17 January 2019 bruno

French Leaseback : Termination of the lease without damages (indemnité d’éviction)

Leaseback Properties Contract written with wilful misrepresentation (indemnite d’eviction)

Leaseback properties in France. Private individuals agreed to a leaseback scheme in France (buying and renting to an operating company)

Summary

  • The operator (tenant) waives the eviction compensation in the commercial lease, knowing that this waiver is not valid (not enforceable).
  • The judges cancel the lease. The operator of the French leaseback property (tourist residence) is not entitled to an eviction indemnity (damages called in French : indemnité d’éviction).
  • The bad faith of the tenant, who drafted the commercial lease turns against him.
  • This case law could be a huge step forward in the right of owners of a French leaseback property.

Abstract

The (tenant) lessee, is a company specialized in the management of leaseback properties.

However, the operator writes the lease with bad faith. Because he pretends to waive in advance his right to damages, if the the lessor end the contract. (eviction indemnity/(damages called in French : indemnité d’éviction).

According to the French law, the tenant (lessee) cannot waive in advance and in the lease his right to an eviction indemnity in case of non-renewal of the commercial lease.

He can waive this right to damages AFTER signing the commercial lease.

But in this case, the operator is a pro of this industry. He waives his right knowing well that this clause has without legal ground. Even if, it was for the lessor a substantial condition of the contract, ie one main reason why the buyer agreed to the leaseback.

The tenant (operator) acted with the intention to willfully misrepresented the content of the lease contract.

The operator of the leaseback property falsely reassured the buyer/lessor in the legitimate belief that his renunciation constituted a real commitment.

This behavior is analyzed as a “wilful misrepresentation” (dol in French), meaning a fraud when writing the contract.

Wilful misrepresentation and statute of limitations

Wilful misrepresentation

The buyer of the French leaseback property signed a leaseback contract with a operating company. However only the tenant wrote the lease contract.

The waiver to an eviction indemnity could only appear as a decisive element of the deal. Most importantly, the buyer of the French leaseback would (or might) not have signed the contract.

If their attention had not been attracted by this financial interest, they might not have contracted.

Indeed, the cost of more than € 13,000 claimed as compensation for eviction weakened the profitability of the operation for the owners.

The legitimate belief in a waiver of the lessee  continued throughout the lease. They served a notice without eviction compensation. It was served in accordance with paragraph 6 of the lease.

Statute of limitations of 2 years

Otherwise, the tenant is claiming a statute of limitation of 2 years to cancel the lease. However, the statute of limitation of 2 years begin to run, when the victim is informed. In this case, it is the date of the registered mail addressed to the  owners by the operating company.

That’s why the wilful misrepresentation (fraud) leads the judges to cancel the commercial lease.

Furthermore, the court decides the paid rents were due for operating the leaseback property without a lease contract. The cancellation of the lease means it is like it had never existed.

Cour d’appel de Montpellier, 10 janvier 2017, N° de RG: 14/06714

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