French Leaseback

98,265 euros conviction from the court of Nanterre

6 lessors of the Adagio Esplanade tourist residence in La Défense obtained 98,265 euros from the interim relief judge of the Nanterre judicial court by ordering ADAGIO SAS, a member of the Pierre et Vacances group, to pay 98,265 euros (89,265 euros in respect of Covid rent and 9,000 euros in legal costs, article 700 of the CPC).

The Court of Cassation confirmed this solution in its judgments of 30 June 2022.

JUDICIAL COURT OF NANTERRE

INTERIM ORDER ISSUED ON 10 NOVEMBER 2022

No. RG 22/01510 – Portalis No. DB3R-W-B7G-XPL4

N° minute :

c/

S.A.S. ADAGIO

APPLICANTS

all represented by Maître Bruno TRAESCH, lawyer at the PARIS Bar

of PARIS, clerk: E1219

DEFENDANT

S.A.S. ADAGIO

L’Artois Espace Pont de Flandre

11 rue de Cambrai

75947 PARIS CEDEX 19

represented by Maître Philippe RIGLET of SELAFA CMS

FRANCIS LEFEBVRE AVOCATS, lawyers at the bar of

HAUTS-DE-SEINE, Bar: 1701

2

COMPOSITION OF THE COURT

Chairman: Vincent SIZAIRE, Vice-President, holding the hearing

by delegation of the President of the Court,

Clerk: Esrah FERNANDO, Registrar

Ruling publicly at first instance by order

available at the court registry,

in accordance with the notice given at the end of the debates.

The interim relief judge, after hearing the parties present or their counsel, at the

hearing on 10 October 2022, reserved the case for today:

DESCRIPTION OF THE DISPUTE

The parties to this dispute are the owners of co-ownership lots in a building located at 35 cours Michelet in

Puteaux and leased to the Adagio company, which sublets these properties as tourist residences.

tourist residences.

Following the health crisis in March 2020, Adagio suspended payment of part of the rent.

part of the rent.

On 9 June 2022, the plaintiffs brought an action against Adagio before the interim relief judge. In

the latest version of their claims, they ask for :

– that Adagio be ordered to pay the applicant the total sum of

43,960.70; to Mr and Mrs Adagio the total sum of €15,748; to Adagio the total sum of

the total sum of €23,643.10; to Mr the total sum of €19,977.87; to the company the total sum of

company the total sum of € 8,518; to the company the total sum of € 23,643.10

and to Mr and Mrs the total sum of €13,081;

– Adagio be ordered to pay each claimant the sum of 630

under Article 700 of the French Code of Civil Procedure, and to pay all the costs.

costs.

In their written submissions and the observations they presented at the hearing, they argued that Adagio had not

Adagio did not prove that it had paid them the rent due and that its obligation to pay was not

seriously disputable, as the administrative closure to which it was subject did not exempt it from

exempt it from paying the rent.

In its written submissions and the observations it presented at the hearing, Adagio argued for

dismissal of the claims. In the alternative, it seeks the granting of 24 months’ deferred payment.

Lastly, it seeks an order that each of the plaintiffs pay it the sum of 500 euros under

under Article 700 of the French Code of Civil Procedure, and to pay all the costs.

It points out that the plaintiffs have not substantiated their claims and that some of them

signed settlement agreements with it. It also maintains that the impossibility

to which it was subjected amounts to a partial loss of the rented property and a breach of the

and a breach of the obligation to deliver, exempting it from the payment of rent. It

considers that a fine imposed on it would violate its right to property as protected by the

property as protected by Article 1 of the First Additional Protocol to the European Convention on

Convention for the Protection of Human Rights and Fundamental Freedoms.

3

GROUNDS FOR THE DECISION

On the claims for provisional damages

As regards the obligation to pay

It follows from the provisions of Article 835 of the Code of Civil Procedure that, “in cases where

the existence of the obligation is not seriously disputable”, the interim relief judge may

grant an advance to the creditor, or order performance of the obligation even if it is an obligation to do something”.

an obligation to do”. Article 1353 of the Civil Code also states that “a person who

performance of an obligation must prove it. Conversely, a person who claims to be discharged

must justify the payment or the fact which produced the extinction of his obligation”.

In the case in point, Mr and Mrs , M , and the companies , and provide evidence, by producing their

lease agreements or, at the very least, rental receipts issued by Adagio, are creditors of Adagio.

to Adagio for the payment of rents due in consideration of the rental of their properties.

rental of their properties.

Contrary to what the defendant maintains, the total and then partial bans on receiving

to which it was subjected did not deprive it of the enjoyment of the property and therefore

enjoyment of the property and cannot therefore be regarded as constituting a loss of the rented property

or a breach by the lessor of its obligation to deliver.

It also follows from Article 1218 of the Civil Code that a creditor who has not been able to take advantage of the consideration to which he was entitled is not entitled to any compensation.

to which he was entitled cannot obtain suspension of his obligation by invoking force majeure.

invoking force majeure.

Lastly, assuming that the company has a real right in the leased property, the obligation to pay the rent to which the company is subject cannot be suspended on the grounds of force majeure.

to which Adagio is subject has neither the effect nor the object of depriving it of the enjoyment of the

enjoyment of these assets, it cannot claim any infringement of its right to respect for its assets as

property as protected by Article 1 of the First Additional Protocol to the European

to the European Convention for the Protection of Human Rights and Fundamental

freedoms.

It follows from the foregoing that the obligation to pay rent relied upon by M , M and

Ms , M and the companies , and is not subject to any serious dispute. In addition

contrary to what it maintains, Adagio does not in any way justify having signed transactions with these

landlords of any transactions likely to partially extinguish its debt to them.

Having regard to the statements of account produced by the plaintiffs and the payment notices produced by

the defendant, it should therefore be liable for the provisional sums of 23

643.10 to be paid to the company, EUR 8,518.23 to be paid to the company, EUR 7,875.93 to the company

the company , 13,951.78 euros to M , 13,081.01 euros to M and Mme and 22,197.01 euros to

M .

On the other hand, it is clear from the documents in the file that by contract dated 24 September 2020,

granted the defendant an indemnity to compensate for the losses suffered during the periods of administrative closure.

administrative closures. Their request for a provisional order therefore comes up against a serious

and must be rejected.

With regard to payment deadlines

Article 1343-5 of the Civil Code states that “the court may, having regard to the situation of the debtor

the needs of the creditor, defer or stagger payment of the sums due, up to a maximum of two years”.

the payment of sums due”.

4

If it justifies the financial difficulties it encountered as a result of the health crisis in 2020

and 2021, Adagio has not provided any evidence to show that it is in a financial

that it is financially unable to pay, as of the date of the hearing, the sums that may be

to pay.

Its request for payment deadlines must therefore be rejected.

