Commercial Leases/Business Goodwill

The requirement to operate a business in the leased premises results from the combination of the provisions of Articles L. 145-1 and L. 145-8 of the Commercial Code. Article L. 145-1, I indeed reserves the application of the commercial lease status “to the leases of buildings or premises in which a business is operated” . Similarly, the renewal of the commercial lease can, according to Article L.  …

Effective operation of the business.

The requirement to operate a business in the leased premises results from the combination of the provisions of Articles L. 145-1 and L. 145-8 of the Commercial Code. Article L. 145-1, I indeed reserves the application of the commercial lease status “to the leases of buildings or premises in which a business is operated” . Similarly, the renewal of the commercial lease can, according to Article L. 145-8, para. 1, “only be invoked by the owner of the business that is operated on the premises.” Since Law No 71-585 , the tenant is no longer required to personally operate the business and can therefore entrust it to a third party, but the renewal can only benefit the owner of the business . The failure of the lessee to operate a business they own in the leased premises prevents the application of the commercial lease status , without terminating the lease. Indeed, the judicial termination of the lease cannot be pronounced for lack of operation, in the absence of a clause requiring the effective and continuous operation of the business in the leased premises .

The Court of Cassation considers that a lessee operates a business in the leased premises and benefits from the status of commercial leases as soon as they are registered in the trade and companies register, have a trade name, fulfill the obligations imposed on traders, and have their own clientele . However, it is not enough for the lessee to operate a business in the leased premises; this operation must also be effective. Indeed, Article L. 145-8, para. 2, specifies that “the business, transformed if necessary (...), must, unless there are legitimate reasons, have been effectively operated during the three years preceding the expiration date of the lease or its extension.” Thus, a lessee does not meet the conditions to benefit from the status of commercial leases when no business has been operated in the leased premises during the three years preceding the end of the lease, even if they have previously operated the business for more than three years . The same applies to the lessee who subleases premises devoid of any commercial operation , with courts not hesitating to sanction the fictitious reopening by the lessee of their business . The lack of operation can, even after the notice, be invoked by the lessor as a cause for the inapplicability of the status .

The cessation of operations, when lacking a serious and legitimate reason, may, under the terms of Article L. 145-17, justify a refusal to renew without compensation. In this case, considering the provisions of Article L. 145-8, the infraction committed by the lessee must, to be invoked by the lessor, have continued or recurred more than one month after the lessor's formal notice to cease it. However, the lessor may be exempted from sending this formal notice to the tenant if the absence of operations in the leased premises of the business is definitive or irreversible .

However, the cessation of operation is based on a legitimate reason, within the meaning of Article L. 145-8, when the temporary interruption of operation occurs following the death of the operator and has not affected the goodwill attached to the business due to the activity carried out, as it involves a transient clientele that reestablished itself as soon as the business reopened to the public . Similarly, in matters of insolvency proceedings, a legitimate reason is constituted by the non-continuous operation of the business during the three years from the effective date of the notice when it is related to the sale of the company's assets placed in judicial liquidation . If the non-operation is justified during the observation period following the opening of a reorganization procedure, it is not the case for that which continues beyond this period . The failure to resume activity may also result from the obligation to carry out work , provided that the lessee demonstrates diligence in obtaining its completion .

The effectiveness of operating the business also requires compliance with legal and contractual obligations. The lessee can no longer claim the benefit of the commercial lease status if, during the three years preceding the expiration of the lease, they were no longer registered in the trade and companies register for the business authorized by their lease . The activity conducted within the leased premises must conform to what was contractually agreed upon by the parties and, in particular, respect the purpose provided by the lease . If Article L. 145-8 provides, in its paragraph 2, for a possible transformation of the business, this must be carried out in compliance with the despecialization procedure provided for in Articles L. 145-47 and following . Indeed, only the effective operation in the leased premises of the activity authorized by the lease or regularly modified during the three years preceding its expiration date entitles the lessee to renewal .

Finally, the question of the effective duration of the operation of the business raises difficulties in two particular cases. First, in the event of a transfer, should the operating durations of the transferor and the transferee be combined? When the transfer concerns only the leasehold right, the transferee tenant cannot add the duration of their operation to that of the transferor and is deprived of the possibility of invoking the right to renewal when the transfer occurred during the three years preceding the expiration of the lease , even if they conduct the same activity as the transferor . It is considered, in this case, that the business operated by the transferee is distinct from that of the transferor. Next, is the effective duration of the operation satisfied in the case of seasonal rental? An affirmative answer was provided by the Court of Cassation when the enjoyment of the premises continues without interruption, with the annual cumulative rents corresponding to the prices usually charged in the sector for an annual rental .

