French Leaseback

Notice of termination must be delivered by a bailiff

Notice of termination of a commercial lease must be given by a bailiff, now known as a “ commissaire de justice”. A January 24, 2024 ruling by the Paris judicial court (18th chamber, 2nd section) illustrates this point once again.

The absence of prejudice on the part of the lessee does not render the notice valid

The recipient of the notice, in this case the lessee, does not need to prove the existence of any prejudice. Failure to comply with legal formalities is sufficient to render the notice null and void.

The response to the notice does not cover the irregularity of the notice

In this case, the acknowledgement of receipt of the notice given by registered letter is not sufficient to give it the legal effect of a valid notice.

A two-year period in which to contest the notice

As a reminder, the lessee has two years in which to contest the validity of the notice:
“On the validity of the notice issued by Mr [O] [H] [Z] and Mrs [F] [K] by registered letter with acknowledgement of receipt dated February 10, 2020
Under the terms of article L. 145-9 paragraph 5 of the French Commercial Code, the notice of termination issued by the lessor must be given by extrajudicial deed. It must, under penalty of nullity, specify the reasons for which it is given and indicate that the tenant who intends either to contest the notice or request payment of an eviction indemnity, must bring the matter before the court before the expiry of a two-year period from the date for which the notice was given”.
The notice must be given by extrajudicial deed, and failure to comply with this imperative formality is sanctioned by the nullity of the notice at the request of the lessee, who is not required to prove any prejudice in this respect.
In the case in point, although they wrote in their registered letter dated February 10, 2020: “We are giving you notice of termination of the commercial premises by bailiff’s deed dated 10/02/2020, with refusal to renew the commercial lease with effect from 08/31/2020”, Mr [O] [H] [Z] and Mrs [F] [K], who are in default in the present proceedings, do not prove that they gave notice of termination by extrajudicial deed, the existence of which is disputed by OHLE. In his reply dated March 4, 2020, the lessee wrote: “We take note of your decision, but have serious doubts about the legal validity of the form of your notice”.
OHLE having contested the validity of this notice within the two-year period following its delivery by a writ of summons delivered on February 4, 2022, it should be noted that the notice given by letter by the lessors does not meet the imperative formal conditions set out in article L. 145-9 of the French Commercial Code, and must therefore be declared null and void. ”
Tribunal judiciaire, Paris, 18th chamber, 2nd section, January 24 2024 – n° 22/01721

Related content:

What happens if the tenant fails to return the keys.

How to terminate my leaseback ?

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Frenchleaseback and end of the lease

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

Waiver of eviction compensation prior to 2014

It follows from Article 2 of the Civil Code that new law governs the legal effects of legal situations that came into being before its entry into force and have not been definitively realized. Here, the 2014 Pinel law applies to commercial leases signed before this law.
Law no. 2014-626 of June 18, 2014, known as the Pinel Law, substituted, for the nullity of clauses having the effect of defeating the right to renewal, their deemed unwritten nature. Clauses waiving eviction compensation or setting a lump sum for eviction compensation are covered by this rule according to this ruling.
The tenant-operator’s action to have a lease clause deemed unwritten is not subject to the statute of limitations (Cass., 3rd Civ., November 19 2020, pourvoi n° 19-20.405, published).
The judges conclude that the sanction of deemed unwritten (cancellation) is applicable to leases in force at the time of the 2014 Pinel law, even if the statute of limitations on the action for nullity of waiver or eviction indemnity setting clauses had previously expired.
Cour de cassation, 3rd civil chamber, November 16, 2023 – n° 22-14.046

Eviction compensation waiver clause after 2014

An application to have a clause whose effect is to defeat the right to renewal, introduced after the entry into force of the law of June 18, 2014 and relating to a lease in progress on that date, deemed unwritten is admissible even though the limitation period for the action for nullity of the same clause would have been acquired on the day the new law came into force.
This second ruling by the Cour de cassation on November 16, 2023 confirms the application of the Pinel law sanction even though the two-year prescription would have been acquired on the day the 2014 Pinel law came into force.
Court of Cassation, 3rd Civil Chamber, November 16, 2023 – n° 22-14.091

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

As the commercial lease stipulated a clause waiving the tenant‘s right to renew the lease, and the notice of termination issued by the lessors without an offer of renewal or eviction compensation had terminated the lease on December 31, 2013, the court of appeal correctly held that the legal situation had ended on that date, i.e. before the law of June 18, 2014 came into force, and that this law was not applicable.
The rule that the exception of nullity is perpetual can only be invoked as a defense to a request for enforcement of an irregularly executed act and not by the plaintiff acting by way of action.
The tenant sued the landlords for nullity of the notice to vacate and of the clause waiving payment of an eviction indemnity.
The Court of Appeal correctly deduced that the tenant had acted by way of action, so that she could not rely on the exception of nullity.
Consequently, the waiver of eviction indemnity clause drafted by the operator of the tourist residence at the time of renewal of the commercial lease applies in this case.
Court of Cassation, 3rd Civil Chamber, November 16, 2023 – n° 22-14.089

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What happen after 9 years ?

