1 – The basics
The commercial lease organises the rental of premises intended for a commercial, industrial or craft activity. It is an essential support for commercial activity. It gives rise to countless disputes.
Commercial property
Historically, these leases mainly concerned shops. Business activity and local goodwill evolved in tandem. The development of one favoured the development of the other. Moving meant losing the loyal clientele linked to a location.
The legislator therefore created a special “Statute” to stabilise and protect the business developed on rented premises: minimum duration of the lease, regulation of the conditions of exit or renewal, rent control, etc. This is the “commercial property” of the “lessee” (tenant). This commercial ownership of the tenant limits the rights of the lessor, the “owner of the premises”.
In principle, the landlord cannot evict his tenant during the term of the lease, which is intended to be renewed, except in exceptional cases and in return for payment of compensation.
In return, some landlords demand a sort of entry fee. This is called the “key money”. This fee is negotiated according to the attractiveness of the premises to a clientele. This key money is analysed as a rent supplement (deductible from profits over the term of the lease) or as an indemnity (non-deductible).
A strict regulation that is not well known despite the interests at stake.
The Statute was set out in Decree No. 53-960 of 30 September 1953. It is largely codified in articles L.145-1 to L.145-60 and R.145-1 et seq. of the Commercial Code. These texts are regularly corrected (e.g.: Pinel law n˚ 2014-626 of 18 June 2014, relating to crafts, trade and VSEs). They are grafted onto the common law of the lease (Art. 1714 et seq. of the Civil Code).
Some of these texts are mandatory. Others apply when the parties have made no other provision. For outside the mandatory legal framework, the principle is that of freedom. But in practice, laws are experienced as ‘cut-off’ rules with unexpected effects. And contractual freedom allows certain professionals to multiply the traps into which uninitiated or poorly assisted parties fall.
The positive or negative effects of a negotiation are rarely understood and felt immediately. They sometimes appear several decades after the signing of the lease!
The amounts involved are often substantial.
Protection of the business of a regularly registered trader or craftsman
In principle, only lessees who are duly registered in the Trade and Companies Register or the Trade Register benefit from the Statute (Cass. civ. 3, 28 May 2020, n° 19-15001).
This harmless rule is a source of practical difficulties.
And the penalties are heavy for the negligent or superficial entrepreneur. Forgetting to keep his K-bis up to date means running the risk of finding himself “without right or title”, forced to leave the premises against his will.
Conversely, a tenant who wants to leave the premises must carefully check the identity of his contacts and the clauses of the lease and not be satisfied with them, if he does not want to run the risk of having to pay three years’ rent and charges unnecessarily.
The Commercial Leases Statute can be chosen for liberal professionals (LME law n° 2008-776 of 4 August 2008).
Logically, the Statute only applies to premises necessary for the operation of a business (Art. L.145-8 of the Commercial Code; Cass. Civ. 3, 16 June 2004, n° 03-11314). It concerns the main premises, but also certain accessory premises.
The extent of the protection will differ according to the nature of the premises. Monovalent premises (offices, hotel, etc.) are subject to specific treatment.
2 – Elements of stability: price and duration
Financial elements (rent, charges, guarantees)
The parties freely negotiate the initial rent. This rent may be revised every three years, but only to a limited extent.
The parties generally agree to index it to an index published by INSEE. Most often, this is the ICL (commercial rent index). In this case, the indexation applies both upwards and downwards (Cass. Civ 3, 30 June 2021, no. 19-23038).
In certain cases, the law allows the rent to be “de-capped” in order to adjust it to the local market price, during the lease or when it is renewed, but limits upward variations to 10% per year.
The setting of the rent for the renewed lease remains a source of numerous disputes.
Similarly, charges must be clearly allocated between the landlord and the tenant.
Since 2014, the law has in principle made the landlord responsible for the costs of upgrades, expenses and fees relating to major repairs (Art. 606 of the Civil Code), certain taxes and fees for which the landlord is legally responsible (excluding property taxes and taxes and fees relating to the use of the property or to a service from which the tenant benefits), rental management costs, costs attributable to other tenants or to vacant premises.
