyer is incompatible with the commercial lease and requires the approval of the lessor in an additional clause which the lessor refuses to give,
• the transfer of the lease without the business, when the commercial lease makes the transfer of the business mandatory.

What if the lessor refuses to approve the buyer?

A lawyer may ask the lessor – in a letter of formal notice – to clarify his reasons for refusing to approve the potential buyer of the commercial lease of the French leaseback property.

If the lessor persistently refuses to give his approval, a lawyer should be commissioned to initiate legal proceedings before the ‘juge des référés’ (Urgent Applications Judge).

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