French Leaseback

Nexity Studea Montpellier – Lease Renewal and Eviction Compensation

On October 19, 2021, the Montpellier Court of Appeal ruled on a dispute between Mr. and Mrs. A and Nexity Studea regarding the non-renewal of a commercial lease. The case, which had been ongoing for several years, highlighted key legal principles in French commercial lease law, particularly concerning eviction compensation and the statute of limitations.

Background of the Case

Mr. and Mrs. A purchased an apartment in 1997, which they rented to SARL Campus Habitat under a commercial lease. Over time, Nexity Studea took over Campus Habitat’s rights, effectively becoming the new tenant. The lease was structured as a commercial lease, meaning that the tenant had certain protections under French law, including the right to renewal or compensation if the lease was terminated without just cause.

In 2006, Mr. and Mrs. A initially refused to renew the lease but reversed their decision after being informed about the financial and tax consequences. A decade later, in 2015, they once again refused renewal and offered eviction compensation to Nexity Studea, setting the stage for legal proceedings.

Legal Issues and Court Decisions

Refusal to Renew the Lease & Eviction Compensation

Under French commercial lease law (Article L 145-14 of the French Commercial Code), if a landlord refuses to renew a commercial lease, they must pay the tenant an eviction indemnity. This indemnity compensates the tenant for financial losses due to eviction, including lost business value and commercial disruption.

When Mr. and Mrs. A refused renewal in 2015, they acknowledged their obligation to provide eviction compensation. Nexity Studea estimated the indemnity at €22,888, calculated based on the average revenue generated over the last three years. The dispute, however, escalated as the landlords contested both the calculation method and the validity of the claim.

First Ruling: Montpellier Regional Court (2018)

In 2018, the Montpellier Regional Court ruled against Mr. and Mrs. A, dismissing their claims based on the statute of limitations. The court determined that their legal action was time-barred, as they had been aware of the lease’s commercial nature since 1997. As a result, the court upheld Nexity Studea’s claim and ordered Mr. and Mrs. A to pay the eviction indemnity of €22,888. Additionally, they were ordered to pay a further €1,500 under Article 700 of the French Code of Civil Procedure, along with all legal costs.

Appeal: Montpellier Court of Appeal (2021)

Dissatisfied with the ruling, Mr. and Mrs. A appealed the decision, arguing that:

1. The lease should be reclassified – They contended that the agreement was not a true commercial lease but a property management contract.

2. The claim was not time-barred – They argued that the statute of limitations should have started at a later date.

3. The eviction indemnity calculation was incorrect – They claimed Nexity Studea’s method was flawed, as it did not reflect actual revenue and business conditions.

The Court of Appeal, however, upheld the 2018 ruling, reaffirming that the claim was indeed time-barred. The judges highlighted that:

Mr. and Mrs. A had been fully aware of the commercial nature of the lease since 1997.

They had received written notification in 2006 outlining the financial obligations related to lease non-renewal and eviction indemnity.

Even if the statute of limitations began in 2006, the five-year period would have expired by 2011, long before their legal action in 2016.

Regarding the eviction compensation calculation, the court confirmed that Nexity Studea used a standard approach, multiplying the average sales over three years by an industry-accepted coefficient. Additionally, compensation for commercial disruption was included, calculated at three months’ worth of lost profits. The final amount of €22,888 was deemed valid.

Key Legal Takeaways

1. Statute of Limitations for Lease Disputes

In France, actions related to commercial leases must be filed within two years (Article L 145-60 of the French Commercial Code). Claims for contract nullity or reclassification must be brought within five years (Article 1304 of the French Civil Code). This case highlights the importance of acting promptly in lease disputes.

2. Legal Recognition of Commercial Leases

Even if landlords later contest the nature of a lease, courts will consider original agreements and documented evidence. If a lease is labeled as commercial, landlords cannot easily argue otherwise after benefiting from its tax advantages and rental income.

3. Calculation of Eviction Compensation

French law protects commercial tenants by ensuring they receive fair compensation if a lease is not renewed. Courts will favor standard calculation methods, including:

Average sales over the last three years, multiplied by an industry factor.

Commercial disruption indemnity, typically three months’ profit.

Landlords attempting to challenge these calculations must present strong counter-evidence, such as alternative financial records or expert reports.

Final Judgment & Financial Consequences

The Court of Appeal rejected Mr. and Mrs. A’s request to annul the previous ruling, confirming that they must:

Pay Nexity Studea €22,888 in eviction compensation.

Cover an additional €1,500 in legal fees under Article 700.

Bear all legal costs for both trials.

This decision underscores the importance of understanding French commercial lease law, especially for property owners involved in lease agreements with large real estate firms.

Conclusion

The Nexity Studea Montpellier case provides a clear example of how French courts enforce commercial lease agreements. It demonstrates that:

Lease contracts must be carefully reviewed before signing.

Legal actions must be filed within the statute of limitations.

Landlords must respect eviction indemnity obligations if they refuse lease renewal.

For landlords and investors in French rental properties, this case serves as a warning: understanding lease terms and legal timelines is crucial to avoiding costly litigation. If you are involved in a similar dispute, seeking legal counsel early can help prevent financial losses and ensure compliance with French commercial lease regulations.

Need Legal Advice on French Leases?

If you have questions about commercial lease renewals, eviction compensation, or property disputes in France, our legal team is here to help. Contact us for expert guidance on navigating complex lease agreements and protecting your property rights.

Court of Appeal, Montpellier, 5th civil chamber, October 19, 2021 – n° 18/02112

JUDGMENT :

* *

FACTS, PROCEDURE, CLAIMS AND PLEAS OF THE PARTIES:

On October 30, 1997, Jean Pierre M. and his wife purchased from SCI Les Jardins du Consulat a studio apartment in a building complex [… property complex […] as part of a tax-exempt sale in future state of completion.

At the same time, they granted SARL CAMPUS HABITAT a lease on the apartment with effect from November 1, 1997, with a view to renting it out to students.

In the course of the lease, SA NEXITY STUDEA took over the rights of SARL CAMPUS HABITAT.

On March 20, 2006, Mr and Mrs M. notified the lessee of the non-renewal of the commercial lease on the expiry date of October 31, 2006.

NEXITY drew their attention in writing to the tax consequences of non-renewal.

initially deducted and to the payment of an eviction indemnity, the M. couple agreed to the renewal of the commercial lease by deed dated October 6, 2006.

By bailiff’s deed dated December 11, 2015, Mr and Mrs M. served SA NEXITY STUDEA with a notice of termination refusing to renew the lease and offering to pay an eviction indemnity with effect from

effective June 30, 2016.

By registered letter dated January 28, 2016, NEXITY STUDEA notified the lessors of the estimated eviction indemnity of ‘22,888 and the right to remain in the premises under the terms of the lease.

right to remain in the premises under the conditions and clauses of the expired lease until payment of the compensation.

By deed dated May 25, 2016, Mr and Mrs M. summoned SA NEXITY STUDEA and SCP D.-J.-C.-D.-P. to appear before the Montpellier Regional Court.

on the basis of articles L 145 of the French Commercial Code and 1147 of the French Civil Code, in order to terminate the lease, order the eviction of the lessee, and

to determine whether an eviction indemnity should be paid to the tenant, and to order the notary to indemnify them for the amount of this indemnity.

The ruling handed down on March 13, 2018 by the Montpellier Regional Court states in its operative part:

Declares inadmissible as time-barred the action for termination of the lease brought by the couple M. against SA NEXITY STUDEA;

Declares inadmissible as time-barred the action brought by Mr and Mrs M. against SCP D.-J.-C.-D.-P.;

Orders the M. couple to pay SA NEXITY SUTUDEA the sum of 22,888 euros in eviction compensation;

Dismisses SCP D.-J.-C.-D.-P.’s claim for damages;

Order the M. couple to pay SA NEXITY STUDEA and SCP D.-J.-C.-D.-P. the sum of 1,500 ‘ each, pursuant to article 700 of the French Code of Civil Procedure.

Code of Civil Procedure.

Declares that there is no need for provisional execution;

Dismisses any further or contrary claims;

Order the couple M. to pay the costs.

The judges of the first instance, with regard to the plea of non-receivability based on the statute of limitations, note :

– with regard to the commercial lessee, that as soon as they signed the deed of sale on October 30, 1997, Mr. and Mrs. M. were aware of the addition of a commercial lease to their deed of purchase, and that the deed of sale had not been signed beforehand.

deed of sale, and they were also informed by letter dated March 27, 2006, following their initial decision not to renew the lease, of the consequences for the tax authorities.

consequences with regard to the tax authorities in the event of non-renewal of the lease, and also of their obligation to pay an eviction indemnity.

Even if we were to consider that they were only informed on this date of March 27, 2006 of the damage resulting from the payment of the eviction indemnity, the statute of limitations under

limitation period under article 1304 of the French Civil Code runs until March 27, 2011;

– with regard to the notary, the damage resulting from the payment of an eviction indemnity occurred at the latest as of the letter of March 27, 2006, triggering the limitation period.

The limitation period had not expired when the law of June 17, 2008 came into force, reducing the limitation period from 10 years to 5 years.

a new 5-year period ran until June 19, 2013, but the limitation period had expired on the date of the summons of May 25, 2016.