It’s not always easy for the lessor or lessee to know the end date of a commercial lease.
The contractual term (end date of the lease) does not terminate the effects of the commercial lease, whose clauses continue to apply between lessor and lessee (tenant).
Furthermore, the commercial lease is not automatically renewed, i.e. a new 9-year commercial lease has not been created. Either the lessor or the lessee may give notice at any time to terminate the lease.
The commercial lease has a minimum term (9 years), but no maximum term.

At this stage, the three options are:

1. The tacit effects of the old lease apply between lessor and lessee, with no fixed maximum term;
2. The lessor or lessee terminates the commercial lease by means of a notice issued by a bailiff;
3. The lessor or lessee notifies the bailiff of a request to renew the lease, with a different rent for example.

The commercial lease terminates with a notice of termination or a request for renewal by bailiff, failing which the old lease will continue to apply without time limit (tacit extension).
Notice must be given within the notice period specified in the commercial lease. If the contract does not specify this, the period set by the French Commercial Code is 6 months.
When notice is given during the tacit extension period, the 6-month period starts to run from the end of the current calendar quarter. In practice, this means that the notice period can be as long as 8 or 9 months.
The bailiff will deliver the notice in accordance with the legal deadlines applicable at the end of the commercial lease.

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I. Dispute between the S.A.S. Office Hôtelier du Logement Étudiant (OHLE)

The ruling handed down by the Paris Court of First Instance on January 24, 2024 concerns a dispute between S.A.S. Office Hôtelier du Logement Étudiant (OHLE) and the couple [H] [Z], owners of a studio apartment leased to OHLE under a commercial lease. The dispute concerns the validity of a notice of termination issued by the lessors, who wished to end the lease without offering to renew it.

II. OHLE’s application to cancel the lessors’ notice to quit

In 2016, husband and wife [H] [Z] acquired a studio apartment in a student residence operated by S.A.S. OHLE. The studio had been subject to a commercial lease since 1999, initially concluded between the former owners and OHLE, and tacitly renewed after its expiry in 2008.
On February 10, 2020, husband and wife [H] [Z] sent OHLE a registered letter of termination with refusal to renew, effective August 31, 2020. OHLE contested the validity of this notice, arguing that it did not comply with the mandatory formalities set out in article L. 145-9 of the French Commercial Code, which requires that notice be given by extrajudicial act.
In response to this challenge, OHLE applied to the Paris Court of First Instance to have the notice cancelled.

III. Legal issues

The central issue is whether the notice given by the couple [H] [Z] is valid in light of the formal requirements imposed by article L. 145-9 of the French Commercial Code, which stipulates that any notice given by the lessor must be served by extrajudicial act.

IV. Notice by registered letter cancelled

The Court ruled that the notice of termination delivered by registered letter on February 10, 2020 by husband and wife [H] [Z] to OHLE was null and void. It pointed out that, under article L. 145-9 of the French Commercial Code, notice of termination must be given by extrajudicial deed, failing which it is null and void. As spouses [H] [Z] had not complied with this imperative formality, the court concluded that the notice was irregular.
The Court also ordered spouses [H] [Z] to pay OHLE the sum of 2,000 euros pursuant to article 700 of the French Code of Civil Procedure, plus costs.

V. Lessors trapped by OHLE

This ruling highlights the importance of formalities for commercial lease notices. The strictness with which the courts apply the provisions of article L. 145-9 of the French Commercial Code underlines the need for lessors to be extremely vigilant in complying with formalities when issuing a notice to quit.
In this case, the failure of husband and wife [H] [Z] to serve the notice by extrajudicial act was sufficient to render the notice null and void, irrespective of the will of the parties or the circumstances surrounding service. This decision reaffirms the imperative nature of the legal procedure and serves as a warning to lessors of the importance of scrupulously following the legal provisions, failing which they risk having their actions declared null and void.
Furthermore, the Tribunal’s decision to award OHLE irreducible costs under article 700 of the Code of Civil Procedure also demonstrates the potential financial impact of non-compliance with procedural requirements.