Costs and expenses of the proceedings

Pursuant to Article 700 of the French Code of Civil Procedure, Adagio should be ordered to pay

Adagio the sum of €1,500 in respect of the costs incurred by M , M and

and the companies , and not included in the costs.

As Adagio is the losing party, its claim for the costs of the proceedings can only be approved by the Court.

proceedings can only be dismissed.

Lastly, pursuant to Article 696 of the Code of Civil Procedure, Adagio should be ordered to pay the costs of the proceedings.

costs of the proceedings.

FOR THESE REASONS

The interim relief judge, ruling by contradictory order, publicly and at first instance

at first instance:

ORDER the company Adagio to pay the sum of 23,643.10 euros to the company .

ORDER Adagio to pay the sum of 8,518.23 euros to the company .

ORDERS Adagio to pay the sum of 7875.93 euros to the company ,

orders Adagio to pay the sum of 13,951.78 euros to M

MET to pay Adagio the sum of 13,081.01 euros to be paid to Mr and Mrs

ORDERS Adagio to pay the sum of 22,197.01 euros to Mr .

DISMISSES Adagio’s request for deferred payment.

ORDERS the company Adagio to pay the sum of 1,500 euros to M , M and Ms .

and the companies, pursuant to Article 700 of the Code of Civil Procedure.

DISMISSES all their claims.

DISMISSES Adagio’s claim pursuant to Article 700 of the French Code of

Code of Civil Procedure.

ORDERS Adagio to pay all the costs of the proceedings.

DATED AT NANTERRE, this 10th day of November 2022.

THE REGISTRAR,

Esrah FERNANDO, Registrar

THE PRESIDENT.

Vincent SIZAIRE, Vice-Chairman

Adagio Charras ordered to pay 16,536 euros (covid commercial rents) to two lessors

The operator of the Adagio Charras residence, PV CP CITY, a company in the Pierre et Vacances group, has been ordered to pay the unpaid covid rents, in accordance with all rulings and in particular the decision of the Cour de Cassation.

The Aparthotel Adagio access La Défense Place Charras tourist residence (formerly a student residence) is located at 1 Rue de Bitche (92400) in Courbevoie.

Adagio Charras: a first conviction of €10,205

The operator of the tourist residence, a member of the PIERRE ET VACANCES group, has been ordered by the interim relief judge of the Nanterre judicial court to pay a landlord the sum of €10,205 (€9,205 in covid rents and €1,000 in respect of article 700 of the CPC).

NO. RG 22/01425

A second award of €6,331

A second lessor of this Adagio Charras residence also obtained an order for the lessee to pay the sum of 6,331 euros (5,131.98 euros in Covid rent and 1,200 euros in article 700 of the CPC).

RG 22/01744

Getting your flat back by paying eviction compensation

Some lessors of the Adagio Charras residence, fed up with repeated unpaid rent, launched proceedings to recover their flat in return for payment of an eviction indemnity/damages. The interim relief judge sometimes specifies that the years 2020 and 2021 should be taken into account in the legal expert’s calculation.

JUDICIAL COURT OF NANTERRE

REFERENCES

SUMMARY ORDER ISSUED ON 12 AUGUST 2022

No. RG 22/01425 – Portalis No. DB3R-W-B7G-XLSO

minute no. :

Mr

Ms

c/

S.A.S.U. PV-CP CITY

APPLICANTS

Mr

Mrs

represented by Maître Bruno TRAESCH, lawyer at the bar of

PARIS, courtroom: E1219

DEFENDANT

S.A.S.U. PV-CP CITY

11 rue de Cambrai

75019 PARIS

represented by Maître Philippe RIGLET of SELAFA CMS FRANCIS LEFEBVRE AVOCATS, lawyers at the HAUTS-DE-SEINE bar, courtroom: 1701

The interim relief judge, after hearing the parties present or their counsel, at the hearing of

13 July 2022, reserved judgment until today.

DESCRIPTION OF THE DISPUTE

Mr and Mrs are co-owners of a property located at 1-5 place de Bitche in Courbevoie (92). This property is leased to PVCP City, which sublets the student residences that make up the complex. Since March 2020, PVCP City has not paid all the rent due to its lessors.

On 12 April 2022, Mr and Mrs summoned PVCP City before the interim relief judge. In their final statement of claim, they requested:

– an order that PVCP City pay them the sum of 17,020.39 euros as a provision for the payment of rents due

– Termination of the lease;

– order PVCP City to pay them the sum of 1,000 euros on the basis of Article 700 of the Code of Civil Procedure, and to pay all the costs.

In their written submissions and the observations they presented at the hearing, they argued that their claim was not seriously disputed, as the company had continued to operate the premises during the health crisis. They also argued that the non-payment of rent constituted serious misconduct justifying termination of the contract.

In its written submissions and the observations it presented at the hearing, PVCP City argued that the claims should be dismissed. In the alternative, it requests that the amount of the sums for which it is liable be reduced to 9,072.18 euros. Lastly, it seeks an order that the plaintiffs pay it the sum of 500 euros each on the basis of Article 700 of the Code of Civil Procedure, as well as all costs.

It maintains that the claims are seriously disputed, in that it was subject to periods of total and then partial prohibition on welcoming the public, amounting to a case of force majeure, a failure to deliver the rented property, a loss of the rented property and a disappearance of the cause of the contract. It also pointed out that it had paid all the rent due outside these periods.

GROUNDS FOR THE DECISION

On the request for an interim order

It follows from the provisions of Article 835 of the Code of Civil Procedure that, “in cases where the existence

of the obligation is not seriously disputable”, the interim relief judge may “grant an advance payment

to the creditor, or order performance of the obligation even if it is an obligation to do”.

In the case in point, it is clear from the documents in the file and in particular from the statement of account drawn up by the defendant company

dated 7 July 2022, that it still owes the sum of 9,205.44 euros in respect of rent

due.

Contrary to what PVCP City maintains, the administrative police measures to which it was

measures to which it was subjected in application of the state of health emergency cannot be regarded as a loss

or failure to deliver the rented property, exempting it from the payment of rent, insofar as they did not deprive it of the enjoyment of the rented property.

deprived it of the use of the premises. For the same reasons, they cannot be regarded as

as depriving it of any cause of its obligation, which consists precisely in the provision of the premises.

3

the rented property. Finally, even if it were the case, the existence of a case of force majeure cannot exonerate the tenant

payment of a sum of money.

It follows from the foregoing that the obligation relied on by the plaintiffs is not subject to any

serious dispute. PVCP City should therefore be required to pay the sum of 9

205.44 by way of provision to be paid to Mr and Mrs .