With regard to the calculation of the eviction indemnity, the court accepted the calculation proposed by NEXITY STUDEA based on average annual sales according to the results of the last three years, with the application of a discount rate.

last three years, with the application of coefficients taking into account the occupancy rate and the addition of a supplementary indemnity for commercial disruption of three months’ profit.

and rejects the request for an expert appraisal submitted by Mr. and Mrs. M..

Jean Pierre M. and Marie C. wife M. appealed the judgment by a statement filed with the clerk’s office on April 21, 2018 against SA NEXITY STUDEA only.

The closing order was issued on February 24, 2021.

The final pleadings for Jean Pierre M. and Marie C. épouse M. were filed on December 30, 2020.

The final pleadings for SA NEXITY SUTUDEA were filed on July 31, 2018.

The operative part of the pleadings of Jean Pierre M. and Marie C. épouse M. states in its sole claims:

Annul the judgment;

Failing this, overturn the judgment under appeal;

Order the eviction of NEXITY and all its occupants;

Dismiss the respondent’s claims;

In the alternative

Fix the eviction indemnity due at 2,991 euros;

Condemn NEXITY STUDEA to pay the sum of 4,000 ‘ under article 700 of the French Code of Civil Procedure and to pay all costs of first instance and appeal.

and appeal costs.

Mr and Mrs M. claim that the lower courts failed to respond to their request for the contract to be reclassified, which should be understood as their plea in support of their request for nullity.

in support of the application to set aside the judgment.

They argue that the developer promised them a tax advantage and an obligation to enter into a lease without specifying its nature for a certain period of time, and that it would be impossible for them to recover their property.

the impossibility of recovering their property, thereby misleading the purchaser as to the nature of the contract they were signing and creating an imbalance between the parties.

Noting that SA NEXITY SUTUDEA is not registered in the commercial register for each of the lots, thus failing to meet the conditions of article L 145-

1 of the French Commercial Code, that it does not keep separate accounts for each of the lots, and that each of the lots has an independent legal life, they claim that they are in fact bound by a contract of sale.

a property management contract, with the respondent company looking for tenants and the owners cashing in on the rental income without the worries and inconveniences of a management contract.

without the worries and inconveniences of direct rental.

According to Mr and Mrs M., there is no single business and the provisions of article L 145-1 of the French Commercial Code do not apply.

in the event of non-renewal of the agreement.

With regard to the statute of limitations for their action, Mr and Mrs M. put forward no legal or factual arguments, and in any case none that are clearly understandable.

With regard to the eviction indemnity, Mr and Mrs M. argue that NEXITY STUDEA used the hotel method to calculate the amount, which is incompatible with the nature of the dispute.

with the nature of the dispute.

They point out that the accounts for the entire building have not been produced, nor even separate accounts for each lot, showing the reality of the cash receipts.

receipts.

They consider that, on the one hand, the tenant has created evidence for himself and that, on the other hand, the eviction indemnity cannot be calculated by taking into account the sum paid to the owners.

the sum paid to the owners.

Similarly, they consider that it is not possible to verify the market value of the goodwill cited in the table produced by NEXITY.

They also criticize NEXITY’s claim for commercial disturbance, in particular insofar as there is no collective goodwill, and the repossession of the apartment by an owner does not constitute a commercial disturbance.

by an owner is not contrary to the law.

The M. couple then asked that the eviction indemnity be calculated by deducting the sub-rent paid to the lessors, i.e.: 559.08 ‘ (rent paid by the occupant) ‘ 309.83 ‘ (rent paid back to the lessors).

(rent paid to lessors) x 12, i.e. ‘ 2,991 per year.

The operative part of SA NEXITY STUDEA’s pleadings states the following claims only:

To uphold the judgment.

Primarily,

Declare that the action for requalification of the lease is time-barred;

Declare the claims of the M… spouses inadmissible as time-barred;

In the alternative

Dismiss Mr and Mrs M.’s claim for requalification of the lease;

Dismiss their further claims;

In any event,

Set the eviction indemnity at 22,888 euros, to be paid by Mr. and Mrs. M.;

In the alternative

Appoint an expert to determine the amount of the eviction compensation;

In any event,

order Mr and Mrs M. to pay the sum of EUR 3,000 under article 700 of the French Code of Civil Procedure and all costs.

SA NEXITY STUDEA first raises the statute of limitations for the requalification action, the requalification having been requested for the first time in writings

September 23, 2017 filed with the tribunal de grande instance, even though Mr. and Mrs. M. signed the lease on April 18, 1997, and could not have been unaware that the lease was in force.

that they could not have been unaware that it was a commercial lease, this capacity being mentioned in very apparent characters.

As the 5-year statute of limitations under article 1304 of the French Civil Code applies, the action of Mr and Mrs M. has been time-barred since April 18, 2002.

NEXITY adds that even supposing it could be considered that Mr and Mrs M. were unaware of the nature of the contract when it was signed in

1997, the letter of March 27, 2006, reminding them of the need to pay eviction compensation in the event of non-renewal, triggered the five-year statute of limitations.

They are therefore barred from bringing an action on March 27, 2011.

NEXITY also points out that at the time of acquiring the property in dispute, the M. and M. signed a lease agreement, and that NEXITY STUDEA never acted as an intermediary on their behalf.

intervened as a rental intermediary, and that it is clear from the very terms of the contract that it is indeed a property rental contract

under which the lessors receive the rent agreed with the lessee, and not the proceeds of the student lease, as they maintain.

Regarding eviction compensation, NEXITY STUDEA replies that its claim is well-founded under article

L 145-14 of the French Commercial Code, and that in its letter of January 28, 2016 NEXITY detailed the calculation method used to determine the amount of the eviction indemnity.

whereas Mr and Mrs M. did not feel it necessary to mention the amount of their offer in their notice.

In its written submissions, to which the court refers for a fuller explanation, NEXITY then reiterates its calculation method and adds that it produces the elements on which it bases its calculation.

on which it relies.

REASONS

The Court notes first of all that the appeal was lodged by Mr and Mrs M. only against SA NEXITY STUDEA, so that the provisions of the judgment relating to their action against SCP NEXITY STUDEA are not applicable.

the provisions of the judgment relating to their action against SCP D.-J.-C.-D.-P. are no longer before the court.

On the request for nullity of the judgment:

Even if the grounds on which this claim is based do not appear to be clearly argued in law and in fact, on reading the appellants’ pleadings we can

that they criticize the judgment under appeal for failing to rule on their claim for nullity of the commercial lease on the grounds of fraud and its requalification.

requalification.

However, it would appear that the first judges were right to answer the question of whether the lessors’ action was time-barred.

by the lessee.

Pursuant to article L 145-60 of the French Commercial Code, actions relating to commercial leases are time-barred after two years from the date on which the action can be brought.

can be brought.

Pursuant to article 1304 of the French Civil Code applicable to the facts of this case, actions for the nullity of an agreement are time-barred after 5 years from the date on which the holder of a right or interest in a right or interest in a right or interest in a right or interest in a right or interest in a right or interest in a right or interest.

the day when the holder of a right knew or should have known the facts enabling him to exercise it.

It is clear from the documents submitted for discussion that the contract entered into on November 27, 1997, with effect from November 1, 1997, between the spouses

M. and SARL CAMPUS HABITAT, the predecessor of SA NEXITY STUDEA, clearly states in its heading:

“Commercial lease of bare real estate for student accommodation in application of the decree of September 30, 1953 and subsequent texts”.

Furthermore, as noted by the first judges, the notarized deed of acquisition of the property dated October 30, 1997 mentions on pages 13 and 14 that the

property and real estate rights which are the subject of the present deed are to be leased bare for a period of nine years to SARL CAMPUS HABITAT under the terms of a commercial

which will be formalized following the deed of purchase.

It is also specified in particular that this acquisition followed by a bare lease under the commercial lease entitles the purchaser to certain tax benefits, which are detailed below.

tax advantages.

Consequently, from the time they signed the lease, Mr and Mrs M. were fully aware of the nature of the lease, i.e. a commercial lease.

must be considered as the starting point of the statute of limitations, whether for an action based on the status of commercial leases (L 145-60 of the French Commercial

Code) or an action based on ordinary law (1304 of the French Civil Code), so that when the summons was served before the Tribunal de Grande Instance on May 25

May 2016, the action for nullity of the lease and/or requalification was time-barred.

Furthermore, it is undisputed that, following their refusal to renew the commercial lease notified to the lessee on March 20, 2006, the couple M. were informed on March 27 by letter from SA NETIA.

March 2006 by letter from SA NEXITY STUDEA of the consequences of the non-renewal of the lease with regard to the tax authorities, as well as of the fact that, in their capacity as lessors, they were obliged to pay the tax.

as lessors, they were required to pay the lessee an eviction indemnity.

Consequently, as considered by the judgment under appeal, even supposing that the starting point of the statute of limitations for the action brought by Mr and Mrs M. was March 27

2006, the date on which they were fully informed of their obligation to pay an eviction indemnity in the event of non-renewal of the lease, their action has also been time-barred since

their action has also been time-barred since March 27, 2011, i.e. well before the summons of May 25, 2016.

Consequently, the judgment under appeal cannot be declared null and void, and will be confirmed insofar as it declared inadmissible as time-barred the action for termination of the lease and for

M. against SA NEXITY STUDEA as time-barred.

Setting the eviction compensation

First of all, under article 145-14 of the French Commercial Code, if the lessor is entitled to refuse to renew the lease, it is subject to the condition of

pay the evicted tenant an indemnity equal to the prejudice caused by the failure to renew.