VI. Conclusion

The January 24, 2024 ruling is a reminder to landlords of the importance of complying with the formalities imposed by the French Commercial Code on notices of termination. In the context of student residences, where commercial leases are common, this ruling underlines the need for landlords to have a good grasp of the legal aspects involved in terminating leases, or risk seeing their notices invalidated and having to bear additional financial consequences.

Tribunal judiciaire de Paris, 18th chamber, 2nd section, January 24, 2024 – n° 22/01721

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The British press is writing on the hot topic of the eviction indemnities demanded by the operators of Frenchleaseback, even after a written waiver. Today, the Telegraph.

PIERRE ET VACANCES is obviously the first to be targeted. The indignation of British and Irish lessors is justified. The lies of companies benefiting from tax advantages are unforgivable. They lead buyers to believe that the French government supports them, which is not true. These are private companies, even if they are benefiting from influential political networks. Our law firm defends more than 450 property owners who are victims of these legal issues, particularly in the resorts of the French Alps (Les Arcs, La Plagne, Val d’Isère, Vallandry, etc.) and Provence and the French Riviera. Don’t hesitate to ask your free question to a firm that is truly specialised in Frenchleaseback and exclusively in defending lessors.

Here’s a breakdown of the key points:

1. Eviction Indemnities and Waivers:

There is concern from British and Irish property owners about demands for eviction indemnities from operators, even when these operators have signed written waivers. The last case law suggests that despite the existence of agreements that should limit or waive these indemnities, operators may still be trying to claim them.

This practice lead to legal disputes, where the lessors feel they are being unfairly treated or misled.

2. Criticism of Companies Like Pierre et Vacances:

Pierre et Vacances, a major player in the leaseback market, is at the center of this controversy. The press accuses the company, and others like it, of misleading buyers by making it appear as though the French government supports their activities, while in fact, these are private companies.

3. Indignation of Lessors:

The two articles reflects strong resentment from British and Irish lessors, who feel they have been deceived by the companies taking advantage of the tax benefits offered by the French leaseback scheme.

4. Defending Lessors:

There are law firms specialized in defending lessors facing these legal challenges.

Key Legal Concerns:

Breach of Contract:

The issue of demanding eviction indemnities after waivers have been signed could be seen as a breach of contract, potentially giving rise to claims by lessors for enforcement of contractual terms.

Misrepresentation: If companies like Pierre et Vacances are leading buyers to believe that the French government supports their practices, when in fact they do not, this could constitute misrepresentation or misleading commercial practices.

Legal Strategy for Lessors:

Contractual Review:

Lessors affected by these issues may need to carefully review their leaseback contracts, especially the clauses regarding eviction, indemnities, and waivers.

Potential Litigation:

Affected lessors could consider collective or individual legal action against the operators, potentially citing breach of contract, misrepresentation, or unfair commercial practices.

Expert Legal Assistance:

The choice of a law firm specialized in defending lessors is important for property owners to seek legal advice from firms with experience in this niche area, particularly those familiar with French leaseback laws.

Please feel free to ask us any question here.

Article 1:

The Telegraph about Frenchleaseback : Britons with buy-to-lets in France face shock £100k tax bills

Article 2

The Daily mail about Frenchleaseback : Britons who own French holiday homes could be forced to pay up to £170,000 and have retirements ruined due to legal U-turn

Legal analysis of the Toulouse Court of Appeal decision of February 28, 2022

1. Background to the dispute :

Mrs Dominique D. invested in a property in a future state of completion (VEFA) in order to benefit from tax exemption under the “De Robien” law. She acquired an apartment in July 2007, which has never been rented. Due to the lack of rental income, the property was finally sold at auction in 2014 for a sum well below the initial investment.

Mrs D. then initiated a liability action against several companies involved in the real estate transaction, in particular SAS Omnium Finance and other entities of the same group, accusing them of breaching their obligations to provide information and advice, and of having acted fraudulently.

2. Ruling at first instance :

In a decision dated November 9, 2018, the Toulouse Regional Court declared Ms. D.’s claims inadmissible as time-barred. The court found that the five-year limitation period, applicable to actions in tort, had begun to run no later than February 2011, the date on which Ms. D. had expressed, by letter, her knowledge of the damage suffered and her intention to seek the liability of the companies involved.