Termination request

Pursuant to Article 484 of the Code of Civil Procedure, “an interim order is a provisional decision made at the request of a party to a contract”.

made at the request of a party, the other party being present or called upon, in cases where the law confers jurisdiction on a judge who is not a party to the proceedings.

a judge who is not seised of the main proceedings the power to order the necessary measures immediately”.

As the termination of a contract is a final measure, it cannot be ordered by the judge in summary proceedings.

summary proceedings judge. The application made to that end can therefore only be rejected.

Costs and expenses of the proceedings

Pursuant to the provisions of Article 700 of the Code of Civil Procedure, PVCP City should be ordered to pay the costs of the proceedings.

PVCP City the sum of €1,000 in respect of costs incurred by the plaintiffs and not included in the

included in the costs.

As the plaintiffs are not the losing parties, the claim made against them in respect of the costs of the proceedings can only be accepted.

can only be dismissed.

Lastly, pursuant to Article 696 of the Code of Civil Procedure, PVCP City should be ordered to pay the costs of the proceedings.

PVCP City the costs of the proceedings.

FOR THESE REASONS,

The interim relief judge, ruling by contradictory order, publicly and at first instance :

orders PVCP City to pay the sum of EUR 9,205.44 to Mr and Mrs as an advance on the costs of the proceedings.

as an advance on the rent due.

ORDERS PVCP City to pay Mr and Mrs the sum of EUR 1,000 pursuant to Article

pursuant to Article 700 of the French Code of Civil Procedure.

DISMISSES the remainder of Mr and Mrs’s claims.

DISMISSES PVCP City’s claim pursuant to Article 700 of the French Code of

of Civil Procedure.

Orders PVCP City to pay all the costs of the proceedings.

DATED AT NANTERRE, 12 August 2022.

THE REGISTRAR

Divine KAYOULOUD ROSE , Registrar

THE PRESIDENT

Vincent SIZAIRE, Vice-President

4

1

JUDICIAL COURT OF NANTERRE

REFERENCES

SUMMARY ORDER ISSUED ON 18 JANUARY 2023

N° RG 22/01744 – N° Portalis DB3R-W-B7G-XVDW

N° :

c/

PV CP CITY

APPLICANT

S.A.R.L.

represented by Bruno TRAESCH, lawyer at the Paris Bar

PARIS, clerk: E1219

DEFENDERESSE

Société PV-CP CITY

L’Artois Espace Pont de Flandre

11 rue de Cambrai

75019 PARIS

represented by Maître Philippe RIGLET of SELAFA CMS

FRANCIS LEFEBVRE AVOCATS, lawyers at the bar of

HAUTS-DE-SEINE, courtroom: 1701

COMPOSITION OF THE COURT

President: Quentin SIEGRIST, Vice-President, holding the hearing

by delegation of the President of the Court,

Clerk: Pierre CHAUSSONNAUD

Ruling publicly at first instance by order

available at the court registry,

in accordance with the notice given at the end of the debates.

2

We, the President, having heard the parties present or their counsel, at the hearing of 30 November 2022, have reserved the case for today:

STATEMENT OF THE DISPUTE AND THE PROCEDURE

By deeds dated 21 December 2007, the Company acquired from Mr Emmanuel Monlibert and Mrs Ariane Monlibert, on the one hand, and from Mr Julian Cole, on the other hand, two flats, constituting lots no. 101 and no. 158, within a property complex subject to co-ownership status located at 1 rue de Bitche in Courbevoie 92400, known as the “La Défense Charras” residence.

When the flats were acquired, they were leased to Lamy Résidences for the purpose of operating a furnished serviced residence. Under a private deed dated 30 August 2007, Mr Emmanuel Monlibert and Ms Ariane Monlibert leased co-ownership lot no. 101 to the company for a period of 9 years, with effect from 1 October 2007, in return for an annual rent of €4,127.80 excluding VAT, payable in calendar quarters.

Mr Julian Cole leased co-ownership lot 158 to the same company for a period of 9 years from 1 October 2007, in return for an annual rent of 3,956.15 euros excluding VAT, payable every calendar quarter in arrears. A number of rental payments have remained unpaid.

By bailiff’s writ dated 8 July 2022, the company summoned PV-CP City to appear before the interim relief judge of the Nanterre court.

The case was called for hearing on 12 October 2022, but counsel for the defendant company requested that the case be adjourned, arguing that it had been brought late.

GROUNDS FOR THE DECISION

It should first be noted that the parties’ requests that the Court “rule that” do not necessarily constitute claims within the meaning of Article 4 of the Code of Civil Procedure, since they do not confer any specific rights on the party requesting them. Consequently, they will not be mentioned in the operative part.

Requests for an advance

The second paragraph of article 835 of the Code of Civil Procedure provides that in cases where the existence of the obligation is not seriously disputable, they may award an advance to the creditor, or order performance of the obligation even if it is an obligation to do something.

If the amount of the advance awarded in summary proceedings is limited only by the amount of the alleged debt that is not seriously disputable, it must remain provisional in nature, i.e. it must be an advance, the amount of which is intended, on the one hand, to cover costs justified by the claimant and, on the other hand, to be used to calculate the claimant’s loss with regard to the amount of compensation likely to be awarded.

In the present case, the company is seeking an order that PV-CP City, the successor in title to Lamy Résidences, pay it a provision of 6,597 euros in respect of unpaid rent and a provision of 5,000 euros in respect of undue resistance, by way of damages.

damages.

Firstly, with regard to the claim for unpaid rent, the company maintains that the defendant company has an obligation that is not seriously disputable to pay the rent in full under the terms of the commercial lease between the parties. In this regard, it submitted to the court the commercial leases for lots 101 and 158 covering the period from 1 October 2007 to 30 September 2016, as well as a breakdown of the rent due and the rent received from 1 October 2007 to 30 September 2016.

rents collected from the 1st quarter of 2020 to 2022, showing total unpaid rent of 5,131.98 euros.

In its defence, Adagio SAS argues that there is a serious dispute as to whether it should be ordered to pay rent on account of the possibility of invoking the defence of non-performance, given the impossibility of using the rented premises in accordance with their intended purpose and the partial loss of the rented property, which temporarily releases the lessee from its obligation to pay rent.

As a preliminary point, it should be noted that although no renewal of a commercial lease has been produced for the period concerned by the alleged unpaid rents, the defendant company in no way disputes the existence of a binding lease between the parties. In addition, although it objects to the principle of its obligation to pay the unpaid rent, it acknowledges that the amount of the unpaid rent is that shown in the statement of account produced by the company.

On the one hand, with regard to the plea of non-performance, it should be remembered that the administrative measures taken in the context of the health crisis are not attributable to the lessor, so that it cannot be accused of failing in its obligation to deliver. Accordingly, the

plea will be rejected.