The purpose of the eviction indemnity is to compensate for the damage caused by the refusal to renew the lease.

According to the aforementioned article L 145-14, this indemnity comprises in particular a principal indemnity, i.e. the market value of the business, which is determined

in particular by reference to average sales over the past three years, and not by reference to profits, as the M. and M.

M. and ancillary indemnities.

In accordance with these provisions and industry practice, SA NEXITY STUDEA sent a letter dated January 28, 2016 detailing the calculation method used

calculation method used, i.e. for the main indemnity, reference to average sales over the last three years, i.e. in this case ‘6,708.98, multiplied by

multiplied by a factor of 3.3, bearing in mind that according to industry practice for this type of business, the multiplier factor is around 3.5.

SA NEXITY STUDEA thus justifies a principal indemnity of 22,139.65 euros (6,708.98 x 3.3).

In terms of ancillary compensation, it is accepted practice and case law to take into account the commercial disruption, in order to compensate for the damage

suffered by the tenant as a result of the temporary loss of revenue. This loss is generally compensated on the basis of 3 months’ average gross operating profit

over the last three years, i.e. the profit earned by the retailer from his business.

SA NEXITY STUDEA can prove a monthly profit of ‘249.45, which must be multiplied by 3, giving compensation for commercial disruption of ‘748.36.

According to this calculation method, SA NEXITY STUDEA is seeking an eviction indemnity of 22,888 euros, which the first judges granted.

The appellants make no serious criticism of this calculation method or of the figures given by the lessee, and do not propose any other relevant method.

method.

Consequently, the judgment under appeal will be confirmed insofar as it ordered Mr and Mrs M. to pay SA NEXITY STUDEA the sum of 22,888 euros in eviction compensation.

eviction compensation.

Ancillary claims:

The provisions of the judgment under appeal concerning irreducible expenses and costs will also be confirmed.

In addition, Jean Pierre M. and Marie C. épouse M., who are unsuccessful in their appeal, will be ordered to pay the sum of 1,500 euros under article 700 of the French procedural code, and to bear the costs of the proceedings.

and to bear the costs of the appeal proceedings.

ON THESE GROUNDS:

The Court, ruling in a contradictory judgment, handed down at the clerk’s office;

Dismisses Jean Pierre M. and Marie C. épouse M.’s application for annulment of the judgment referred to;

Confirms in all its provisions the judgment handed down on March 13, 2018 by the Montpellier Regional Court;

Adding,

Condemn Jean Pierre M. and Marie C. épouse M. to pay SA NEXITY STUDEA the sum of 1,500 euros under article 700 of the French Code of Civil Procedure;

Order Jean Pierre M. and Marie C. épouse M. to pay the costs of the appeal proceedings.

The Clerk The Chairman

N.A.

Previous decision

TRIBUNAL DE GRANDE INSTANCE MONTPELLIER MARCH 13, 2018 16/03467

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Nexity Studea Daumesnil furnished sublet for students

Nexity Studea Daumesnil: The ruling handed down by the Paris judicial court on July 11, 2024 concerns a dispute between S.A.S. NEXITY STUDÉA and Mr [F] [M] over a commercial lease. The initial lease, signed in 1997, concerned an apartment intended for furnished subletting to students in the Nexity Studea Daumesnil residence. The lease was renewed in 2006 for nine years. In 2012, Mr [F] [M] bought the apartment and in 2017 served notice on NEXITY STUDÉA, refusing to renew the lease and offering an eviction indemnity.

NEXITY STUDÉA is claiming an eviction indemnity of 48,039 euros.

NEXITY STUDÉA claimed an eviction indemnity of 39,731.60 euros, and then sued Mr [F] [M] for 48,039.87 euros. Mr [F] [M] also sued NEXITY STUDÉA for an occupancy indemnity. The two cases have been joined under number RG 20/04605.

The court rejected Mr [F] [M]’s request for a second expert opinion, considering that the initial expert had correctly carried out his mission. The court also rejected NEXITY STUDÉA’s request to forfeit its right to an eviction indemnity, as Mr. [F] [M] had not provided prior formal notice.

Nexity Studea Daumesnil: eviction compensation

The court set the eviction indemnity at a total of 28,055.57 euros. The lessor won €20,000.

Main compensation

The court awarded a principal indemnity of €19,263.

Ancillary compensation

The judges awarded replacement costs of 3,926.30 euros, commercial disturbance of 636.27 euros, operating disturbance of 3,730 euros, and miscellaneous costs of 500 euros. This sum will bear interest at the legal rate from the date of judgment.

Occupancy indemnity

The occupancy indemnity owed by NEXITY STUDÉA to Mr. [F] [M] has been set at 4,512 euros per year, indexed annually, from July 1, 2018 until the premises are vacated. NEXITY STUDÉA must also pay rental charges and taxes until that date.

The costs of the proceedings will be shared equally between the parties, and neither party has obtained reimbursement of expenses not included in the costs. The provisional execution of the decision has been set aside in view of Mr [F] [M]’s right of repentance.

In summary, the court ruled in favour of NEXITY STUDÉA for the eviction indemnity, while fixing an occupancy indemnity for Mr. [F] [M], and rejected the requests for counter-expertise and forfeiture of rights. 

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On November 26, 2024, the Paris judicial court handed down a ruling concerning a dispute between S.A. NEXITY STUDEA and Mr [T] [G] relating to a commercial lease. The dispute concerns premises located at [Address 5], [Location 10], leased for a student residence. The initial lease, signed in 1998, has been renewed several times, with modifications concerning the rent and its indexation.

Studea: Dismissal without eviction indemnity for serious and legitimate reasons

In February 2022, Mr [T] [G] issued a notice to NEXITY STUDEA, refusing to renew the lease without eviction compensation, citing serious and legitimate grounds. NEXITY STUDEA contested this notice, requesting its nullity and the payment of an eviction indemnity. The court examined several points of dispute:

1. Indexation clause and VAT: Mr [T] [G] accused NEXITY STUDEA of not respecting the annual rent indexation clause and of charging him VAT. The court ruled that the rent was stipulated inclusive of all taxes and that NEXITY STUDEA did not have to pay an increase in VAT in addition to the contractual rent.
2. Communication of minutes of general meetings: Mr [T] [G] complained that NEXITY STUDEA had not communicated the minutes of general meetings of co-owners to him. The court noted that the lessor had to give a special mandate to NEXITY STUDEA to represent him at the meetings, which he had not done.
3. Subletting: Mr [T] [G] claimed that NEXITY STUDEA had illegally sublet the property without his consent. The court ruled that subletting was part of the activity authorised by the lease and that NEXITY STUDEA was not required to obtain the lessor’s consent for each subletting.

The court concluded that the reasons given by Mr. [T] [G] for refusing to renew the lease were ill founded. Consequently, it rejected Nexity Studea’s request that the notice be null and void, but recognised his right to eviction compensation.

The court orders a legal appraisal to determine the eviction indemnity

A legal appraisal was ordered to determine the amount of this indemnity and the occupancy indemnity due by Nexity Studea from October 1, 2022.

The court has also proposed mediation in an attempt to resolve the dispute amicably. The parties will meet with a mediator to discuss the terms of the mediation. If they accept, the expertise process will be suspended during the mediation.

Finally, the court set a provision of 6,000 euros for the expert’s fees, to be deposited by Nexity Studea before February 28, 2025. Nexity Studea‘s request for eviction was rejected, and the case was adjourned to a pre-trial hearing on March 19, 2025 to verify payment of the deposit. Costs and claims under article 700 of the French Code of Civil Procedure were reserved.

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In summary: In Arcs 1800, the Chambéry Court of Appeal upheld the lower court’s judgment, declaring the lease assignments unenforceable against Mr. [F], ordering Belambra Clubs to be evicted and ordering the latter to pay costs and additional expenses.

Lease assigned by Pierre et Vacances Maeva Tourisme Exploitation to Temmos Les Arcs and Belambra

On June 18, 2024, the Chambéry Court of Appeal handed down a ruling concerning a dispute between Belambra Clubs and Mr. [E] [F]. The dispute concerns a commercial lease initially granted by Mr. [F] to Pierre et Vacances Maeva Tourisme Exploitation, then transferred to Temmos Les Arcs and finally to Belambra Clubs.

Assignment of lease unenforceable in the absence of service or tacit acceptance

Mr. [F] contests the validity of these assignments, arguing that they were neither served on him nor tacitly accepted, thereby rendering them unenforceable.

The Albertville court ruled that Belambra Clubs’ claims were inadmissible, and ordered Belambra Clubs to pay Mr. [F] 1,500 euros under article 700 of the French Code of Civil Procedure, and to pay the costs. Belambra Clubs has appealed this decision.

The Court of Appeal examined the admissibility of Mr. [F]’s cross-appeal, concluding that his submissions complied with the requirements of article 954 of the French Code of Civil Procedure.

Lease assignments unenforceable due to lack of valid notification and tacit acceptance

The Court also confirmed that the lease assignments were unenforceable against Mr. [F] due to the absence of valid notification and tacit acceptance. Consequently, Belambra Clubs’ application to renew the lease was deemed inadmissible.

Belambra Clubs must vacate apartment no. 652 of the Hôtel du Golf in Les Arcs 1800.

The court also ruled on Mr. [F]’s request for eviction, ordering Belambra Clubs to vacate apartment no. 652 of the Hôtel du Golf in Les Arcs 1800 and return it with all related sets of keys.

