Commercial Leases/Business Goodwill

Article L. 145-28, para. 1, of the Commercial Code states that the lessee entitled to eviction compensation cannot be forced to leave the premises until they have received it. They benefit from the right to remain in the premises under the terms and conditions of the expired lease until payment is made. However, para. 2 specifies that when the lessor must carry out work requiring the evacuation of the premises, in accordance with the second paragraph of Article L. 145-18, the tenant must vacate upon payment of a provisional compensation set by the president of the Judicial Court. The deprivation of the possibility to continue a commercial activity in the rented premises until the eviction compensation is paid, in violation of the lessee's right to remain in the premises, causes harm to the lessee that the judge must assess .

If Article L. 145-28 of the Commercial Code offers the lessee the possibility to remain on the premises under the terms and conditions of the expired lease until the eviction indemnity is paid, he is not, however, obliged, unless expressly stipulated, to stay on the premises until this indemnity is paid . Indeed, he may, at his discretion, decide to leave the premises without losing the benefit of the eviction indemnity. On the other hand, the failure to renew and the right to remain on the premises until full payment of the resulting eviction indemnity do not justify terminating the important agreements underlying the right to occupy the premises. Thus, the manager-lessee cannot unilaterally terminate the management lease contract due to the refusal to renew the lease, while proceedings are pending to rule on the lessee's claim for eviction indemnity and in the absence of its payment, the latter has the right to remain on the premises, which means he can leave the business in management lease .

The issue of the right to remain in the premises can raise difficulties in the event of the transfer of the building or the business. Since, throughout the duration of the right to remain in the premises, the parties are required to respect the conditions and clauses of the expired lease contract, the clause establishing a right of first refusal in favor of the lessee applies when, during the lease, the lessor decides to sell the leased building . Furthermore, in the event of the transfer of the business by the lessee, the Court of Cassation initially considered that the right to remain in the premises benefited only the lessee, creditor of the eviction indemnity, who remained in the premises, to the exclusion of the transferee . Subsequently, reversing its case law, it established the principle that, unless otherwise stipulated in the deed, any transfer of a business entails the transfer of the eviction indemnity claim due to the transferor and the right to remain in the premises derived from Article L. 145-28 of the Commercial Code . Thus, the transferee is no longer considered as occupying without right or title, even if they acquired the business knowing that the lease of the premises would not be renewed and therefore fully aware of the precarious nature of the occupation . However, the transferor must have complied with the clauses and conditions of the lease, failing which the transferee is deprived of their right to the payment of the eviction indemnity . In matters of expropriation, the Court of Cassation considers that if the expropriation order, which extinguishes the lease right, does not eliminate the business, the subsequent transfer of the business entails, unless otherwise stipulated in the deed, the transfer of the eviction indemnity claim due to the transferor .

The right to remain in the premises is the corollary of the tenant's right to eviction compensation. Thus, the tenant is deprived of the right to remain in the premises when they have not acted for the payment of the eviction compensation before the expiration of the two-year period, as the action is time-barred , or when they have not acted, within the same period and for the same reason, to contest the reasons by which the landlord claims exemption from paying eviction compensation . Indeed, the offer of eviction compensation is only provisional since the landlord can retract it if they establish that the conditions for applying the commercial lease status are not met , even if they were aware of the tenant's situation at the time of the offer , or if they justify having a serious and legitimate reason to do so . Since the right to remain in the premises, pursuant to Article L. 145-28, of the leaseholder who has received notice with an offer of eviction compensation, operates under the conditions and clauses of the lease, nothing prevents the landlord from invoking, against the tenant, violations committed after the expiration of the lease . Thus, an instantaneous violation of the clauses and conditions of the lease is characterized when the act of donation of the business, including among others the eviction compensation claim and the right to remain in the premises, is irregular with regard to the lease clauses according to which the assignment of the lease right must be established by the landlord's notary or with the landlord duly notified . However, it is up to the landlord to provide proof of a serious and legitimate reason for refusing to pay the eviction compensation .

The lessee loses both the right to remain on the premises and the right to eviction compensation when they do not comply with the conditions and clauses of the expired lease contract. Significant breaches of contractual obligations, whether committed after or before the notice , include the conversion of cellars carried out by the lessee contrary to the lease stipulations , repeated and sometimes significant delays in rent payments , failure to pay an occupancy indemnity equivalent to the last current rent , or changes in distribution made by the lessee during this retention period .

Even if the landlord has served notice of termination with refusal to renew to the tenant, who has remained in the premises, the landlord may seek termination of the lease based on Article 1224 of the Civil Code, for reasons stated or not in the notice . This action for judicial termination of the commercial lease, initiated by the landlord, is not subject to prior notice . The trial court judges have sovereign power to assess whether, in the circumstances of the case, the tenant's breaches are so serious that they should be sanctioned by the forfeiture of the right to eviction compensation . Failing to pay the amount of the occupancy indemnity on the exact date does not constitute a sufficiently serious fault to justify the forfeiture of the right to payment of eviction compensation . The landlord may also, if the lease contains a termination clause, enforce it to exempt themselves from paying eviction compensation in the event of tenant fault . However, since termination clauses are interpreted restrictively, termination cannot be established for non-payment of the agreed rent, while during the period of remaining in the premises, the occupancy indemnity is distinct from the rent to which it substitutes upon lease expiration .

Finally, the disappearance of the business causes the tenant to lose their right to eviction compensation. This is the case when the tenant has remained or has been maintained on the premises but has allowed the business to decline and ultimately undergoes liquidation , or when, pursuant to Article 1722 of the Civil Code, the total destruction of the leased property has resulted in the automatic termination of the lease and the loss of their contractual and statutory rights by the tenant, who can no longer claim eviction compensation that is not definitively acquired on the day of the disaster and has not entered their estate . Conversely, when, following a fire, the leased premises have not been entirely destroyed, the landlord cannot, in view of the provisions of Article 1722, retract their offer of eviction compensation .