On the other hand, with regard to the partial loss of the property, the administrative measures taken in the context of the health crisis did not result in the loss of the property within the meaning of article 1722 of the Civil Code, as the lessee could still physically access the premises, and the limitation or impossibility of using them did not amount to destruction.

It follows from the foregoing that PV-CP City has a non-seriously disputable obligation to pay the outstanding rent, even for the period covered by the administrative measures relating to the health crisis.

The amount of unpaid rent should therefore be determined.

In the present case, the company, which is seeking an order against the defendant company to pay the sum of 6,597 euros in respect of unpaid rent, has submitted a statement to the court showing a lower total amount of unpaid rent, namely the sum of 5,131.98 euros, and has not produced any supporting documents in respect of the surplus it is seeking.

In its defence, the defendant company stated orally at the hearing that it agreed with the amount of unpaid rent shown on the aforementioned statement, and contested the amount claimed of 6,597 euros.

It therefore appears that the provision of 5,131.98 euros requested by the company in respect of unpaid rent is not seriously disputable.

Secondly, with regard to the claim for damages for undue resistance, the company merely includes such a claim in its operative part, without justifying it in its grounds.

As PV-CP City validly submits, in the absence of justification of the principle and extent of the loss that it is claiming, the company will be dismissed from its provisional claim for damages for undue resistance.

Costs

Article 696 of the Code of Civil Procedure provides that the losing party is in principle ordered to pay the costs. PV-CP City should therefore be ordered to pay the costs.

Compensation claimed under Article 700 of the Code of Civil Procedure

Article 700 of the Code of Civil Procedure provides that the court shall order the party required to pay the costs or who loses the case to pay to the other party the sum it determines, in respect of the costs incurred and not included in the costs. The court must take into account the fairness or economic situation of the party ordered to pay costs and may set aside the order for the same reasons.

In this case, the application for an order against the company, which is neither liable for costs nor a losing party, should be rejected.

Taking into account the economic situation of the parties and equity, PV-CP City should be ordered to pay the company the sum of 1,200 euros under Article 700 of the Code of Civil Procedure.

Provisional enforcement

In accordance with articles 514 and 514-1 of the Code of Civil Procedure, it should be noted that

this decision is enforceable on a provisional basis.

FOR THESE REASONS

ORDER PV-CP City to pay the Company the provisional sum of 5,131.98 euros in respect of unpaid rent,

FIND that there are no grounds for summary proceedings in respect of PV-CP City’s request to be ordered to pay the company a provisional sum in respect of undue resistance,

ORDER PV-CP City to pay the costs,

ORDER PV-CP City to pay the company the sum of 1,200 euros in accordance with Article 700 of the French Code of Civil Procedure,

REJECT PV-CP City’s claim under Article 700 of the French Code of Civil Procedure,

REJECT the remainder of the claims,

RECALL that this order is provisionally enforceable.

DATED AT NANTERRE, this 18th day of January 2023.

THE REGISTRAR,

Pierre CHAUSSONNAUD

THE PRESIDENT.

Quentin SIEGRIST, Vice-Chairman

On 5 May 2022, 8 lessors of the Adagio Val d’Europe tourist residence succeeded in having the Meaux court order PV RESIDENCES & RESORTS France (PV CP CITY), part of the PIERRE ET VACANCES group, to pay €124,508 (Covid rents: €121,628 and €2,880 under article 700 of the French Criminal Procedure Code).

The Cour de Cassation confirmed this solution in its two rulings and its press release of 30 June 2022.

No “partial loss of the rented property

The operator, a company in the PIERRE ET VACANCES group, claimed that the confinements resulting from an administrative decision could be likened to a partial destruction of the rented property.

The aim was to avoid having to pay arrears of commercial rent for this tourist residence.

The Meaux court rejected this argument in the following terms:

“Temporary unavailability of the leased property, as a result of an administrative decision, is in no way comparable to partial destruction. The very nature of destruction is that it is definitive.

However, in the case in point, what is involved is a temporary administrative closure that cannot be equated with partial destruction of the rented property.

The plea alleging “partial loss of the rented property

Temporary unavailability of the leased property as a result of an administrative decision cannot in any way be equated with partial destruction. In fact, the very nature of destruction is that it is definitive.

However, in the case in point, what is involved is an administrative closure of a temporary nature that cannot be equated with partial destruction of the leased property.

The plea will be rejected.

Judgement of the Meaux judicial court of 5 May 2022, 1st chamber, No. RG 21/01536

Judgement by the Bastia judicial court (45,617 euros)

13 landlords in a tourist residence obtained an order from the Bastia judicial court for the operator of the Belambra tourist residence to pay 45,617 euros in covid commercial rents (41,717 euros in principal; 3,900 euros article 700 of the CPC, legal costs).

Judgment of the court of Bastia, 20 September 2022, 1st civil chamber, No. RG 21/00266

Belambra convicted

In the case of 13 Landlords vs. the Operator of Belambra Tourist Residence, the Bastia Judicial Court rendered a significant decision concerning the payment of rents owed during the COVID-19 pandemic. This case centers on the failure of the operator to fulfill its rental obligations, resulting in a judgment in favor of the landlords. The court ordered the operator to pay a total of 45,617 euros, including

41,717 euros in principal and 3,900 euros pursuant to Article 700 of the French Code of Civil Procedure (CPC), which covers the legal costs.

Factual Background

The dispute arose within the context of the COVID-19 pandemic, which significantly impacted businesses, particularly in the tourism sector.

The 13 landlords in question had leased their properties to the operator of the Belambra Tourist Residence under a commercial lease agreement.

Due to the government’s health restrictions and the subsequent impact on tourism, the operator encountered financial difficulties and failed to pay the rent stipulated in the lease agreement.

The landlords, in response to this failure, initiated legal proceedings before the Bastia Judicial Court, seeking to recover unpaid commercial rents that had accrued during the pandemic. The landlords argued that the pandemic and the associated governmental measures did not absolve the operator of its contractual obligation to pay rent. Instead, they contended that the operator was bound by the terms of the lease, regardless of external circumstances affecting its business operations.

Legal Issues

The key legal issue in this case was whether the operator of the tourist residence could validly invoke the COVID-19 pandemic and the associated government-imposed restrictions as grounds to be excused from its rental obligations. In essence, the court was asked to determine whether the pandemic constituted force majeure under French law, which would allow the operator to suspend or terminate its obligation to pay rent.

Force majeure is defined under Article 1218 of the French Civil Code as an event that is both unforeseeable and unavoidable, rendering performance of the contractual obligations impossible. The operator argued that the pandemic and the restrictive measures met these criteria and, therefore, excused them from paying rent during the affected period.