No penalty

The request for a fine of 200 euros per day of delay was rejected.

Belambra Clubs ordered to pay the costs of the appeal proceedings and 1,500 euros under article 700 of the French Code of Civil Procedure.

Lastly, the Court ordered Belambra Clubs to pay the costs of the appeal proceedings and 1,500 euros to Mr. [F] under article 700 of the French Code of Civil Procedure.

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Your Lawyer in France: Leaseback Negotiations and Legal Strategies

Successfully Negotiating with an Operator to Avoid Eviction Compensation

Investing in a tax-free leaseback property, whether in a tourist residence or a student accommodation, is often marketed as a stress-free and highly profitable venture. Promoters promise that investors will have “nothing to worry about,” as the operator manages the property and pays rent under a commercial lease agreement. However, the reality often proves to be quite different, especially after the first nine years when the lease renewal process begins. At this point, property owners frequently face complex negotiations involving rent adjustments, eviction compensation, and renovation responsibilities.

Navigating these negotiations successfully requires legal expertise. Without a well-planned strategy, landlords risk significant financial losses. This is where concepts like Best Alternative to a Negotiated Agreement (BATNA) and Best Alternative Solution (CNA, also known as MESORE in French) become crucial. These tools help landlords determine when to continue negotiations and when to walk away in order to avoid detrimental compromises.

The Role of a Leaseback Lawyer in Securing Favorable Outcomes

Determining the best fallback and alternative solutions in leaseback negotiations is not a simple task. It requires an in-depth legal analysis conducted by an experienced lawyer with a solid track record in handling these cases before French courts. Media appearances or theoretical knowledge are insufficient—landlords need legal representation grounded in practical experience.

A leaseback lawyer plays a critical role in:

• Negotiating rent increases upon lease renewal
• Defending against excessive eviction compensation demands
• Resolving disputes over costly renovation requirements
• Litigating against operators who fail to honor their obligations

In many cases, lawyers rely on legal databases and case law compilations to assess the strength of a landlord’s position. These legal precedents provide insight into how similar disputes have been resolved, which can be invaluable in negotiations.

Understanding Key Negotiation Concepts: BATNA and CNA

When negotiating a lease renewal or an exit strategy, property owners should always evaluate their Best Alternative to a Negotiated Agreement (BATNA) and Best Alternative Solution (CNA/MESORE) before making any commitments.

What is BATNA (Best Alternative to a Negotiated Agreement)?

BATNA refers to the best course of action a landlord can take if negotiations fail. It helps investors avoid accepting unfavorable terms simply because they feel pressured to reach an agreement.

For example, if an operator refuses to increase rent to a fair market level, a landlord’s BATNA might be to take legal action to enforce rent payments at the previous lease rate until a court decision is reached. Similarly, if an operator demands excessive eviction compensation, the BATNA might involve contesting the claim in court while continuing to collect rental income.

What is CNA (Alternative to a Negotiated Agreement) or MESORE?

The CNA (also known as MESORE in French: “Meilleure Solution de Rechange”) represents the threshold beyond which a landlord should walk away from negotiations. It serves as a safeguard against making excessive concessions that would undermine the investment’s profitability.

For instance, if an operator offers a significantly reduced rent in exchange for lease renewal, a landlord’s CNA might involve refusing the offer and instead joining a collective legal action with other lessors to challenge unfair lease terms.

Knowing When to Walk Away

During negotiations, there are instances when breaking off discussions is preferable to agreeing to unfavorable terms. If an operator insists on unsustainable conditions, such as unreasonably high renovation costs or drastic rent reductions, landlords must be prepared to pursue alternative legal solutions.

A strong BATNA and CNA strategy empowers landlords to make informed decisions rather than being pressured into accepting losses.

Common Challenges in Leaseback Negotiations

Several issues frequently arise in leaseback agreements, particularly when lease terms are up for renewal.

1. Rent Adjustments on Lease Renewal

Operators often attempt to reduce rent payments when renewing a lease, arguing that market conditions have changed. However, courts have ruled in favor of landlords in many cases, granting rent increases instead.

For example, legal decisions regarding properties such as Adagio Paris Tour Eiffel, Adagio Montrouge, and Adagio Val d’Europe have confirmed that landlords are entitled to fair market rent adjustments, often higher than what operators initially propose.

2. Eviction Compensation Disputes

If a landlord refuses to renew a lease, the operator may demand eviction compensation. However, such claims are often exaggerated. Courts have repeatedly ruled that eviction compensation should be far lower than what operators initially request.

Notable cases include:

• Goélia St François
• Adagio Paris Tour Eiffel
• CGH L’Orée des Neiges
• Nexity Clichy

In many instances, landlords who sought legal advice were able to negotiate eviction compensation reductions exceeding 50%, significantly improving their financial outcomes.

3. Renovation Work Disputes

Operators frequently require landlords to finance expensive renovations, sometimes as a condition for lease renewal. However, the extent of these obligations is often unclear, and landlords may challenge excessive demands in court.

By analyzing legal precedents, a leaseback lawyer can determine whether specific renovation costs are justified or if they should be the operator’s responsibility.

Why You Need an Experienced Leaseback Lawyer

Navigating leaseback negotiations without legal expertise can be financially devastating. Since the early 2000s, experienced lawyers specializing in tax-exempt residential properties have successfully defended landlords against unfair lease terms.

A seasoned lawyer can:

• Analyze lease terms and identify legal leverage points
• Prepare strong BATNA and CNA strategies to improve negotiation outcomes
• Lead collective legal actions against operators when necessary
• Help landlords enforce favorable court rulings

Ask Your Legal Question – Free Consultation

If you require legal advice on tourism or student residence law, commercial lease negotiations, or business law, don’t hesitate to ask your question using the contact form below.

We provide clear, practical legal solutions, and your question will be answered directly by a partner from our law firm.

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

Vacanceole Provence operated the “Clos Dia” tourist residence in Tourrettes

The lessors entered into commercial leases with Vacanceole Provence for the operation of a tourist residence. A group of 70 lessors seized the property and gave the operator notice to vacate their property.

Summary order of the Draguignan judicial court of October 9, 2024

The summary order issued by the Draguignan judicial court on October 9, 2024 in the referenced case concerns a commercial lease dispute.

The plaintiffs, various owners of lots located in the “Clos Dia” residence in Tourrettes, entered into commercial leases with the Vacancéole Provence company for the operation of a tourist residence. The agreed rent was 300,000 euros per year, plus a 40% share of operating profits. The lessors criticized the lessee company for failing to pay certain rents, due to the absence of rent indexation.

Vacanceole Provence rent arrears: failure of the tourism residence operator to index rents annually

Due to unpaid rents linked to the failure of the operator of the tourist residence to index rents annually, and the refusal to renew several leases, the owners applied to the interim relief judge to declare the acquisition of the resolutory clause in the lease contracts and order the eviction of the tenant company. They also requested that the company be ordered to pay unpaid rents corresponding to the absence of annual indexation.

In its defense, SASU Vacancéole Provence contested the service of the summons to pay and the notice to vacate. It raised objections of nullity on the grounds of failure to provide supporting documents. In the alternative, it requested payment deadlines and formulated counterclaims, in particular claiming eviction compensation.

Rejection of Vacanceole Provence’s request for cancellation of the vacations

The court examined the procedural objections raised by the tenant company. It recalled that the interim relief judge cannot declare bailiff’s acts null and void, but can only verify whether there are serious disputes. In this case, the payment orders and notices to vacate were indeed mentioned in the communication of documents, and the tenant company had not demonstrated any grievance caused by this alleged irregularity.

With regard to the substantive claims, the court analyzed the provisions of articles L.145-14 and L.145-28 of the French Commercial Code, specifying the rights of tenants in the event of lease renewal refusal and eviction compensation. The court considered that, on the basis of the documents presented, an expert appraisal was necessary to evaluate the eviction indemnity potentially due. Theexpertise was therefore ordered, at the advanced expense of the lessors, as is customary.

Claim for termination without eviction compensation based on resolutory clauses in leases

With regard to resolutory clauses in commercial leases, the court recalled the provisions of article L.145-41 of the French Commercial Code. It noted that the payment orders issued were valid, but that the sums claimed did not, in its view, justify a sufficiently precise breakdown. However, a table showing updates by year was appended to the order to pay issued by the bailiff. It is probable that the summary judgment judge did not intend to take responsibility for terminating certain commercial leases for lack of annual rent indexation.

Thus, the claim remained contestable according to the Juge des référés, and the court rejected the requests to acquire the resolutory clauses and the requested evictions. In addition, requests for an advance on indexed rents were also rejected on the grounds of serious disputes.

Finally, the court rejected the tenant company’s counterclaims for lack of sufficient evidence. It also ruled that there were no grounds for interim relief in respect of the lessors‘ claims.

In conclusion, the court ordered a judicial appraisal to evaluate the eviction indemnities, but rejected the parties’ other claims.

Judicial appraisal of eviction and occupancy indemnities

The court-appointed expert will need to be provided with the operating accounts and balance sheets that the operator is required to submit to the lessors every year, outside the scope of any legal proceedings.

Under the French Tourism Code, the operator of a tourist residence is required to provide certain accounting documents to lessors, even outside any legal proceedings, in order to ensure transparency and monitoring of management.