Cass. 3e civ., 24 June 2009, LawLex202100002993JBJ.

Law 71-585 of 16 July 1971, amending Decree No 53-960 of 30 September 1953 governing the relations between landlords and tenants concerning leases of buildings or premises for commercial, industrial, and artisanal use, OJ 17 July 1971, 7063.

For a case where the failure to operate is irreversible: Cass. 3e civ., 5 July 1993, LawLex202100006184JBJ; for a case where the interruption of activity is not definitive or irreversible: Cass. 3e civ., 16 February 1982, LawLex202100006190JBJ.

Cass. 3e civ., 15 September 2010, LawLex202100001342JBJ.

Cass. 3e civ., 10 December 2008, LawLex202100006264JBJ.

Cass. 3e civ., 12 July 2000, LawLex202100006266JBJ.

Cass. 3e civ., 26 October 2011, LawLex202100006183JBJ.

Cass. 3e civ., 18 December 2012, LawLex202100006182JBJ.

Cass. 3e civ., 22 January 2008, LawLex202100006259JBJ, regarding a sublease of premises vacant of any operation during the three years preceding the expiration of the lease.

Cass. 3e civ., 14 June 2006, LawLex202100006251JBJ; 15 October 2008, LawLex202100006252JBJ, regarding a destination clause inserted in the lease stipulating premises for exclusive use as a warehouse, contrary to the use made by the lessee who operates a clientele there.

On the possibility for the lessee to benefit from the right to renew their lease, in the event of a change of use during the three years prior to the expiration of the lease, only if this change has been made in accordance with the rules of despecialization provided for in Articles L. 145-47 et seq. of the Commercial Code, requiring the landlord's authorization: see Cass. 3e civ., 10 February 1988, LawLex202100006262JBJ; 14 June 2006, LawLex202100006251JBJ.

Cass. 3e civ., 14 June 2006, LawLex202100006251JBJ.

Cass. 3e civ., 26 September 2001, LawLex200200004729JBJ,.

Cass. 3e civ., 4 May 1994, LawLex202100006254JBJ.

Cass. 3e civ., 19 July 1995, LawLex202100006191JBJ.

Cass. 3e civ., 10 June 1998, LawLex202100002591JBJ, in this case, the lessee retained possession of the keys to the premises since the signing of the first lease, subscribed to annual telephone and electricity contracts, as well as an annual insurance policy, and hired an employee under a permanent contract, with deliveries also being made to the rented premises outside the contractually agreed periods. Contra: Cass. 3e civ., 13 July 1999, LawLex202100002525JBJ, in this case, it was considered that the operator's access to the premises following an attempted theft and the presence of the sign and furniture out of season, or even some goods, were merely tolerated by the lessor due to good relations between the parties, with the terms of subscription to telephone or insurance contracts having no impact on the actual occupation, which was not annual.

Cass. 3e civ., 29 October 1985, LawLex202100001337JBJ, Bull. civ. III, No 135, regarding the sublease of premises for the operation of a business where the lessee is not the owner.

Cass. 3e civ., 10 June 2009, LawLex202100001397JBJ; Cass. 3e civ., 10 June 2009, LawLex202100001396JBJ; Cass. 3e civ., 16 October 2012, LawLex202100001398JBJ.

Cass. 3e civ., 30 October 1984, LawLex202100001414JBJ; 23 January 2020, LawLex202100001399JBJ, which considers that the lessee of a lease on bare land can only benefit from the right to renewal if they meet the conditions required in the first paragraph of Article L. 145-1, I of the Commercial Code relating to their registration and the operation of a business.

Cass. 3e civ., 23 July 1973, LawLex202100006192JBJ.

Cass. 3e civ., 22 January 2008, LawLex202100006259JBJ.

Cass. 3e civ., 16 January 1991, LawLex202100006257JBJ.

Cass. 3e civ., 27 February 1991, LawLex202100006250JBJ.

Commercial Leases/Business Goodwill

32. Effective operation of the business.

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32. Effective operation of the business.

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