Business Contracts

Building (or construction) leases are governed by Articles L. 251-1 to L. 251-9 of the Construction and Housing Code (Code de la construction et de l'habitation). Very similar to long-term tenancy, from which it differs mainly in its obligation to build, a building lease is similar to a sale for the same reason: the transfer of rights in rem to the lessee, which, although temporary, produces the s …

Building lease (bail à construction)

Building (or construction) leases are governed by Articles L. 251-1 to L. 251-9 of the Construction and Housing Code (Code de la construction et de l'habitation). Very similar to long-term tenancy, from which it differs mainly in its obligation to build, a building lease is similar to a sale for the same reason: the transfer of rights in rem to the lessee, which, although temporary, produces the same effects as those benefiting the buyer/owner.

A building lease presupposes the construction of works that are both immovable and substantial : the lessee has the obligation - and not the option  - to build on the leased land. In the absence of an obligation to build, which is the main purpose of the lease and not a condition of its performance , the lease cannot be classified as a building lease .

A building lease contains the principal elements of an long-term lease, namely a term of between eighteen and ninety-nine years, and the transfer of a real property right to the lessee , which in principle cannot be restricted . Thus, according to the Court of Cassation, a clause in a building lease which makes its transfer subject to the lessor's approval is null and void, since it constitutes a restriction on the lessee's right to transfer, contrary to the freedom of disposal . Similarly, the public policy provisions governing building leases preclude the stipulation of an approval condition in accordance with the lessee's rights in rem in the leased property .

The Court of Cassation, however, has been less intransigent on the issue of the absence of any limits on the lessee's rights in rem than in the case of long-term leases, since it has accepted certain clauses restricting the lessee's activity without excluding the classification as a building lease . It has thus ruled that the parties to a building lease may add a provision imposing restrictions on the lessee's activity, since Articles L. 251-1 to L. 251-9 of the Construction and Housing Code distinguish between provisions supplementing the will of the parties and those declared to be of public order, which are binding on the parties notwithstanding any stipulation to the contrary .

Moreover, a building lease requires the lessee to maintain and repair the buildings throughout the term of the lease . However, according to the Court of Cassation, an agreement for the construction of a transformer substation on a plot of bare land for a period of eighteen years constitutes a building lease within the meaning of Article L. 251-1 of the Construction and Housing Code, even if the parties stipulate that, on expiry of the lease, the lessee undertakes to restore the premises to the condition they were in when he took possession . This solution is supported by the provisions of Article L. 251-2, which stipulates that “the parties agree on their respective rights of ownership over existing buildings and buildings erected”.

Unless otherwise stipulated, at the end of the lease the lessor recovers ownership of the buildings and benefits from the improvements carried out. In this way, compensation to the lessee for loss of ownership of buildings erected by him on the leased land during the contractual term of the building lease does not exclude compensation to the lessor for loss of ownership of these assets at the end of the lease .

CA Paris, 12 March 2009, LawLex202200001912JBJ, noting that by entering into a lease entitled “building lease”, on a plot of land with a surface area of 3,470 m2 and two buildings without specifying any existing structures, the parties demonstrated their common intention to enter into a building lease, which presupposes the construction of works that are both immovable and material in nature.

ass. 3e civ. of 11 June 1986, LawLex202200001266JBJ, ruling that a lease of bare land granted for twenty years to a commercial undertaking, which has the option, but not the obligation, to build on it any construction for commercial and industrial purposes, does not constitute a building lease, but an long term lease (bail emphytéotique).

Art. L. 251-1 and L. 252-4 of the Construction and Housing Code.

Cass. 3e civ,, 30 January 2008, LawLex202200001834JBJ, specifying that the provisions of Article L. 251-1 of the Construction and Housing Code, according to which “a building lease is a lease under which the lessee undertakes, as a principal obligation, to build structures on the lessor's land and to maintain them in good condition throughout the term of the lease”, do not preclude the classification as a building lease of an agreement relating to a plot of bare land, for a period of eighteen years, for the purpose of enabling the lessee to build a transformer substation, even if the parties have stipulated that the lessee is obliged to clear the land of the transformer substation on expiry of the lease.

Cass. 3e civ, 31 March 2004, LawLex202200001828JBJ.

On the distinction between a commercial lease and a building lease, see Cass. 3e civ, 2 July 2008, LawLex202100001441JBJ, ruling that an agreement for the construction and operation of a service station on land should be classified as a commercial lease, rather than a building lease, since the lessee's main obligation is to operate the service station, since the designation of the building to be constructed appears to be the specification of a mode of performance of the lease and not its main object, and since the agreement provides for the possibility of renewal by tacit agreement, as well as a three-yearly review of the rent in accordance with the legislation governing commercial leases.   

Cass. 3e civ. May 12, 2010, LawLex202200001808JBJ, holding that a court of appeal cannot reject a request to reclassify a building lease as a commercial lease without ascertaining whether the lessee has committed to building on the lessor's land.

Art. L. 251-3 Construction and Housing Code: “A building lease confers a right in rem over the property on the lessee”.

As regards the absence of any limit on the lessee's right in rem, the Court of Cassation has been less intransigent than in the case of long-term leases, see Cass. 3e civ, 7 April 2004, LawLex202100002972JBJ, noting that the parties to a building lease may introduce a provision imposing restrictions on the lessee's activity, insofar as Articles L. 251-1 to L. 251-9 of the Construction and Housing Code distinguish between provisions supplementary to the will of the parties and those declared to be of public order, which are binding on the parties notwithstanding any stipulation to the contrary.

Cass. 3e civ, 24 September 2014, LawLex202200001840JBJ.

CA Paris, 12 March 2009, LawLex202200001912JBJ.

Cass. 3e civ, 2 July 2008, LawLex202200001804JBJ, considering that a thirty-year agreement published in the mortgage registry, which stipulates that the leased land may only be used for the construction of a mountaineering snack bar, and which sanctions non-compliance with this obligation by automatic termination if the construction is not completed within three years of the building permit, constitutes a building lease.

Cass. 3e civ, 7 April 2004, LawLex202100002972JBJ.

Business Contracts

46. Building lease (bail à construction)

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46. Building lease (bail à construction)

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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