French Leaseback and Eviction Indemnity: Key Legal Considerations

1. Understanding French Leaseback (Bail Commercial en Résidence de Tourisme)

French leaseback schemes involve purchasing a property, typically in a résidence de tourisme, and leasing it back to a professional operator through a commercial lease (bail commercial). These leases typically last 9 to 12 years, with a guaranteed rent paid to the investor, even if the property is vacant.

2. Eviction Indemnity (Indemnité d’Éviction) in Leaseback Context

The indemnité d’éviction is a fundamental principle of French commercial lease law (Article L.145-14 of the Code de Commerce). If the landlord refuses to renew the lease, they must compensate the tenant (in this case, the residence operator) for the loss of business.

Does the Eviction Indemnity Apply to Leaseback Contracts?

Yes, in most cases: The operator of a résidence de tourisme is considered a commercial lessee, benefiting from the protective regime of baux commerciaux.

Exceptions: If the lease contains a renonciation préalable à l’indemnité d’éviction, it may limit the operator’s rights to compensation. However, such waivers are subject to strict scrutiny by courts.

3. Key Points on Eviction Indemnity in Leaseback

Indemnity Calculation: The amount depends on the loss of commercial value, the turnover of the business, and relocation costs.

Landlord’s Right to Refuse Indemnity: A landlord can refuse renewal without paying an indemnity if they can prove:

The tenant has committed a serious breach of the lease (e.g., unpaid rent, unauthorized use).

The property is being demolished for reconstruction.

The landlord wishes to reoccupy for personal use (not applicable to most leaseback cases).

4. Termination Before Lease Expiry

If the leaseback operator defaults (e.g., non-payment of rent), the property owner may seek early termination through clause résolutoire or legal action. However, this does not automatically trigger eviction indemnity, as it applies mainly to non-renewal situations.

5. Recent Case Law and Trends

French courts have been increasingly protective of tourism residence operators, emphasising:

The compulsory nature of eviction indemnity in leaseback schemes.

The invalidity of abusive waivers in leaseback contracts.

The need for landlords to justify non-renewal beyond financial convenience.

Conclusion

Property owners in leaseback schemes should be cautious when refusing the renewal of a commercial lease, as they may owe a significant eviction indemnity to the operator.

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