However, the landlords countered that while the pandemic undoubtedly created financial difficulties for businesses, it did not make the payment of rent “impossible.” They contended that the financial consequences of the pandemic, however severe, do not relieve a debtor of their obligation to pay unless performance is physically or legally impossible, which was not the case here. The tourism residence was not legally prevented from operating; rather, the demand for its services had diminished.

Court’s Analysis and Decision

The Bastia Judicial Court agreed with the landlords’ argument, ruling that the operator was not excused from paying rent under the doctrine of force majeure. The court noted that the pandemic, while unforeseeable and disruptive, did not render it impossible for the operator to pay rent. The court emphasized that force majeure must be interpreted strictly and cannot be invoked simply because an event makes contractual performance more difficult or economically burdensome.

The court further reasoned that commercial leases are fundamentally based on the principle of risk allocation. In leasing property, the tenant assumes certain risks, including those related to changes in market conditions or external events affecting their business. The court held that it was not the landlords’ responsibility to bear the financial burden of the operator’s inability to generate revenue due to the pandemic.

Consequently, the court ordered the operator to pay the outstanding rents totaling 41,717 euros, along with an additional 3,900 euros under Article 700 CPC, which allows the court to award costs associated with the legal proceedings to the prevailing party.

Conclusion

This decision underscores the principle that, even in extraordinary circumstances such as the COVID-19 pandemic, commercial tenants cannot automatically invoke force majeure to avoid their rental obligations.

The ruling affirms the contractual responsibilities of tenants, particularly in the context of commercial leases, and emphasizes the importance of clear risk allocation in such agreements. The Bastia Judicial Court’s judgment in favor of the landlords reflects a strict interpretation of force majeure under French law and reinforces the legal certainty surrounding the payment of commercial rents.

Please feel free to ask us any question here.

Tourist residence: Eviction compensation for Adagio Charras

Rejection of Pierre et Vacances’ claim to ignore 2020 and 2021

The interim relief judge of the Nanterre court confirms that the years 2020 and 2021 must be taken into account when calculating the eviction compensation claimed by Pierre et Vacances for the tourist residence, a former student residence at the end of the lease:

“In its written submissions at the hearing, PV CP CITY, without contesting the expert’s report in principle, requested that the years 2020 and 2021 be excluded from the scope of the expert’s assignment, on the grounds that they were not representative of the normal operating conditions of the business in light of the administrative measures taken as part of the Covid-19 health crisis.”

Compensation for eviction must be calculated at the time when the loss is incurred, i.e. either on the date of eviction or on the date when the tenant ceases to occupy the premises on a regular basis. The value of the business assets must be assessed on the date on which the courts rule when eviction has not yet occurred (Com. 30 June 1959, Bull. civ. III, no 292; Civ. 3e, 24 Nov. 2004, no 03-14.620), it being noted that the value of the business must be determined on the basis of the lessees’ last three years’ turnover before the eviction (Civ. 3e, 20 March 2007, no 06-11.040).

With regard to the assignment, although the defendant argues that the years 2020 and 2021 are not representative of its business in terms of the measures taken to manage the health crisis, it does not specify the measures to which it refers or their impact, and it does not submit any documents to the court to support the alleged effects, even though the scope of the expert’s assignment is disputed and consequently the elements put forward in its defence cannot be taken for granted. Consequently, there is no reason to exclude the last two years of activity from the mission entrusted to the expert.

(Judgment of 25 May 2022 No. RG 22/00259)

It will be recalled that the Cour de Cassation stated in a clear statement that the unpaid rents in 2020 and 2021 by Pierre et Vacances and the other operators were due:

“The general and temporary measure prohibiting the reception of the public does not result in the loss of the rented property and does not constitute a breach by the lessor of his obligation to deliver. A tenant is not entitled to rely on this as force majeure in order to escape payment of his rent”.

Cour de cassation, no. 21-19.889 – no. 21-20.127 – no. 21-20.190

Adagio Paris Tour Eiffel tourist residence (rue du théâtre)

The Paris judicial court has ordered Pierre et Vacances, which operates the Adagio Paris Tour Eiffel residence, to pay covid for unpaid rent.

The Adagio residences are operated by a company in the Pierre et Vacances group, PV CP CITY. The Adagio brand is owned by Pierre et Vacances and the ACCOR group.

A procedure initiated by 31 lessors

On 22 March 2023, Pierre et Vacances (PV CP CITY) was ordered by the Paris Magistrates’ Court to pay €848,649 to 31 lessors (€845,549 in unpaid rent and €3,100 in article 700 CPC) of the Adagio Paris Tour Eiffel residence.

Application of Court of Cassation case law from 2022

The 18th civil division of the court dismissed the operator’s arguments in accordance with the case law of the Cour de cassation of June 2022. The Court of Cassation has issued a statement to give its decisions greater weight in the courts responsible for applying this solution.

Rejection of the plea of non-performance based on an alleged breach of the lessor’s obligation to deliver and force majeure

The plea of non-performance and force majeure were rightly rejected, in view of the positive law established by the Cour de cassation.

Responses from the Board of Directors to shareholders’ written questions

The operator favours its shareholders over its lessors, despite the public aid it receives:

“Rent expense is virtually stable compared with the previous financial year (up €3 million) lease renewals (€20 million) being offset by lower rental savings in discussions with the Group’s lessors than those recorded in the previous financial year (€47 million in FY 2021 vs. almost €70 million in FY 2020).

Rental savings in FY 2021 are limited to :

– the net savings achieved by applying the endorsements signed by 59.3% of individual lessors as at 30 September 2021 (deductible equivalent to 7.5 months’ rent, including 5 months in respect of FY 2021, i.e. a saving for the Group of around 29 million euros over the year, largely offset by a charge of 28 million euros corresponding to the face value of the vouchers awarded to signatories of the endorsement).

The result for the year also includes a saving of 7 million euros relating to suspended rental payments to non-signatory lessors for periods of administrative closure during which the Group considers, on the legal basis of the exception of non-performance or on the basis of the provisions of Article 1722 of the French Civil Code, that the rental debt is extinguished.

– the net savings achieved by applying the agreements signed with institutional lessors, representing an amount of around €39 million for FY 2021 (rent-free periods / variable rents with guaranteed minimums, net of the provisioning of rents under financial recovery clauses).

The 2019/2020 financial year saw rental savings of almost €70 million (€30 million in respect of rents from individual lessors suspended during the administrative closure period and €40 million in respect of agreements negotiated with institutional lessors).”

(Brochure_de_convocation_AGM 31 March 2022, page 8)

“The Group has based its assessment on the legal basis of the exception for non-performance and on the provisions of Article 1722 of the French Civil Code. As a result, no liability has been recognised in this respect at 30 September 2021.

This position has been validated by the Group’s statutory auditors.

…

– What are the texts, decrees or administrative regulations referred to under the term “administrative closure” used on page 15 of the Notice of Meeting brochure, in respect of the period considered “mid-March to the end of May and November to mid-December 2020”?