3. Reasons given by the Court of Appeal :

The Toulouse Court of Appeal upheld the court’s decision regarding the statute of limitations, rejecting Ms. D.’s argument that the time limit should have begun to run on the date of the forced sale of the property in November 2014. The Court held that Mrs. D. had been aware of the facts giving rise to her loss since 2010, after attempts to rent out the property had failed, and that she had explicitly expressed this knowledge in her letter of February 2011. Consequently, the five-year limitation period expired in February 2016, rendering her action, initiated in June 2016, inadmissible.

4. Analysis of the statute of limitations :

The central issue of the decision is the calculation of the starting point of the limitation period. The Court applied article 2224 of the French Civil Code, which provides that the limitation period runs from the day when the holder of the right had knowledge or should have had knowledge of the facts enabling him to exercise his right. In this case, knowledge of the lack of profitability of the real estate project from the end of the period covered by the insurance in September 2010, as well as the tax implications from 2010, were considered decisive in determining the starting point of the limitation period.

This analysis is in line with case law, which requires plaintiffs to be vigilant in fulfilling the conditions of the action as soon as they become aware of facts revealing potential damage. The decision also recalls that liability claims must be brought within the time limit, on pain of foreclosure, even if the damage continues or worsens after the initial knowledge of the facts.

5. Consequences of the decision :

If the Court of Appeal upholds the statute of limitations, Mrs D. will be ordered to pay the costs of the proceedings, both at first instance and on appeal, and her claims for compensation will be rejected. The absence of any new elements or acts interrupting the statute of limitations between February 2011 and June 2016 led to the inadmissibility of her claims.

6. Conclusion:

The decision of the Toulouse Court of Appeal is in line with a strict application of the rules of prescription in matters of tort. It underlines the importance for investors to act quickly when they become aware of damage linked to an investment. Rigorous calculation of the limitation period protects defendants against late actions, thus ensuring legal certainty and stability in commercial relations.

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Article L145-30 of the French Commercial Code deals with the consequences of the tenant’s failure to hand over the keys on the date set for vacating the premises, as part of the enforcement of the lease.

Non-delivery of keys :

– If the tenant fails to hand over the keys on the agreed date after formal notice, the receiver (i.e. the person or entity responsible for keeping the eviction compensation) has the right to withhold 1% of the amount of the eviction compensation for each day of delay.

– This deduction is returned to the lessor on presentation of the receipt, without the need for any further formalities or proof.

Payment of eviction compensation :

– When the fifteen-day period provided for in article L.145-58 has elapsed without the lessor having exercised his right to repent (i.e. the right to renounce the termination of the lease by paying the eviction indemnity), the eviction indemnity must be paid to the lessee or to the receiver within three months.

– This payment must be made from the date of a summons delivered by extrajudicial act (bailiff), and this act must, on pain of nullity, reproduce the text of the present paragraph.

Key points

– The mechanism for withholding 1% per day of delay is a coercive measure designed to ensure that the tenant vacates the premises on the agreed date.

– Once the period for repentance has elapsed, the lessor must comply with the three-month time limit for paying the eviction indemnity, failing which the validity of his order may be challenged.

Conclusion

This article therefore imposes precise obligations and strictly regulates the consequences of delay in returning the premises, as well as the process for paying eviction compensation.

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Article L145-29 of the French Commercial Code deals with the conditions under which the tenant must return the premises in the event of eviction, and the payment of eviction compensation.

Key points to remember :

Time limit for returning the premises :

The lessee must return the premises to the lessor within three months of payment of the eviction indemnity, either directly to the lessee or to a receiver appointed for this purpose.

Appointment of receiver :

In the absence of agreement between the parties on the appointment of a receiver, the latter is appointed by the judgment ordering payment of the indemnity. Failing this, he may be appointed by a simple court order.

Payment of compensation :

The receiver pays the indemnity to the tenant as soon as the latter hands over the keys to the empty premises and provides proof of payment of taxes and rent, and provided that he or she has carried out the necessary repairs. Payment is made on the tenant’s receipt alone, unless creditors object.

Opposition by creditors :

If the tenant’s creditors object, this could delay or condition payment of the indemnity.

Conclusion

In practice, this article guarantees the lessor a degree of security with regard to the restitution of the premises and the vacating of the premises, while protecting the lessee’s rights via the eviction indemnity. The procedures provided for are designed to provide a framework for the restitution of the premises, particularly in the event of conflict or difficulty between the parties.

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Article L145-28 of the French Commercial Code sets out the conditions under which a tenant entitled to eviction compensation may be forced to vacate the premises.

Key points

Right to occupancy:

– A tenant who is entitled to an eviction indemnity cannot be forced to leave the premises before actually receiving this indemnity.

