Commercial Leases/Business Goodwill

Article L. 145-14, para. 2, of the Commercial Code specifies that the eviction indemnity includes, in particular, the market value of the business determined according to professional practices. Several methods based on financial data, such as the average turnover achieved over the last three years , but also on the characteristics of the business and the sector considered, allow for the evaluatio …

Value of the business goodwill

Article L. 145-14, para. 2, of the Commercial Code specifies that the eviction indemnity includes, in particular, the market value of the business determined according to professional practices. Several methods based on financial data, such as the average turnover achieved over the last three years , but also on the characteristics of the business and the sector considered, allow for the evaluation of the business's value. The Court of Cassation recently clarified that, to calculate the eviction indemnity, the judge may consider that the eviction resulted in a loss of clientele and turnover, adopt the calculation method proposed by the expert to evaluate the business's value in light of this figure, and note that the landlord does not provide the proof, which is their responsibility, that the damage caused by the non-renewal of the lease, which includes the market value of the business, was less . Rejecting a calculation based on different approaches (practices, market conditions, judicial references, adjusted gross surplus), the Paris Court of Appeal considered that it is appropriate to refer to a method of valuing the business by turnover in accordance with practices, possibly cross-referencing it with the adjusted gross surplus approach .

The value of the business goodwill is often determined based on the turnover achieved by the lessee during the three years preceding their eviction , and not based on the turnover achieved by the latter during the best years of operation, possibly affected by a purely hypothetical growth percentage . According to the Court of Cassation, the obligation of judges to investigate the methods of evaluating business goodwill used in the profession does not prevent them from considering accounting elements calculated inclusive of all taxes, even if the eviction indemnity constitutes a compensatory indemnity that is not subject to value-added tax . In this case, they must investigate whether the practice of the profession is to include value-added tax in the turnover amount used as the basis for calculating the eviction indemnity .

Judges may also apply a turnover rate derived from scales defined by industry sectors. This method is mainly used for smaller businesses but can also overlap with other approaches to the value of the business. In particular, for leases involving the operation of a hotel and a café-restaurant in the same building, the Court of Appeal of Pau considered that it is appropriate to apply the business valuation method based on turnover, which is the most commonly accepted and reliable, to determine an average turnover including all taxes over the last three years, and then a daily revenue, which is also consistent with the nature of the activity considered .

When the business includes several branches of activities, the evaluation can prove more complex. Indeed, in this case, the value of the business depends on the sum of the estimates for each branch of activity considered, according to different valuation methods. Thus, for the evaluation of a café-bar-brasserie business, it is customary to use the average turnover including all taxes over the last three years, but for the lemonade branch of the business, the daily revenue including all taxes will be taken into account . The valuation method for each branch may also be identical but affected by a different coefficient . In the event that the business is in deficit, this negative result does not prevent the evicted tenant from receiving the eviction indemnity. According to the Paris Court of Appeal, this indemnity must be reduced to the value of the leasehold right, an element of the business, this economic value existing independently of the fact that the lease includes a clause prohibiting the assignment of the leasehold right without that of the business . Finally, the Court of Cassation specified that the liquidator, appointed in the tenant's judicial liquidation, may claim payment of an eviction indemnity when it appears from the accounting elements produced in the proceedings that, both at the effective date of the notice and at the date when the liquidator vacated the premises and returned the keys to the landlord, the business in question, if there had been no eviction, would still have had a market value .

CA Montpellier, 12 March 2024, LawLex202400002318JBJ.

Cass. 3e civ., 15 June 2023, LawLex202400001731JBJ.

Cass. 3e civ., 15 June 2010, LawLex202300012298JBJ.

CA Paris, 3 June 2015, LawLex202300012214JBJ.

CA Paris, 20 June 2024, LawLex202400004822JBJ.

Cass. 3e civ., 20 March 2007, LawLex202300012215JBJ.

Cass. 3e civ., 5 February 2014, LawLex202200004433JBJ, which quashes the appeal decision that holds, to set the eviction indemnity at a certain amount, that only the turnover amount excluding value-added tax should be considered, as the indemnity granted falls within the compensation for damage and not within a taxable transaction.

Cass. 3e civ., 27 April 2017, LawLex202200004443JBJ.

CA Pau, 20 December 2011, LawLex202300012216JBJ.

CA Paris, 30 June 2010, LawLex202300012217JBJ.

Paris, 13 January 2016, LawLex202300012297JBJ, which takes into account the average turnover of the last three years and applies a percentage of 100% for the sole hairdressing activity on a range from 65% to 130%, a percentage of 80% on a range from 50% to 100% compensating the beauty care activity, and another of 85% on a range from 45% to 100% for the sale of beauty products.

Commercial Leases/Business Goodwill

275. Value of the business goodwill

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275. Value of the business goodwill

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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au contenu exclusif Livv – juristes d’entreprise