Operator’s obligations in terms of accounting transparency

Article L.321-1 et seq. of the French Tourism Code govern the obligations of operators of tourist residences, such as Vacanceole Provence. These provisions stipulate that the operator must provide lot owners (lessors) with documents enabling them to verify the activity and results of the operation. These include

• Operating accounts;
• Annual balance sheets.

The intervention of a legal expert may be requested in the event of a dispute or doubt about the operator’s management. However, even in the absence of legal proceedings, if the operator refuses or neglects to provide the required documents, a legal expert can be commissioned to obtain this information. This ensures that the operator’s obligations are fulfilled, and that the activity can be verified.

If the obligation to provide these documents is not respected, this could potentially justify legal action on the part of the lessor for failure by the operator to respect his obligations, on the basis of the aforementioned articles of the French Tourism Code or Commercial Code.

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The Versailles Court of Appeal ruling of March 2, 2023 concerns a dispute between Nexity Studéa and Mrs [R] over a commercial lease for a studio flat in a student residence. Mrs. [R], who had been renting the studio since 1999, had issued several notices of termination without eviction compensation, which Nexity Studéa challenged in court, requesting the nullity of these notices or, failing that, the payment of eviction compensation.

Eviction compensation of €14,912.57

In a ruling handed down on May 10, 2021, the Nanterre Court of Justice recognized Nexity Studéa ‘s right to an eviction indemnity of €14,912.57, including various elements such as the main indemnity, reinvestment, commercial disturbance, fixed costs and administrative expenses. He also set the annual occupancy indemnity at €4,380. Mrs. [R] was ordered to pay the costs of the proceedings, and set-offs were ordered.

Nexity Studéa demands double eviction compensation

Nexity Studéa lodged an appeal, contesting the court’s calculation of the eviction indemnity and the classification of its business. It requested an increase in this indemnity to €31,344.75, arguing that its activity was closer to a para-hotel operation than to simple property management. It also requested a revision of the occupancy indemnity based on the hotel method.

Arguments of the parties

Nexity Studéa argued that its business, which consisted of subletting furnished studios with para-hotel services, was economically similar to that of a hotel. She put forward the need to reconsider the coefficient used to evaluate the indemnity, requesting the application of a higher coefficient due to the characteristics of her residence.

Mrs [R], for her part, argued that Nexity Studéa’s business was similar to that of a property manager, with most of its sales coming from the subletting of buildings. It also asserted that the para-hotel services claimed were optional and did not alter the nature of the business. It proposed a much more modest valuation of the eviction indemnity.

Rejection of Nexity Studéa’s claim for reinvestment indemnity

The Court of Appeal partially upheld the lower court’s judgment, but adjusted the main eviction indemnity to €13,677, following a revaluation based on previous years’ sales figures.

The court rejected Nexity Studéa’s claim for replacement compensation, for lack of sufficient evidence of the possibility of replacing the premises or the intention to relocate.

Activities more akin to rental management

The Court analyzed the nature of Nexity Studéa’s business, concluding that it was somewhere between that of a property manager and that of a hotel operator. It noted that, although some para-hotel services were offered, the main characteristics of the business were more akin to rental management.

Sales method for calculating eviction compensation

The sales method was therefore adopted, but with an adjustment to the coefficients.

Refusal of Nexity’s claim for unjustified replacement compensation

The replacement indemnity is intended to cover transfer costs relating to the acquisition of a business or leasehold interest of the same value.

However, the tenant’s entitlement to compensation for reinvestment costs is subject to proof that he will relocate his business, which Nexity Studea does not allege.

Nexity Studea also makes no mention of its efforts to replace the lot, or to find a nearby residence offering available lots, which would enable a possible pooling of services to be envisaged. Consequently, the judgment will be reversed insofar as it accepted this claim for replacement costs.

With regard to the occupancy indemnity, the Court rejected the hotel method, stressing the absence of monovalence of the premises, and maintained the indemnity at €4,380, in line with the rental value calculated by comparison with local rents.

Conclusion: compensation amounts for a Nexity student residence

The Court of Appeal partially reversed the judgment, revising the amount of the main eviction indemnity to €13,677, while confirming the other points, in particular the non-monovalence of the premises and the valuation of the occupancy indemnity. This decision is based on an in-depth analysis of the characteristics of the business and commercial practices in student residence leases.

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Full text of the decision:

DISPUTE DESCRIPTION

By private deed dated August 31, 1999, Mrs. [W] [R] entered into a commercial lease with SGRS, which later became Lamy Résidences, and then Nexity Studea, covering the rental of a student residence.

company Nexity Studea, for a studio apartment constituting lot no. 205 in a ‘[Address 6]’ residence located at [Address 3] in [Location 7], for a period of nine years, from

nine years, from October 1, 1999 to September 30, 2008.

On March 31, 2008, Mrs [R] gave notice to vacate, without any eviction indemnity, with effect from September 30, 2008.

On March 30, 2009, Mrs. [R] sent a second notice to Lamy Résidences, with no renewal offer, effective September 30, 2009.

By deed dated September 29, 2010, Lamy Résidences summoned Mrs [R] to appear before the Nanterre Regional Court (Tribunal de Grande Instance de Nanterre), seeking a declaration that the two successive dismissals were null and void.

nullity of the two successive dismissals and, in the alternative, to set the amount of the eviction indemnity at €21,806.35.

In a ruling handed down on October 24, 2013, the Nanterre Regional Court recognized Nexity Studea’s right to compensation for eviction, and before ruling on the case

L] to determine the amount of the eviction compensation and the occupancy compensation.

The legal expert submitted his report on November 28, 2017.

In a judgment dated May 10, 2021, the Nanterre judicial court :

– set the eviction compensation owed by Mrs [R] to Nexity Studea at €14,912.57, broken down as follows:

– 12,350.16 € for the main eviction indemnity ;

– 1,235.02 for the replacement indemnity;

– 797.76 € for commercial disturbance;

– 179.63 € for fixed expenses;

– 300 € for moving expenses;

– 50 € for administrative expenses;

– set the annual occupancy indemnity owed by Nexity Studea to Mrs [R] at €4,380;

– ordered Nexity Studea, as successor in title to Lamy Résidences, to pay Mrs [R] the sum of €35,117.79, the amount provisionally determined as at

November 28, 2017 (date of filing of the report), after deduction of the sums paid by Nexity Studea in the same respect;

– ordered the mutual claims of the parties to be set off against each other;

– ordered Mrs [R] to pay Nexity Studea the sum of €5,000 under article 700 of the French Code of Civil Procedure;

– ordered Mrs [R] to pay the costs of the proceedings, which will include expert appraisals;

– dismissed the parties’ further or contrary claims;

– ordered provisional execution of the decision.

In a statement dated July 19, 2021, Nexity Studea lodged an appeal against the judgment.

CLAIMS OF THE PARTIES

In its final submissions, served on March 16, 2022, Nexity Studea asked the court to :

– Declare the appeal lodged by Nexity Studea admissible and well-founded,

Allow the applicant’s appeal,

– Set aside the judgment of the Nanterre District Court of May 10, 2021 insofar as it :

– Set the eviction compensation owed by Mrs [R] to Nexity Studea at €14,912.57, broken down into :

– 12,350.16 € for the main eviction indemnity,

– 1,235.02 € for the replacement indemnity,

– 797.76 € for commercial disturbance,

– 179.63 € for fixed costs,

– 300 € for moving expenses,

– 50 € for administrative expenses,

– Set the annual occupancy indemnity owed by Nexity Studea to Mrs [R] at €4,380,

– ordered Nexity Studea, as successor in title to Lamy Résidences, to pay Mrs [R] the sum of €35,117.79, the amount provisionally determined as at

November 28, 2017 (date of filing of the report), less the sums paid by Nexity Studea in the same respect,

– Ordered the set-off of the parties’ reciprocal claims,

– Confirm the remainder of the judgment under appeal,

And, ruling anew on the invalidated points,

On the eviction indemnity,

Primarily,

– Fix the eviction indemnity owed by Mrs [R] to Nexity Studea for lot no. 205 at the total sum of €31,344.75, except in full, broken down into :

– 22,682.30 €, unless otherwise agreed, as the main eviction indemnity,

– 2,268.23 €, unless otherwise agreed, in replacement costs,

– 797.76 €, in full, for commercial disturbance,

– 300 €, unless otherwise agreed, for removal costs,

– 500 € for administrative costs, unless otherwise agreed,

– 4,796.55 € in fixed costs,

In the alternative, if the Court were to consider that the activity more closely resembles that of a property administrator,

– Confirm the judgment on the amount of the eviction indemnity,

On the occupancy indemnity,

– Primarily, set the annual occupancy indemnity at €1,351.16 at 2017 value for lot no. 205, applying the hotel method,

– In the alternative, should the Court of Appeal decide to apply the comparison method, to set the amount of the annual occupancy indemnity

2017 value to the sum of €3,657,

In any event,

– Declare Mrs [R]’s cross-appeal unfounded and dismiss it,

– Dismiss Mrs [R]’s claims in their entirety,

– Order Mrs [R] to pay the sum of €8,000 under article 700 of the French Code of Civil Procedure,

– order Mrs. [R] to pay all the costs of the present proceedings, including those of the first instance and the expert’s fees.