– Until such compensation is paid, the tenant has the right to remain in the premises under the conditions and clauses of the expired lease.

Occupancy indemnity :

– During this period of occupancy, the tenant must pay an occupancy indemnity. This indemnity is determined in accordance with the provisions of sections 6 and 7 of the corresponding chapter, taking into account all relevant factors.

Waiver in the case of provisional indemnity :

– By way of derogation, in the specific case mentioned in the second paragraph of article L. 145-18 (which mainly concerns refusal to renew on serious and legitimate grounds), the tenant may be required to vacate the premises as soon as a provisional indemnity has been paid.

– This provisional indemnity is set by the president of the judicial court, on the basis of an expert appraisal ordered in the forms defined by decree by the Conseil d’Etat, pursuant to article L. 145-56 of the French Commercial Code.

Practical implications :

Tenant protection:

This article offers substantial protection to the commercial tenant, guaranteeing him the right to remain on the premises until he has been compensated.

Legal proceedings:

In the event of a dispute, an expert appraisal may be ordered to determine the amount of provisional compensation, thus enabling occupancy of the premises to be terminated under certain conditions, notably in the event of refusal to renew on serious grounds.

This article illustrates the balance sought by the legislation between the tenant’s right to eviction compensation and the landlord’s right to recover his property under fair and equitable conditions.

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The ruling handed down by the Versailles Court of Appeal on March 2, 2023 concerns a dispute between Nexity Studea and Mrs [R], relating to a commercial lease for a studio flat in a student residence.

I. A studio apartment in a student residence

The ruling handed down by the Versailles Court of Appeal on March 2, 2023 is part of a classic dispute in commercial lease law, concerning the setting of eviction compensation. It pits Nexity Studea, the lessee, against Mrs. R., the lessor of a studio apartment in a student residence. This judgment is interesting in that it addresses technical issues concerning the valuation of eviction compensation, the application of calculation methods, and the qualification of the business being operated.

II. Facts and procedure

In 1999, Mrs R. entered into a commercial lease with SGRS, which subsequently became Nexity Studea, for a studio apartment in a student residence. The lease expired in 2008, and Mrs. R. gave notice of termination without compensation. Nexity Studea then contested the notice and applied to the Nanterre court for payment of an eviction indemnity. In a ruling dated May 10, 2021, the court partially upheld Nexity Studea‘s claim, setting the eviction indemnity at €14,912.57.

Unsatisfied, Nexity Studea appealed, requesting a reassessment of the compensation to €31,344.75, arguing that the legal expert and the court had incorrectly applied the calculation methods.

III. Legal issues

The central issue in this judgment is the method used to value the eviction indemnity, and in particular the classification of Nexity Studea‘s business activity. Should this activity be considered to be similar to that of a property manager or hotel operator? A multiplier coefficient must be applied to determine the value of the business and, consequently, the amount of the eviction indemnity.

IV. The Court’s solution

Qualification of the business :

The Court of Appeal confirms that Nexity Studea’s business activity borrows from both that of a property manager and that of a hotel operator, falling somewhere between these two activities. The Court therefore refused to support Nexity Studea’s claim that its business was essentially hotel-related, which would have justified a higher multiplier.

Setting the eviction compensation :

The Court updated the basis for calculating the eviction indemnity by taking an average of sales from 2016 to 2018. It applied a coefficient of 2 to sales excluding VAT, resulting in an eviction indemnity of €13,677, slightly higher than that set by the court of first instance.

Compensation for replacement :

The Court rejected Nexity Studea‘s claim for compensation for reinstatement, ruling that this compensation was not due in the absence of proof that the company planned to relocate its business.

V. Critical analysis

This decision illustrates the complexity of qualifying activities carried out under commercial leases for the purposes of determining eviction compensation. By refusing to follow Nexity Studea‘s logic, the Court of Appeal’s decision demonstrates a certain rigor in applying the principles for assessing eviction compensation. The Court insists on the need not to confuse para-hotel activities with those of a traditional hotel, which has important consequences for the calculation of compensation.

However, it is regrettable that the Court did not go further into the precise criteria for deciding between the different valuation methods, leaving the door open to uncertainty in similar cases in the future.

VI. Conclusion

The Versailles Court of Appeal’s ruling confirms a cautious and balanced approach to determining eviction compensation, respecting the specific features of the rental market and the activities carried out by lessees. Although technically complex, this decision is a reminder of the importance of a detailed analysis of factual situations when applying the principles of commercial lease law.

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