Cass. 3e civ., 25 January 2023, LawLex202300001549JBJ.

Cass. 3e civ., 28 February 1990, LawLex202300012283JBJ; 17 July 1996, LawLex202200006232JBJ.

Cass. 3e civ., 1 March 2000, LawLex202300012278JBJ, according to which, by failing to advise its client to initiate, within the two-year foreclosure period allotted to the lessee, which cannot be suspended or interrupted, either an action to contest the reasons by which the lessor claims exemption from paying an eviction indemnity, or a claim for payment of this indemnity, the professional civil law firm failed in the obligations inherent to its mandate, thereby incurring liability.

Cass. 3e civ., 5 March 1971, LawLex202300012275JBJ: in this case, the leased premises were ancillary premises, not essential to the operation of the business, to which the legislation on the renewal of commercial leases did not apply.

Cass. 3e civ., 10 January 1996, LawLex202300012276JBJ: in this case, the management lease contract granted to the tenant-manager was void because the lessee had not operated the business for at least two years, and the lessor, who had not waived the right to invoke the forfeiture of the benefit of the status, could, in any event, invoke the inapplicability of this status resulting from the nullity of this management lease contract.

Cass. 3e civ., 19 December 2001, LawLex202300011935JBJ.

Cass. 3e civ., 4 January 1985, LawLex202300011860JBJ: in this case, the lessor was entitled to impose a penalty by denying eviction compensation for acts of procuring revealed after the trial court judgment; CA Bordeaux, 11 March 2024, LawLex202400002311JBJ.

Cass. 3e civ., 28 October 2009, LawLex202200006242JBJ.

Cass. 3e civ., 31 May 2012, LawLex202300012277JBJ: in this case, the demand for payment concerning unpaid rent, which was subject to a payment schedule agreement, does not establish that the lessee ceased to honor their current payments after the notice of termination with refusal to renew and offer of eviction compensation.

Cass. 3e civ., 12 July 2011, LawLex202200009336JBJ.

Cass. 3e civ., 17 October 1973, LawLex202300012284JBJ: in this case, examining the violations committed, which consisted of the conversion of cellars carried out contrary to the lease stipulations, the trial court judges declared, in the exercise of their sovereign power to assess the evidence submitted to them, that it was not established that the landlords were aware of said conversions when they gave notice.

Cass. com., 24 March 1998, LawLex200200005109JBJ.

CA Aix-en-Provence, 16 May 2017, LawLex202300012266JBJ.

Cass. 3e civ., 4 May 2000, LawLex202200003862JBJ.

Cass. 3e civ., 12 July 2011, LawLex202200009336JBJ, prec.; 23 November 2011, LawLex202300012285JBJ.

Cass. 3e civ., 17 October 2012, LawLex202300011380JBJ, according to which delays in payment of some occupancy installments are not so serious as to warrant the forfeiture of the right to eviction compensation; 29 June 2005, LawLex202200006234JBJ: the payment defaults characterize breaches of the tenant's main obligation, maintained in the premises under the terms and conditions of the contract, to pay the occupancy compensation replacing the rent, so that the trial court sovereignly held that these repeated breaches constitute a sufficiently serious violation to justify the termination of the lease and the forfeiture of the right to eviction compensation.

CA Paris, 5 July 2017, LawLex202300012099JBJ.

Cass. 3e civ., 5 October 2017, LawLex202200004363JBJ: in this case, the landlords cited delays in rent payments and the completion of unauthorized work.

Cass. 3e civ., 9 December 1980, LawLex202300012286JBJ.

Cass. 3e civ., 29 September 2004, LawLex202200004646JBJ; 29 June 2011, LawLex202200004632JBJ; Paris, 13 May 2020, LawLex202300012267JBJ, according to which, by the effect of remaining in the premises pending the determination of the eviction indemnity, the lessee remains bound, in accordance with Article L. 145-28 of the Commercial Code, by the clauses and conditions stipulated in the lease, so that pursuant to Article 1722 of the Civil Code, the total destruction of the property resulted in the automatic termination of the lease and the contractual and statutory rights of the lessee, including his right to eviction indemnity, which was not definitively acquired at the date of the incident, its effect being suspended until its amount was determined.

Cass. 3e civ., 16 June 1999, LawLex202200003448JBJ: in this case, according to a notarized deed dated 7 May 1996, the lessors sold the building to a third-party company under the suspensive condition, to be fulfilled before 10 July 1996, of the lessee not exercising their potential right of first refusal, whereas, by a letter dated 19 June 1996, the latter declared acceptance of the sale under the conditions set out in the notification.

Cass. 3e civ., 12 October 1993, LawLex202300012287JBJ.

Cass. 3e civ., 28 May 1997, LawLex202300012279JBJ, which overturns the appellate decision holding that no fault attributable to the judicial administrator in the development and implementation of the plan is proven, nor even alleged, that for the viability of the company, the transferee must benefit from the right to remain in the premises of the lessee, and that in this context, the letter by which the administrator wrote to the assignee to indicate that the takeover involves the premises occupied by his client does not deviate from reality.

Cass. 3e civ., 6 April 2005, LawLex202300012280JBJ.

Cass. 3e civ., 4 June 2013, LawLex202200004431JBJ.

Cass. 3e civ., 20 March 2013, LawLex202300012282JBJ.

Cass. 3e civ., 30 March 2017, LawLex202300011692JBJ.

285. Right to remain in the premises