The texts applicable to the period from “mid-March to the end of May and November to mid-December 2020” are as follows:

Ministerial orders of 14 and 15 March 2020 and decree no. 2020-293 of 23 March 2020

– Decree no. 2020-548 of 11 May 2020, amended by Decree no. 2020-604 of 20 May 2020

– Decree no. 2020-1310 of 29 October 2020

Debts due in respect of all unpaid rents to non-signatory individual lessors for the period from 1 January to 30 June 2021 are recorded as liabilities (under trade payables in the Group’s parent company and consolidated financial statements) in an amount of approximately €32 million at 30 September 2021.

To date, these debts represent only €16 million, the share of non-signatory lessors having been halved compared with 30 September 2021. The suspended rents for the other so-called interim periods (periods between administrative closures) have also been paid in full.

The Group, with the support of its legal advisors, considers that the rental debt relating to the administrative closure periods has been extinguished. The Group relies on the following legal bases:

– The exception of non-performance due to the breach of the obligation of peaceful enjoyment (articles 1219 and 1719 of the French Civil Code); and

– the grounds of partial destruction (loss) of the premises (article 1722 of the Civil Code).

Accordingly, no provision has been recorded in the Group’s consolidated financial statements in this respect.

(Responses from the Board of Directors to written questions from shareholders, Combined General Meeting of 31 March 2022)

State guarented loans and public subsidies to Pierre et Vacances

Lastly, the court noted the significant public subsidies received by the tourist residence group.

Statutory auditors’ report of 30 September 2021

The auditors’ report of 30 September 2021 states that 551 million euros of debt had been converted into capital and that “25 million euros of the PGE had been maintained”.

The PIERRE ET VACANCES group will therefore not be obliged to repay 215 million of the 240 million of the first PGE.

The new and second EMP for 34.5 million euros

The PIERRE ET VACANCES group benefits from a new and second PGE amounting to 34.5 million euros.

(Statutory auditors’ report of 30 September 2021, pages 17, 19 and 43)

Closure aid

The operator obtained so-called “closure” aid from the State amounting to €24 million “to compensate for the fixed costs not covered by companies whose business is particularly affected by the Covid 19 epidemic”.

(Statutory auditors’ report of 30 September 2021, page 44)

Refusal to sign agreements unfavourable to lessors under the pressure of pseudo-conciliation before the Commercial Court

The operator intends to make the lessors pay for its operating risks, despite the fact that it is not sharing the healthy profits from the record years for tourism in Paris in 2018 and 2019 with its “investors”, the individual lessors.

The operator tried to get the lessors to sign an amendment under which they acknowledged that they had breached their obligation to deliver in exchange for non-existent concessions such as the payment of rent for subsequent quarters.

Court orders Pierre et Vacances to pay unpaid rent covid

The landlords can congratulate themselves on not having given in to pressure and untruths.

Rent deferral, not a waiver of the covid rents

Lack of impartiality of the conciliator before the commercial court

The tenant, operator of the leaseback property, proposed a rent waiver amendments to the lessors. The Pierre et Vacances Group put pressure on landlords to agree to rent waivers for the Covid period. In particular, it financed 100% of a conciliation before the commercial court, while refusing the conciliations proposed by the judicial court, which would have provided guarantees of impartiality. The role of the conciliator before the commercial court is to have claims waived (to save the failing company). Legal untruths were written to the lessors in an attempt to convince them to give in. Our firm refused to take part in this conciliation, as it did not offer the minimum guarantees of impartiality.

Waiver Covid: Legal reason of the Court of Paris

The court of Paris interpreted PV CP CITY’s waiver no. 2 as follows:

“It is clear from these documents that the lessor grants the lessee a deductible of 5 months  contractual rent excluding taxes and charges, including the entire period from March 15, 2020 to June 13, 2020.

Reciprocally, the lessee undertakes to pay the lessor the positive difference between the contractual rent and the above-mentioned waiver, net of rent already paid, in respect of the restrictive measures periods on December 31, 2021.

Consequently, it follows from these waivers that the lessee’s rent payments will be deferred, and not that the lessor will remit rent for the period from March 15, 2020 to June 13, 2020.

The claim to dismiss the action for payment brought by Mr. and Mrs. I. and by the company I. is inoperative.”

(Judgment of the Paris District Court, 18th Civil Division, March 22, 2023)

Failure to sign the waiver

The court of Paris rejected also the claim of Pierre et vacances regading the waiver of other lessors, but based on a different legal ground.

“Finally, it should be noted that Mr. A., Mrs. C. and Mr. E. did not sign these endorsements. The claim is also inoperative.”

(Judgment of the Paris District Court, 18th Civil Division, March 22, 2023)

The tenant failed to prove the signatures of these waivers.

The question of the waiver concerned only some of the lessors of this group of 40 owners, the rest having refused to sign a transaction devoid of reciprocal concessions.

As a reminder, the lessee was ordered to pay 31 de la résidence Adagio Paris Tour Eiffel 845,549 euros in unpaid rent and 3100 euros in legal fees (article 700 CPC).

Total eviction compensation of €15,549

Nexity Studea the tenant operating the student residence in the parisian suburb Clichy was asking for eviction damages after the refusal of the renewal of the lease by the owner. This claim is based on on French code of commerce, even if the owner was never informed in the contract.

The first step is to ask the court to appoint an expert to calculate the evictions costs for the owner. After the expertal report, it is often possible to reach an agreement with the tenant.

Concerning an apartment in the Nexity Studea Clichy residence, the court apointed expert’s report proposes the following amounts for eviction compensation and ancillary compensation:

“The main compensation is set at €12,673 (twelve thousand six hundred and seventy-three euros).

The ancillary compensation is set at €2,878 (two thousand eight hundred and seventy-eight euros)

For a total of €15,549 (Fifteen thousand five hundred and forty-nine euros)”.

Nexity Studea’s qualification as a student residence

The residence is a student residence and not a service or tourist residence, as Nexity Studea claims.

A student residence has very few fixed costs, and is more akin to a property management business than a hotel. Leases are annual, and very few staff are dedicated to the residence, and almost none are full-time. Nexity employees work on several residences at the same time.

The operator’s name is Nexity Studea, studea referring to the English verb “to study”.

Nexity Studea operates a student residence, which it is expected to rent to students.

This qualification is important, hence Nexity‘s attempt to pass off a student residence as a tourist residence.

Jurisprudence/Case Law has established the methods and prejudices to be ruled out in matters of eviction compensation for a student residence, and still qualifies Nexity Studea residences as student residences.

The turnover method in student residences like Nexity Studea

Following the case law, the expert applies the turnover method, but at coefficients much lower than the coefficient 4 requested by NEXITY, which applies to hotels and not student residences.