The “Pinel” law has thus put an end to the Anglo-Saxon practice of “triple net” rents of the “investor lease” passing on all charges, taxes and fees to the tenant. The practice of investors is therefore evolving. Some are asking the tenant to pay all expenses, except those that cannot be charged to the tenant according to the regulations in force. Owners of shopping centres continue to require their tenants to join “retailers’ associations”, which are responsible for undertaking promotional activities, the costs of which are shared between the tenant-members. These practices regularly lead to litigation and legislative interventions.
The terms of payment of the rent are also negotiable (monthly or quarterly transfers or direct debits, in advance or in arrears, etc.).
The payment is made in principle at the same time as a “provision” on charges is paid. These advance payments on charges give rise to an annual “regularisation”, with additional payment or reimbursement. It is up to the lessor to establish his claim by proving the existence and the amount of the charges, failing which the lessee may request the return of the provisions already paid.
As a general rule, a “security deposit” is required.
The amount of this deposit depends on how the rent is paid. Article L.145-40 of the Commercial Code provides that sums paid in advance (rent, guarantee, etc.) bear interest for the benefit of the tenant for what exceeds two terms of rent. And practice shows that landlords are reluctant to calculate and pay interest. They therefore ask for a security deposit of one quarter if the rent is payable quarterly in advance (in arrears), but of one month only if the rent is monthly. The amount of this deposit can be doubled if the rent is paid at the end of the period (in arrears).
Landlords can also negotiate personal or bank guarantees and other guarantees in addition to or instead of a security deposit. Many landlords are reluctant to return security deposits at the end of the lease. In response, a practice has developed – in principle strictly prohibited – of using the deposit to pay the last rent and advances on charges.
Visibility over 3-6-9 years, renewable
The Statute requires that the lessee remain on the premises for a fixed period of at least 9 years (Art. L.145-4 of the Commercial Code), with a limited option to terminate the lease at the end of 3 or 6 years: this is why the commercial lease is often referred to as a “3-6-9” lease.
This does not apply to seasonal leases and some derogatory leases whose duration is limited to 2 years or linked to exceptional events. Conversely, it is possible to conclude leases for periods of more than 9 years, bearing in mind that a lease of more than 12 years requires specific formalities and advertising. In recent years, leases of more than 9 years have become increasingly popular with landlords, as they allow them to avoid certain rules protecting tenants at the end of the lease. Many shopping centres systematically offer 10-year leases. Specific leases of another nature (rural leases, long leases/construction leases, etc.) are excluded from this study.
The lease ends with the delivery of a “notice of termination” at least 6 months before the end of the term. The tenant may give notice without having to justify himself. The lessor may only do so when it is for one of the reasons provided for by the law (Art. L.145-17 et seq. of the Commercial Code). Some leases of more than 9 years or relating to single-purpose premises (e.g. hotel), offices or storage are initially concluded for a “firm” term involving a waiver of the right to terminate the lease after 3, 6 or even 9 years. This waiver is generally negotiated in return for exceptional benefits granted on entering the premises (no key money, performance of certain works, rent-free or reduced rent, etc.).
At the end of the lease, the commercial lease does not end automatically or as of right. If no notice is given, it continues. The tenant has the right to renew the lease for the same term as the initial lease. The rent for the renewed lease is in principle capped, but there are exceptions justifying an alignment of the price with the local market.
The lessor who gives notice by refusing to renew the lease is liable for eviction compensation, unless this refusal is justified by serious and legitimate reasons (Art. L.145-14 et seq. of the Commercial Code). The tenant may remain in the premises until the compensation has been paid. Once the payment has been made, he still has three months to leave the premises. The compensation is supposed to fully compensate the tenant for the damage suffered as a result of the termination of the lease. It is often negotiated and generally varies between the removal costs and the full market value of the business. The fact that this compensation is not “capped” has led to legal debates in recent years, including an appeal to the Constitutional Council: does this compensation not disproportionately infringe the lessor’s right of ownership? When the indemnity is quantified by the courts, the landlord has 15 days to “repent” and prefer to renew rather than pay an indemnity and recover the premises.
