In a French leaseback (bail commercial en résidence de tourisme), the owner (bailleur) is bound by the rules of commercial leases, particularly those under Article L. 145-1 et seq. of the French Commercial Code. This means that if the owner refuses to renew the lease at the end of the contractual period, he is generally required to pay an eviction indemnity (indemnité d’éviction) to the tenant (exploitant).
1. Protection of the Tenant’s Business (Fonds de commerce)
Under Article L. 145-14 of the French Commercial Code, if the landlord refuses to renew the lease, the tenant is entitled to compensation for the loss of their business unless the landlord has a legitimate reason.
In a tourist residence, the exploitant operates a business (fonds de commerce) and is considered to have rights over the lease.
2. Preservation of Commercial Lease Stability
French law protects commercial tenants to ensure business continuity. The idea is that the exploitant has made investments (e.g., marketing, staff hiring, management system) relying on the lease’s renewal.
3. Absence of Legitimate Grounds for Non-Renewal
The landlord can avoid paying an eviction indemnity only if they can justify a legitimate reason under Article L. 145-17:
- Serious fault of the tenant (e.g., non-payment, breach of lease obligations).
- Reconstruction or demolition of the premises for a real estate project.
- Personal occupation of the premises (which does not apply in leaseback cases since the premises are commercial).
If no legitimate grounds exist, the refusal triggers the obligation to compensate the tenant.
4. Compensation Amount (Indemnité d’éviction)
The indemnity must cover the full value of the lost business (fonds de commerce).
It may include:
- Loss of revenue for the operator.
- Relocation costs if applicable.
- Clientele compensation.
Specific Issues in French Leaseback
Many landlords in leaseback schemes are individual investors who were often unaware of their obligations under commercial lease law.
They may assume they can end the lease without cost, but the law treats the operator as a protected commercial tenant.
Some leases contain clauses regarding non-renewal conditions, but any attempt to waive the eviction indemnity in advance is generally null and void.
Key Takeaway
If a French leaseback property owner refuses to renew the lease without legitimate grounds, they must pay an eviction indemnity because the operator has commercial lease protections. This indemnity compensates the tenant for the loss of their business (fonds de commerce).
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