By final submissions served on December 20, 2021, Mrs [R] asks the court to :

– Reverse the judgment handed down by the Nanterre Regional Court on May 10, 2021 (RG 18/05503) insofar as it :

– Set the eviction compensation owed by Mrs [R] to Nexity Studea at €14,912.57, broken down into :

– 12,350.16 € for the main eviction indemnity,

– 1,235.02 € for the replacement indemnity,

– 797.76 € for commercial disturbance,

– 179.63 € for fixed costs,

– 300 € for moving expenses,

– 50 € for administrative expenses,

Ruling again,

Set the eviction indemnity at €1,939.44, broken down as follows :

– 1,281.75 € for the main eviction indemnity,

– 128.06 € for commercial disturbance,

– 179.63 € for fixed costs,

– 300 € for moving expenses,

– 50 € for administrative expenses,

In the alternative, the sum of €6,934.86, broken down into :

– 6,227.17 € for the main eviction indemnity,

– 128.06 € for commercial disturbance,

– 179.63 € for fixed costs,

– 300 € for moving expenses,

– 50 € for administrative expenses,

– Confirm the remainder of the judgment,

– Order Nexity Studea to pay Mrs [R] €3,000 under article 700 of the French Code of Civil Procedure,

– And to pay all appeal costs.

The closing order was issued on October 13, 2022.

For a full account of the facts and proceedings, the Court expressly refers to the judgment referred to and to the parties’ written submissions, as prescribed in

article 455 of the French Code of Civil Procedure.

REASON

On the amount of the main eviction indemnity

The judgment noted the partial loss of the business, corresponding to the rental of the apartment, and that the activity of managing a student residence is between the activities of a business manager and the management of a student residence.

and that the student residence management business falls between the activities of property manager and hotel operator, so that the sales method could not be applied. He then

calculated the amount of eviction compensation on the basis of annual sales (average 2016-2018: €6,175.08), to which he applied a coefficient of 1.8

as proposed by the expert, to arrive at a main eviction indemnity of €12,350.16.

Noting that the court had ratified the conclusions of the expert’s report, Nexity Studea argued that the expert had misapplied the method of calculating the main eviction indemnity.

method of calculating the principal indemnity, but is seeking confirmation of the judgment which held that the eviction will result in the partial disappearance of the goodwill

corresponding to the premises rented by Mrs. [R], the appellant operating a business consisting of all the studios she makes available to her customers by providing them with para-hotel

providing them with para-hotel services.

She asked that the multiplying coefficient be reviewed, by looking at which of her activities was the closest from an economic point of view, and deduced from her analysis that it was far from being the closest from an economic point of view.

from its analysis that it is far from that of a property manager, but closer to that of a service residence operator and a para-hotel business.

In view of the residence’s good location and attractive features, it requests that a coefficient of 3.3 be applied to sales including VAT, rather than 2

on sales excluding VAT, as stipulated in the judgment.

She therefore seeks the sum of €22,682.30 in this respect, and in the alternative, confirmation of the judgment and rejection of the method proposed by Mrs [R].

Ms. [R] maintains that the expert was right to quantify the indemnities on the basis that the activity of a student residence operator is similar to that of a property manager.

property manager, Nexity Studea’s main activity being the subletting of studio flats.

These other services are optional and are designed to ensure a favorable tax environment for landlords. The company disputes the services claimed by Nexity Studea, arguing that the sales figures

reveals that it is only a building subletting business, as several court rulings have held. It asserts that the business of

of operating a student residence is similar to that of a property manager, underlines the differences between the residence in question and a hotel business

and that the administrative courts have ruled that these services cannot be assimilated to those of a tourist residence. It proposes

an annual sales figure of €2,740 and a coefficient of 1.4, i.e. a goodwill value of €3,826.

Nexity Studea, whose earning power is well above hotel industry standards. It asserts that the sales multiple method

is inappropriate, and that the appropriate method is that of a multiple of EBITDA.

*****

Article L.145-14 of the French Commercial Code provides that the lessor may refuse to renew the lease. However, subject to the exceptions provided for in articles L.145-

17 et seq., the lessor must pay the evicted lessee an eviction indemnity equal to the prejudice caused by the failure to renew the lease.

This indemnity includes the market value of the business, determined in accordance with industry practice, plus, where applicable

the normal costs of removal and relocation, as well as the costs and transfer duties payable for a business of the same value, unless the owner proves that the loss is due to a breach of contract.

the owner proves that the loss is less.

After recalling the rental situation, the legal expert Mr. [L] points out that lot n°205 is a 17.8 m² studio apartment in good condition, in a twelve-storey residence located near the [L] and the [L].

twelve-storey residence located close to [Address 6] and the ring road, with a reception area from 7.30 a.m. to 11.30 a.m. and a breakfast room in the basement.

basement with a ‘very basic’ breakfast room and laundry and sanitary facilities.

He presents the two possible hypotheses, depending on whether or not we consider that there is a business unit and that the loss of a lot corresponds to the loss of part of the business, or that the lots are independent of each other.

or that the lots are independent. In the case of an operating unit, it is appropriate to consider that the activity of managing a serviced residence is comparable to that of a property manager.

services is comparable to that of a property manager, or to that of a furnished hotel manager, but in view of the significant differences in the two cases,

the appraiser considers that the business of managing a serviced residence falls between the two, so he proposes an estimate of the value of the business based on

basis of sales, excluding or including VAT. Using this method, he estimates the indemnity at €12,220.

Assuming the absence of an operating unit, he arrived at an indemnity of €6,270, corresponding to a limited loss of rent.

The judgment found a partial loss of goodwill, corresponding to the rental of the studio in question, and Nexity Studea is asking for the judgment to be

Nexity Studea is seeking to have the judgment upheld on this point, pointing out that it operates a single business within the Studea residence [Locality 7] in which the studio is located.

While Mrs [R] contests the existence of a business unit and the effectiveness of the hotel services allegedly provided, arguing that it is a hotel activity, Mrs [R] also contests the existence of a business unit and the effectiveness of the hotel services allegedly provided, arguing that it is a hotel activity.

sub-letting of real estate, she supports her reasoning by citing case law that has held that there is a partial loss of goodwill.

partial loss of goodwill. Furthermore, while the judgment had noted that Mrs. [R] had not demonstrated the possibility of replacing these premises with

by equivalent premises in another residence operated by Nexity Studea, Mrs [R] provides no explanation on appeal of any such possibility of replacement.

on such a possibility of replacement.

Consequently, the judgment will be upheld insofar as it found a partial loss of goodwill due to the cessation of rental of the apartment.

*****

The legal expert considered that the activity of managing a serviced residence falls between that of a property manager and that of a hotel operator.

on this point.

Nexity Studea argues that its business is similar to that of a hotelier in that it rents out empty units, furnishes and equips them in order to offer them to customers, which it then sells.

It offers them para-hotel services and has staff to look after its customers. It points out that the para-hotel business

as defined administratively is very similar to that of a furnished hotel, in terms of offering breakfasts, cleaning the premises

linen and reception services. It argues that the optional nature of certain services does not alter this

this analysis, as these services require the company to have the necessary staff to provide them.

However, the court-appointed expert noted that the usual services provided by student residences are far removed from those of a conventional hotel (in terms of reception, cleaning, etc.).

services, room cleaning, breakfasts, etc.), which involve a much larger payroll, and that hotel stays are for

that hotel stays are for 2 to 3 days, whereas here the duration is several months, and that hotel and student residence rents represent a very different proportion of sales.

a very different proportion of sales.

Furthermore, Mrs. [R] is not contradicted when she states that commercial accommodation is not authorized in a residential building, when she points out that the occupants of the

that the occupants of Nexity Studea are “tenants”, which is not the case for hotel guests, and that they must insure the premises they occupy

that they must insure the premises they occupy themselves, subscribe to energy supply subscriptions, are subject to the payment of council tax

maintenance of the premises, and that the leases entitle them to a right of renewal. She also points out that linen, breakfast and cleaning

and cleaning services are not included, nor are they provided at weekends (in the case of breakfasts).

Nexity Studea’s business is far removed from that of a hotelier.

However, Nexity Studea’s business cannot be equated with property management either.

that studio rentals are for a few months, whereas standard residential leases are for 3 or 6 years, and that in this case the owner of the premises receives rent even if his or her lot is not rented.

that the owner of the premises receives rent even if his lot is not rented, and that the manager of the residence is an employee and not a director remunerated on a pro rata basis of the rents for which receipts are issued.

Nexity Studea also rightly points out that it concludes contracts with customers on its own behalf, that it leases the properties and offers them to its own customers, and that it is not a property manager.

and offers them to its own customers, that it is not paid by the landlord but, on the contrary, pays him rent, that it is the owner of the furniture

and is therefore responsible for their repair and replacement.

In view of the foregoing, and even if Nexity Studea emphasizes the economic proximity between its business and that of managing a furnished hotel, it would appear that its business borrows from both the owner’s and Studea’s activities.

its business borrows from both that of property manager and that of hotel operator, and falls between the two.

*****

The legal expert estimated the value of the business on the basis of 1.5 to 2 times sales excluding VAT, or 1.3 to 1.8 times sales including VAT. Using the

margins (i.e. 2 for sales excluding VAT and 1.8 for sales including VAT), and based on average sales from 2014 to 2016, he arrives at a figure of

12.220 €.

The judgment updated the basis of calculation, using sales excluding VAT for the years 2016 to 2018, and thus determined the amount of the main eviction indemnity at

compensation to €12,350.16.