Failure to comply with the obligations of the lease may be grounds for termination of the lease or judicial cancellation, with financial penalties. This usually leads to the eviction of the tenant.
3 – Focus on some obligations
Landlords: a growing but imperfect obligation to provide information
The law requires landlords to provide tenants with more and more information and documents (natural and technological risks, energy performance diagnoses, asbestos, inventory of fixtures, categories of charges, forecast and summary of works, minutes of general meetings of co-ownerships). Prudence also requires them to carefully describe the rented premises (surface area and methods of calculating surface areas, numbering of lots, plans).
Authorised activity & despecialisation
The “all trade” lease allows all lawful activities to be carried out on the leased premises. However, a lessor often seeks to limit them. As the “owner” of the premises, it is understandable that he should control what goes on in his property. Some activities run into regulatory or material difficulties, or are hostile to third parties with whom the landlord may have agreements or may wish to remain on good terms. This may lead the owner to limit noise or odour nuisance, refuse to see competing activities set up or favour the complementarity of the local commercial offer… Soliciting a change in the authorised activity or even a “despecialisation” during the course of the lease is generally accompanied by negotiations on the amount of the rent. In most cases, the addition of related or complementary activities (partial despecialisation) will not pose a problem. A more radical change (full despecialisation) requires in practice the agreement of the lessor or an appeal to the magistrates.
Inventory of premises on entry, during and at the end of the lease
The condition of the premises on entry, during the lease and on return of the premises at the end of the lease is also a point of attention in the context of the negotiations, with significant financial implications to be provided for in the accounts if necessary. The law requires landlords to draw up a joint inventory of fixtures on entry in order not to lose the benefit of the presumption of “good condition” (Art. 1731 of the Civil Code and Art. L.145-40-1 of the Commercial Code).
4 – Stakeholders and the fund
Prohibition in principle of introducing third parties
The lessor has the right to inspect the identity of the occupants of the premises he owns.
In principle, the subletting of premises is prohibited (Art. L.145-31 of the Commercial Code).
It is therefore in the interest of groups, which are always likely to create new subsidiaries or undertake a reorganisation, to negotiate in advance the authorisation to house companies other than the tenant. Obtaining permission to sublet in advance will have clear advantages if difficult situations arise.
Rights relating to the business
Traditionally, the commercial lease can be transferred to the purchaser of the business operated on the leased premises, without the landlord being able to object, particularly in the event of retirement.
At most, the lessor may make the operation subject to compliance with certain formalities, which are then mandatory. Generally, the landlord must be given a certain amount of notice of the planned transfer, a notary must be involved, the landlord must be allowed to participate in the transfer deed or an original copy must be sent to him.
On the other hand, there is no obligation on the lessor to accept the transfer of the lease contract outside the framework of a transfer of the business. If authorised, an assignment of the lease alone is an assignment of a claim. It is necessary to ascertain the attitude of the tenant’s registered creditors, starting with the tax authorities.
For some years now, the tenant has had a preferential right to pre-empt and acquire the rented premises if they are put up for sale by the owner.
5 – Legal issues
Lease disputes
The lease relates to real estate. In other words, the most important stable source of traditional property. Hence the particular timidity of the law, which does not allow for a choice of law or jurisdiction in matters of commercial leases.
It is therefore necessary to apply to the civil courts of the place where the building is located (Art. R145-23 of the Commercial Code).
Questions relating to the price of the revised or renewed lease fall under the jurisdiction of the president of the judicial court. Other disputes fall under the jurisdiction of the judicial court itself.
The division of competences regularly gives rise to difficulties (Cass. Civ. 3e, 15 Feb. 2018, No. 17-11329).
Normal or shortened statutes of limitation
The time limit for action (prescription) is 2 years for matters relating to the application of the statute (Art. L145-60 Commercial Code).
Actions relating to the ordinary law of the lease are subject to the ordinary law prescription.