The Versailles Court of Appeal upheld the judgment of the Nanterre Court, which applied a coefficient of 1.75 to average annual sales in NEXITY STUDEA student residences:

“The commercial lease covers an apartment and a parking lot in a student residence with 110 lots. The sales method should be applied, as for a property manager, with a coefficient of 1.75 applied to average annual sales.

(Versailles Court of Appeal, 12th Chamber, May 29, 2018, 17/02845, JurisData number: 2018-009760, summary)

The Versailles Court of Appeal has upheld the judgment of the Nanterre Regional Court, which applies a coefficient of 2 to average annual sales over three years, before applying the median with EBITDA, in the NEXITY STUDEA student residence in Issy-Les-Moulineaux :

“Calculating the capitalization by the average sales over the same three years of the three disputed lots, the expert concluded to an average sales excluding VAT of 7,823 euros, to which he assigned a coefficient of 2,

In view of the specific nature of serviced residences and the lack of precedent enabling a method of proven relevance to be adopted, the median retained by the expert between restated EBITDA and average sales will be validated by the court.

(CA Versailles, 20-06-2017, n° 12/05809)

The Paris Court of Appeal confirmed the experts’ choice of a coefficient of 1.75 for average annual sales in student residences: “Concerning the valuation of the main eviction indemnity, the method used for furnished hotels is not appropriate.  In a student residence, the majority of sales are generated by rents, the payroll is very small and the studios are rented to students on a year-round basis.  The average of two methods should be used, as was done by the legal experts: the sales method, assessed as for a property manager, with the application of a coefficient of 1.75 to average annual sales”.

Paris Court of Appeal, Pôle 5, Chamber 3, May 2, 2018, No. 16/04691, JurisData number: 2018-007308

On the same date, the Paris Court of Appeal issued another ruling along the same lines.

(Cour d’appel de Paris, Pôle 5, chambre 3, 2 mai 2018, 16/10156, numéro JurisData : 2018-007141)

In this case, the location of the student residence Nexity Studea in Clichy-la-Garenne cannot lead to a coefficient of average sales higher than 1.75.

Please feel free to ask us any question.

Leaseback Property : Adagio Paris Tour Eiffel  (rue du théâtre)

Adagio residences are operated by a company of the Pierre et Vacances group, PV CP CITY. The Adagio brand belongs to Pierre et Vacances and the ACCOR group.

A procedure initiated by 31 lessors

Pierre et Vacances (PV CP CITY) was ordered on March 22, 2023 by the Paris judicial court to pay 848,649 euros to 31 lessors (845,549 euros in unpaid rent and 3100 euros in article 700 CPC) of the Adagio Paris Tour Eiffel residence.

The case law of the Cour de Cassation (Supreme/High Court) of 2022

The 18th civil division of the judicial court dismissed Pierre et Vacances/PV CP CITY’s arguments in accordance with the case law of the Court of Cassation of June 2022.

Rejection of the exception of non-performance based on an alleged breach of the lessor’s obligation to deliver and force majeure

The exception of non-performance and force majeure were rightly rejected, in view of the positive law established by the Court of Cassation.

State guaranteed loans (PGE) and public subsidies for Pierre et Vacances

Finally, the court noted the significant public subsidies from which the group of leaseback properties benefited.

The operator favors its shareholders over its lessors, despite the public aid it receives:
“Rent expense is almost stable compared to the previous year (up 3 million) renewal of leases (20 million euros) being offset by rent savings in discussions with the Group’s lesser lessors than those recorded in the previous year (47 million euros in FY 2021 vs. nearly 70 million euros in FY 2020).
Rental savings in FY 2021 are in fact limited to :
– to net savings from the application of the endorsements signed by 59.3% of individual lessors as of September 30, 2021 (deductible equivalent to 7.5 months’ rent, including 5 months’ rent in respect of FY 2021, i.e. a saving for the Group of around €29 million over the year, largely offset by a charge of €28 million corresponding to the face value of the vouchers allocated to the signatories of the endorsement).

7 million relating to suspended rents to non-signatory lessors for periods of administrative closure during which the Group considers, on the legal basis of the exception of non-performance or on the basis of the provisions of Article 1722 of the Civil Code, that the rent debt is extinguished.
– net savings from the application of agreements with institutional lessors, representing an amount of approximately 39 million euro for FY 2021 (deductibles / rent variabilization with guaranteed minimums, net of provisioning of rents under financial recovery clauses).

The 2019/2020 fiscal year recorded rental savings of nearly 70 million euros (30 million euros for rents from individual lessors suspended during the administrative closure period and 40 million euros for agreements negotiated with institutional lessors).”
(Brochure_of_AGM March 31, 2022, page 8)
“The rental debt to non-signatory lessors relating to the administrative closure periods has been extinguished in the accounts of the lessee companies, the Group basing its assessment on the legal basis of the exception of non-performance and on the provisions of Article 1722 of the Civil Code. Accordingly, no liability has been recognized in this respect as of September 30, 2021.
This position has been validated by the Group’s auditors.
…
– What are the texts, decrees or administrative regulations referred to under the term “administrative closure” used on page 15 of the notice of meeting, in respect of the period considered “mid-March to end of May and November to mid-December 2020”?
The texts applicable to the period from “mid-March to the end of May and November to mid-December 2020” are the following
Ministerial orders of March 14 and 15, 2020 and decree n°2020-293 of March 23, 2020
– Decree n°2020-548 of May 11, 2020, modified by decree n°2020-604 of May 20, 2020
– Decree n°2020-1310 of October 29, 2020
Debts due in respect of all unpaid rents to non-signatory individual lessors for the period from January 1 to June 30, 2021 are recorded as liabilities (under trade payables in the Group’s parent company and consolidated financial statements) in an amount of approximately 32 million euros as of September 30, 2021.
As of today, these same liabilities represent only 16 million euro, the share of non-signatory lessors having been halved compared to September 30, 2021. The suspended rents for the other so-called interim periods (periods between administrative closures) have also been settled in full.
The Group, with the support of its legal advisors, considers that the rental debt relating to the administrative closure periods has been extinguished. The Group relies on the following legal bases:
– The exception of non-performance due to the breach of the obligation of peaceful enjoyment (articles 1219 and 1719 of the Civil Code); and
– The basis of the partial destruction (loss) of the premises (Article 1722 of the Civil Code).
Consequently, no provision has been recorded in the Group’s consolidated financial statements in this respect.
 (Answers of the Board of Directors to written questions from shareholders, combined general meeting of March 31, 2022)

Statutory Auditors’ Report of September 30, 2021

The auditors’ report of September 30, 2021 specifies the existence of a debt-to-equity conversion in the amount of 551 million € and “maintenance of a portion of the EMP in the amount of 25 million“.