While Nexity Studea points out the advantages of the [Address 8] residence in terms of environment, which are conducive to the students occupying the residence, these elements were known to the legal expert.

were known to the court-appointed expert, who took them into account in his report, and the fact that the residence is in both “good condition” and

cannot justify the application of a multiplier coefficient of 3.3 to sales, whereas the expert, after estimating that the basis of calculation

could be estimated at between 1.5 and 2 times sales before tax, he used a coefficient of 2, which is a high coefficient; all the more so since Mrs.

[R] argues that a property manager’s goodwill would usually be valued at 140% of sales including VAT.

The fact that Mrs [R] points out that Nexity Studea’s sales in 2020 amounted to €103,714,429 does not allow her to deduce, on the basis of the information she has provided, that the company’s sales in 2020 amounted to €103,714,429.

that the profit claimed by this company for its apartment represents 4.13% of its sales, so that its arguments to exclude the application of the

its argument that a multiple of sales should not be applied in favor of EBITDA cannot be accepted.

Nexity Studea reports sales for Mrs [R]’s studio of €20,620.28 for the period from January 1, 2018 to December 31, 2020,

based on an accounting statement produced by the appellant and not contested by the respondent. i.e. a monthly average of €6,873.42, rounded up to €6,873.

Applying a coefficient of 2 to sales excluding VAT gives a figure of €13,746, and applying a coefficient of 1.8 to sales including VAT gives a figure of

13.609 €.

The court will therefore retain the average of these two amounts, i.e. €13,677.5, rounded up to €13,677, at which the main eviction indemnity will be set, and the judgment will be reversed in this respect.

be reversed in this respect.

Ancillary indemnities due to Nexity Studea

On the replacement indemnity

The legal expert indicated that 10% of the value of the business was usually retained for this purpose, but that case law was divided on the inclusion of this indemnity in the event of eviction.

for the eviction of a studio in a serviced residence.

The judgment held that the purpose of this indemnity was to compensate the tenant for the costs he would have to bear in acquiring a new business or a new right to lease.

a new right to a lease, so that it was due, and set it at 10% of the value of the business.

Nexity Studea is requesting that this indemnity be set at 10% of the main eviction indemnity, pointing out that its purpose is to cover the costs and transfer duties

and transfer duties to be paid for the acquisition of a new business, and must be set aside if it is proven that the lessee is unable to acquire the business, or has no

intention to relocate, which Mrs [R] does not demonstrate.

Mrs [R] points out that Nexity Studea has not demonstrated that it is in a position to acquire a student residence business, and that its accounts show that it never buys a business.

that it never buys student residence businesses and lots, since it receives remuneration from the developers of student residence buildings

on the contrary, it receives remuneration from the developers of student residence buildings when it undertakes to obtain commercial leases from the individual purchasers of these lots with a view to their operation.

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The compensation for reinvestment is intended to cover transfer costs relating to the acquisition of a business or leasehold interest of the same value.

However, the tenant’s entitlement to compensation for reinvestment costs is subject to proof that he will be relocating his business, which Studea Nexity does not allege.

does not allege.

Nexity Studea also makes no mention of its efforts to replace the lot, or to find a nearby residence offering available lots,

which would make it possible to envisage a possible pooling of services. Consequently, the judgment will be reversed insofar as it accepted this claim for replacement costs.

costs.

Compensation for commercial disruption

The legal expert proposed to retain an indemnity corresponding to six months calculated on the basis of average operating results.

adopted this reasoning to order Mrs. [R] to pay €797.76.

Nexity Studea is seeking to have the judgment upheld on this point. Mrs [R] points out that the calculation of this sum should be based on operating or net income

or net income, i.e. 4.13% of sales for the lot in question, so that this indemnity would be €128.06.

However, as the court had previously indicated that this 4.13% rate could not be retained, Mrs [R]’s reasoning cannot be followed.

The judgment will therefore be confirmed insofar as it ordered Mrs. [R] to pay €797.76 in this respect.

Fixed costs

The expert retained 50% of the centralized operating costs, stating that while Nexity Studea argued that property tax and centralized operating costs should be taken into account, it was not.

property tax and centralized operating expenses should be taken into account, the tax should be borne by the owner, and the expenses should not all be fixed and some should be prorated.

prorated.

The court followed the expert’s analysis, ruling that not all average taxes were fixed costs, and that Nexity Studea would not have to pay them on a pro rata basis.

would not have to pay them in the future for Mrs. [R]’s studio. Using the same 6-month period as the expert, he calculated these costs at €179.63.

Nexity Studea argues that the loss of a rental unit in the residence results in a loss of sales and a reduction in the overall profitability of the

and that all expenses must be taken into account, since they do not depend on the number of rooms operated. She asks that

taxes and duties be included as fixed costs, and that the additional annual costs arising for her from the loss of the studio be assessed over 9 years, so that

that Mrs [R] be ordered to pay €4,796.55.

In the operative part of her conclusions, Mrs [R] requests confirmation of the amount of fixed costs at €179.63, and does not comment on this point in the body of her conclusions.

in the body of her conclusions.

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As indicated in the judgment, Nexity Studea will have to bear fixed charges that it will not be able to pass on to this lot, which is likely to

the parties. He also pointed out that taxes were not fixed costs, and that Nexity Studea would not have to pay them.

would not have to pay these charges in the future for Mrs. [R]’s studio.

While Nexity Studea maintains that it will have to pay taxes as a fixed expense, it does so by way of assertion.

The Court also notes that, under the terms of the lease, property tax is paid by the lessor. The mere fact that Nexity Studea produced operating accounts for

for the years 2018, 2019 and 2020, even if signed by its director, is not sufficient to justify its claim that Mrs [R] should bear part of the taxes, operating

taxes, operating expenses and fixed charges, as these documents have not been drawn up or even endorsed by a chartered accountant or auditor.

auditor. Taking into account a period of 9 years also appears excessive, so that Nexity’s request will not be granted.

Studea.

Consequently, the judgment will be confirmed insofar as it ordered Mrs [R] to pay €179.63 in this respect.

Moving expenses

Both parties request that the judgment setting the amount of moving expenses at €300 be confirmed, and this request will be granted.

Administrative expenses

The expert was not asked to rule on this point. The judgment held that these costs were limited to the termination of the contract

with the occupant of the premises, and retained the sum of €50 in this respect.

In the operative part of her conclusions, Mrs [R] requests confirmation of this sum.

Nexity Studea maintains that it is also responsible for carrying out other administrative formalities, in particular the modification of its website and the termination of its studio subscriptions.

These subscriptions had been negotiated on the basis of the number of studios operated in the residence.

However, the judgment had already expressly noted that Nexity Studea had not demonstrated the need to modify its website as a result of the loss of the studio, nor that the loss of the studio had induced Nexity Studea to modify its website as a result of the loss of the studio.

of the studio, nor that this would incur costs in terms of the studio’s Internet subscription or the cost of paying for the studio’s water and electricity.

The Court notes that Nexity Studea has not produced any further evidence to demonstrate the reality of these statements.

Consequently, the judgment will be confirmed insofar as it ordered Mrs [R] to pay the sum of €50 in this respect.

On the amount of the occupancy indemnity

The legal expert determined the sum of €4,380 per year on the basis of the method of comparison with prevailing prices (after deducting 20% for management costs and

and 10% for precariousness), and the sum of €3,933 per annum under the hotel method (after taking into account the occupancy rate, deducting a coefficient of

coefficient of 40% to take account of management costs, and 10% for precariousness).

The ruling rejected the monovalent nature of the premises, which could be converted without major work, and therefore did not apply the hotel method but rather the comparative method.

the comparative method. Taking into account the differences highlighted by Nexity Studea between the different types of studio apartments, it nonetheless considered that these references could be used as a basis for comparison.

nevertheless considered that these references could be used while taking into account the particularities of the studio, to which the expert applied an abatement of

20%. As a result, the judgment set the rental value at €4,380.

Nexity Studea maintains that the premises are monovalent, the monovalence being assessed in the context of a possible change of business activity

and not in the context of a change to a civil activity. It adds that, since the buildings were built for use as serviced residences, they cannot be

be converted to another commercial use without major alterations, so that the lot in question should be considered as a single-use property. The

deduces that the hotel method should be applied, and that the occupancy indemnity should be set in accordance with the practices observed in the industry in question.

Mrs [R] asks that the hotel method be rejected, and that the judgment be confirmed insofar as it set the occupancy indemnity at €4,380. She states that

the premises can be modified without major work, in particular for use as offices or workshops.

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Article L.145-28 of the French Commercial Code stipulates that no tenant entitled to eviction compensation may be forced to leave the premises before receiving it.

received. Until such compensation is paid, the tenant is entitled to remain in the premises under the terms and conditions of the expired lease. However, the occupancy indemnity

is determined in accordance with the provisions of sections VI and VII, taking into account all relevant factors.

Article L145-33 stipulates that rents for renewed or revised leases must correspond to the rental value. Failing agreement, this value is determined

determined on the basis of the characteristics of the premises in question, the use to which the premises are put, the respective obligations of the parties, and local market factors,

prices currently charged in the vicinity, with a decree issued by the Conseil d’Etat specifying these factors.

It follows that the lessee, who may remain in the premises until payment of the eviction indemnity, is liable for an occupancy indemnity which must be set at the rental value.

fixed at the rental value.

Lastly, article R.145-10 states that the lease price for premises built for a single use may, by derogation from articles L.145-33 and R.145-3 et seq.

Premises are monovalent when they have been built for a single use and it is not possible to assign them to another purpose without major work or costly alterations.

Although Nexity Studea maintains that the premises are monovalent, this monovalence was not retained by the legal expert or by the judgment, and Nexity Studea has not demonstrated that the serviced residences cannot be assigned to another commercial use, and that their assignment as a residential building cannot defeat the monovalence. Mrs [R] points out that the main room and bathroom can be used as an office or workshop without any particular work, and in the absence of any evidence from Nexity Studea to prove the above, the judgment will be confirmed insofar as it did not uphold the monovalence of the premises. Accordingly, the rental value should not be calculated using the hotel method.

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Nexity Studea maintains that the occupancy indemnity should be compared with studios rented by companies operating serviced residences, and disputes the fact that the appraiser took into account residential studios on the civil rental market, which are not comparable with commercial rents. It adds that the expert did not take into account part of its services, included in the rent paid by customers.

In his comparison with prevailing prices, the legal expert took into account six rentals carried out in [Locality 7] between 2011 and 2014, four rental offers presented in [Locality 7] in 2017, as well as three studio offers in student residences also located in [Locality 7].

However, as the judgment noted, while there are significant differences between studios in serviced residences and other studios, in terms of the services offered to “tenants”, the rents charged in the vicinity can usefully be taken into account, and the appraiser did take into account the specific nature of the services offered by serviced residences by applying a deduction of 20% for management and caretaking costs.

If the occupancy indemnity constitutes the consideration for the use of the premises, Nexity Studea cannot rely on the rents it pays to the owners of studios in the [Location 7] residence to deduce that this is the amount of the occupancy indemnity due to Mrs [R].

The expert’s abatement refers to “management costs that are lower than for individual rentals”, citing in particular the absence of management fees, security guard fees, etc., but this list is expressly drawn up in a non-exhaustive manner, so that Nexity Studea cannot claim that it does not take into account some of the services it offers its customers, such as the residence manager, internet or laundry.

The court agrees with the tribunal that the 20% discount applied by the legal expert is intended to take into account the cost of the specific services offered by Nexity Studea in a serviced residence, compared with a studio offered for rent on the market ‘outside serviced residences’.

The judgment will therefore be upheld insofar as, in view of the rental value of the premises of €6,087.60, it applied a deduction of 20% for costs incurred by a rental residence and 10% for precariousness, and then retained an annual occupancy indemnity amount rounded off to €4,380.

Other claims

The judgment will be confirmed insofar as it ordered the set-off of claims, and insofar as it ordered the payment of 1st instance costs and irreducible expenses.

Nexity Studea being unsuccessful in its appeal, will be ordered to pay the costs of the appeal, as well as the sum of €2,000 to Mrs [R] under article 700 of the French Code of Civil Procedure.

FOR THESE REASONS

The court, ruling by contradictory decision,

Confirms the judgment, except with regard to the amount of the main eviction indemnity and the replacement indemnity, ruling again on these points,

Fixes the amount of the main eviction indemnity at €13,677,

Dismisses Nexity Studea’s claim for reinvestment compensation,

Declares that the eviction indemnity owed by Mrs [R] to Nexity Studea amounts to €15,004.39, with the addition thereof,

Dismisses the parties’ other claims,

Order Nexity Studea to pay Mrs. [R] the sum of €2,000 under article 700 of the French Code of Civil Procedure, and to pay all costs of the appeal.

The judgment was delivered publicly and made available at the court clerk’s office, the parties having been notified in advance in accordance with the conditions set out in the second paragraph of article 450 of the French Code of Civil Procedure.

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In brief:

Theoccupancy indemnity may be reduced for precariousness if the tenant suffers prejudice due to legal uncertainty, but this abatement is refused without concrete proof of prejudice or economic impact. Exceptions include the non-indispensability of the premises to the tenant’s main business, growth in sales, or work carried out by the tenant that is not precarious.

Occupancy indemnity: definition of precariousness in case law

The occupancy indemnity may be subject to a reduction for precariousness, due to the legal uncertainty that has prevented the lessee from making the necessary investments or amortizing those already made (Cass. civ. 3e, March 20, 2007, no. 06-10.476, unpublished).

Exception 1 for a reduction in occupancy indemnity: premises not essential to business activity

However, this reduction in occupancy indemnity for precariousness is not justified when the premises in question, although used as a storeroom, is not essential to the tenant’s main business activity (CA Paris, 16th ch., November 23, 2005, no. 04/13690).

Lack of proof of prejudice

Theallowance for precariousness is rejected if the tenant does not prove the reality of a prejudice. (Cass. Civ 6 novembre 1970, JCP 1971, III, p. 229)

Exception 2: Failure to prove the economic impact of non-renewal

The lessee must establish the economic impact of non-renewal of the commercial lease on his business. (CA Toulouse, December 15, 2009, n°09/02230)

Exception 3: Growth in sales since notice was given

Growth in sales since the notice of termination demonstrates the absence of prejudice (CA Versailles, October 6, 2015, n°14/07907), which would justify a reduction in the occupancy indemnity (replacing the rent after termination).

Exception 4: Work carried out by the lessee

This will be particularly the case where work has been carried out by the operator of a tourist residence that is not precarious, as noted by the legal expert in hislegal expert’s report.

In the absence of justification by the legal expert of this unjustified reduction in “rent” (occupancy indemnity) and of unjustified enrichment of the operator of the tourist residence, the court will have to set aside the reduction inoccupancy indemnity proposed by the legal expert.

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The decision of the Grenoble Court of Appeal, Commercial Division, dated November 23, 2023, concerns a dispute between SARL Grange d’Arvieux Résidence and the co-owners of a tourist residence. The dispute concerns the termination of the leases and the refusal to renew the commercial leases, notably due to rent arrears over several years.

A subsidiary of Mona Lisa

The residence, initially operated by Transmontagne Résidences, was taken over in 2007 by a subsidiary of Mona Lisa. The leases included a fixed rent supplemented by a variable portion calculated on the basis of sales generated by the operation of the units. In 2015, the lessors demanded payment of unpaid rent for the years 2007 to 2014 and refused to renew the leases, citing these arrears. The lessee then went to court to contest these formal notices and request renewal of the leases.

Leases terminated ipso jure

In May 2021, the Gap judicial court ruled that the leases had been terminated by operation of law with effect from January 25, 2016, due to the operating company’s breaches. The court ordered theeviction of the company and ordered it to pay the rents owed to the co-owners, as well as an occupancy indemnity for the period following termination of the leases. The company appealed against this decision.

The operator claims that the notices of termination are null and void

Grange d’Arvieux is contesting the lower court’s decisions, arguing that the landlords’ notices of termination were issued in bad faith to avoid paying an eviction indemnity.

It also contends that some of the rent arrears claimed are time-barred. She also contests the payment orders and argues that the resolutory clause has been invoked in an abusive manner.

She is asking the court to declare the dismissals issued null and void, to renew the leases under the same initial conditions or, failing that, to appoint an expert to determine the rental value of the property in order to set the rents for the renewed leases.

Landlords seek confirmation of termination

The co-owners claim that the operating company has failed to meet its obligations, particularly with regard to the payment of rent and the provision of compliant insurance certificates.

They are seeking confirmation of the termination of the leases and payment of the rent arrears, plus statutory interest.

Confirmation of the termination of the leases

The Court of Appeal ruled in favor of the landlords, except in the case of certain overdue rents, which were deemed time-barred for this reason:

“Overturns the judgement insofar as it states that there is no reason to impose a penalty in the present situation’;

Confirms the other provisions of the judgment submitted to the court;

ruling again;

Declares the voluntary intervention of [YU] [EC] admissible’;

attaches a daily penalty of 100 euros to the obligation imposed on [Address 121] to vacate the premises, in the event of failure to vacate the leased premises within two months of notification of the present judgment’;

Limits the duration of this astreinte to three months’;

adding thereto’;

Declares the lessors’ claims for payment of rent accrued prior to September 13, 2011 to be time-barred;

Orders the company [Adresse 121] to pay each of the respondent lessors the sum of 500 euros pursuant to article 700 of the French Code of Civil Procedure, as well as the costs of serving the summonses and refusals to renew, with distraction in favor of Maître Botrel, a lawyer at the Gap bar;

Condemn the company [Address 121] to pay Gan Assurances the sum of 3,000 euros pursuant to article 700 of the French Code of Civil Procedure and the costs’;”.

Conclusion

This ruling illustrates the difficulties frequently encountered in the management of commercial leases for tourist residences, in particular the issues linked to resolutory clauses and the reciprocal obligations of the parties. The Court’s final decision will have a significant impact on how operators of tourist residences negotiate and execute their contractual commitments to co-owners.

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Action plan to save your assets

1. HIGH VALUE ADDED INFORMATION: Ask your question free of charge to a tourist residence lawyer.
2. EQUALITY OF ARMS THROUGH THE GROUP: Join a group and pool costs and information, join forces to achieve equality of arms with the operator.
3. JOIN A NATIONAL AND INTERNATIONAL NETWORK OF LESSOR CUSTOMERS: we run a network of around 100 active customers in various tourist and student residences.
4. MODEST AND PREDICTABLE COSTS: Sign an engagement letter based on an estimate, with fixed and definitive fees, regardless of the number of lots owned by the landlord. Divide legal fees by 5.

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