[learn_more caption=”PGE converted into capital”] The PIERRE ET VACANCES group will therefore not be forced to repay 215 million € of the 240 million € of the first state guaranteed loans [/learn_more].

The new and second state guaranteed loans of 34.5 million €

The PIERRE ET VACANCES group benefits from a new and second state guaranteed loans in the amount of 34.5 million euros.
 (Statutory auditors’ report of September 30, 2021, pages 17, 19 and 43)

The “closing” aid

The operator obtained so-called “closure” aid from the State in the amount of 24 million € and “aimed at compensating for the uncovered fixed costs of companies whose business is particularly affected by the Covid 19 epidemic.”
 (Auditors’ report of September 30, 2021, page 44)

Refusal to sign agreements unfavorable to lessors under the pressure of pseudo-conciliation before the commercial court

The operator intends to make lessors pay for its operating risks, although it is not sharing the booming profits from the record years of tourism in Paris in 2018 and 2019 with its “investors,” the individual lessors.

The operator tried to get the lessors to sign a rider acknowledging that they had breached their delivery obligation in exchange for non-existent concessions such as the payment of rent for subsequent quarters.

Lessors can congratulate themselves for not giving in to pressure and untruths.

The pitfalls of tourism residence investment

Investment in French Leaseback Properties seems attractive

Why talking about French leaseback problems ? Because there are a lot !

The buyer benefits of several tax breaks by the French government. At this stage, what the real estate agent promised comes true.

The private investor doesn’t has to bother about the furnishing of the flat. He or she doesn’t have to manage the rent of the apartment.

Better, the operator guarantees the payment of attractive rents not depending on the real occupancy of the apartment. The operator pays the rent even if the flat is empty. It last for the nine years of the lease contract (or should).

However, the lease contract is here a commercial lease, which follows specific rules under the French law. This set of rules applies for businesses. It protect the lessee and the stability of the businesses. It wasn’t designed for private investor, with no knowledge of the French law.

Unfortunately, the commercial lease protects a very long term relationship, ie 9 years and usually 18 years.

But a lot of owners have to face legal issues. The profitability promised when signing the contract disappeared.

Late payments and unpaid rent

On paper, an investment in a leaseback has everything to please: tax reduction, return of VAT, full discharge of rental management and perspective, often too much vaunted, to achieve a good profitability.

But some owners are quickly disappointed. Nobody told you about french leaseback default. They often have the unpleasant surprise of meeting all sorts of difficulties in the payment of their rents: recurring delays going up to the unpaid rent for months or years. Risks that seriously change the attractiveness of investment. The investor should know about the French leaseback problems.

Some managers prefer to control their cash flow to the respect of their contractual duties. Owners find themselves having constantly to claim their rents. That’s why so many articles talk about French leaseback problems or even French leaseback scandal.

In addition, owners can not afford such flexibility with the payment of monthly mortgage loan. Too much delay in payment may lead the lending banks to demand full and direct repayment of the loan. It sometimes put the owners in great financial embarrassment. That’s another big French leaseback problem.

In case of unpaid rent, the owner must act quickly if he wants to recover his arrears of rent.

Lawyer and bailif

At this stage, a simple email/letter isn’t enough. You have to move quickly to the next step. The owner will have to send a “command to pay” (CDP), by bailiff, for the cancellation clause of the lease contract. The official warning will mention that the tenant has a period of one month to pay the rent.

Following the lease term, the landlord/lessor has the right to terminate the contract, after one month. The landlord then has the option to fill a case in court and to request the eviction of the operator.

This threat may be enough to motivate the unscrupulous tenant to pay his unpaid rents promptly. If it does not run, the operator is liable to pay unpaid rent, but also legal fees (bailiff and lawyer), and possibly an occupancy allowance.

Big repairs and refurbishing at the expense of the lessor (owner)

After 9 years, the cost of the repairs is among the first unpleasant surprises of the investor in French leaseback scheme.

Indeed, it is common that during commercial lease, the operator asks for renovation of all the apartments. The bill can then rise to a year and a half of rent. One of the many French leaseback problems for the owners.

Before investing, the buyer should assess the quality of the apartment he is about to buy. He has to check the extent of any repairs to be done. Of course, nobody told you that. They were insisting on a financial and government secure investment.

General expenses of the building are first paid by the operator. The managing company is usually a company of the same group. After 9 years (and a change in the French law), the operating company refuses to pay general expenses of the building. The operator is even pretending the cleaning staff paid by the owners is not cleaning the rooms but only the commons.

Renegotiation of rent imposed by the operator

At the renewal of the commercial lease, the operator of the residence often seek to revise the amount of rents downwards. Economic conditions and competition are among the most cited reasons for this decreased rent. It is usally the first time you hear about “bail commercial” (commercial lease in France).

Some operators receive an amount paid by the Promoter to purchase the building, whereby they artificially inflate the rents during the first nine years of the Commercial lease.

They know that after 9 years a set of rules will force the renegotiation of the rent and finally the decrease.

These rents do not reflect the state of the local rental market at the time the commercial lease is concluded (i.e. they are very high). Here starts the french leaseback scandal.

It is very likely that the operator will ask to renegotiate a drastically lower amount to renew the commercial lease.

Even if the owner is free to refuse a lower rent, the trap closes when he realizes that he could lose his tax return. And that he will pay the general expenses and the rental management alone if his apartment is not operated by another operator. It is not 100% like that, but usually the owner doesn’t ask for legal counsel of a real french leaseback lawyer.

To get out of this slump, the owner may decide to sell his property.

Eviction compensation/damages

Eviction damages are due by the owner who hasn’t agreed to renew the commercial lease. Usually, owners of a French leaseback never heard about such an legal issue.

Owners issues are described in a lot of newspaper articles.

Resale of the leaseback property might be difficult

However, the government agrees to a 100% VAT refund only if the flat is rented during 20 years.

If not, the owner has to refund to the tax authorities the VAT to run until the 20th year. For example, if it is after 9 years: 9/20 of the tax return.

This fact, weighs heavily in the balance at the renegotiation of rent. The owner is torn between the significant decline in the amount of rental income decreasing the gains of a possible resale of his apartment and the loss of tax benefits.

But the most significant issue is the eviction compensation. It is up to several thousands of euros for a simple flat. The owners don’t to pay the tenant, who is refusing to continue the lease at the same rent.

That’s why you can read about French leaseback scandal or french leaseback nightmare ! The french leaseback forums are full of testimonies of French leaseback problems. Irish owners even wrote a french leaseback petition to the European union commission in Bruxelles.

Irish owners even wrote a french leaseback petition to the European union commission in Bruxelles.

You have to find the right french lawyer to fight for you in french courts !

Please feel free to ask us a written question!