This book provides a wide-ranging review of the European rules relating to distribution: exclusive purchase and exclusive supply, exclusive and selective distribution, motor vehicle distribution, franchises, commercial agents.

French Distribution Law

Article L. 145-31 of the Commercial Code prohibits the lessee from subleasing, in whole or part, unless otherwise provided for in the lease or with the lessor's consent.
What is the extent of that prohibition? Should the lease management agreement on the business operated in the leased building be annulled for breach by the tenant of the property, also owner of the business, of his obligations und …

Subleasing.

Whereas a commercial lease relates to the premises for the operation of a business, lease-management refers to a lease whose subject-matter is the business. However, re-characterizing the lease management contract into lease can be advantageous for the lease manager at the end of the contract as it enables him to benefit from the protective status as a lessee and claim a right to renewal, failing which it is possible to claim compensation for eviction.

The contract which relates to the establishment and retention of a clientele is a lease-management agreement rather than a commercial lease . This is also true for contracts which transfer the clientele of the business . The concept of lease management implies that there is a pre-existent  and permanent  clientele attached to the business . In some cases, the clientele may be autonomous and more attached to the brand than the business, which gives it a character that is potential but at the same time real and certain, before the opening of the business. This is the case for the operator of a meat counter in a supermarket or the manager of the service-station built and fitted out by an oil company .

In order to establish the pre-existence of the business with respect to the lease-management, the Court of Cassation looks to indications such as an entry in the trade register, tax returns and successive previous lease-management contracts .

A lease-management contract must be reclassified as a commercial lease where, at the time of its conclusion, the business has not been exploited for several years . However, not exploiting of business in the five months before it goes into lease-management by reason of the lessor's health problems is not sufficient to show that the lessee has renounced the clientele and has no intention of resuming his business with that clientele .

The lessor of the business remains sole tenant of the property in which the business is being run under a lease-management agreement. In this respect, he takes on all obligations arising out of the lease. In particular, he must request the renewal of the lease and, in case of refusal by the lessor, to pay the latter an occupancy compensation as a result of the maintenance of the lease manager in the premises .

Cass. com., 7 February 1995, LawLex200200005445JBJ, regarding a discotheque located in the basement of the Olympia Theatre.

Cass. com., 12 March 1996, LawLex200200005550JBJ.

Cass. com., 13 February 2007, LawLex200700000230JBJ; 17 April 2009, LawLex200900001612JBJ.

CA Paris, 19 June 1998, LawLex200200004605JBJ, regarding the permanent character of the clientele resulting from the very nature of the premises.

Cass. com., 13 February 2007, LawLex200700000231JBJ.

Cass. civ., 13 February 1980, Bull. civ. 3, n° 37.

See, as regards a lease manager sanctioned for abusive procedure, Cass. com., 8 July 2003, LawLex200300002973JBJ, which confirms CA Bordeaux, 22 May 2000, LawLex200300003100JBJ.

Cass. 3e civ., 30 January 2002, LawLex200200004561JBJ upholding CA Lyon, 15 May 2000, LawLex200200006221JBJ. See also Cass. com., 13 February 2007, LawLex200700000231JBJ which quashes and cancels CA Paris, 27 October 2004, LawLex200700000275JBJ: the fact that no clientele is attached to the business given under lease on the date of the conclusion of the contract, excludes the characterization as lease-management.

CA Metz, 25 April 2002, LawLex200300000953JBJ.

Cass. 3e civ., 21 January 1998, LawLex200200005092JBJ upholding CA Riom, 25 January 1996, LawLex200200005531JBJ.

Commercial lease.

Article L. 145-31 of the Commercial Code prohibits the lessee from subleasing, in whole or part, unless otherwise provided for in the lease or with the lessor's consent.

What is the extent of that prohibition? Should the lease management agreement on the business operated in the leased building be annulled for breach by the tenant of the property, also owner of the business, of his obligations under the commercial lease? In effect, as the lease manager is substituted for the owner of the business in the enjoyment of the property and is often responsible for the charges and conditions of the lease and for paying rent in the lessor's name, his/her situation is very close to that of a sub-lessee. However, according to the Court of Cassation, placing a business under lease-management is not a sub-lease .

The lessee of the premises may therefore attempt to conceal a sub-lease under a lease-management agreement in order to circumvent the ban on subleasing. Confusion is made possible where the lease-management relates both to the enjoyment of the business and of the premises. However, placing a business in lease-management is not a sublease merely because it includes enjoyment of the premises . In effect, that use is the ancillary and necessary consequence of the lease-management contract . Furthermore, the contract relating to a business ("fonds de commerce") is analyzed as a lease-management agreement and not as a disguised sublease, where the operator carries out the same activity as the leaseholder and that no compensation for eviction is stipulated to his benefit in the event a renewal is refused . On the other hand, sublease will be found to exist where no component of the business is made available to the “lease-manager” or where the owner of the business operates itself the business stipulated in his own lease .

Cass., 3e civ., 23 May 1995, LawLex200200005469JBJ which quashes and cancels CA Bordeaux, 27 January 1993, LawLex200200005971JBJ.

Cass. com., 19 March 2008, LawLex200800000673JBJ.

Cass., 3e civ., 9 July 2003, LawLex200300003239JBJ: this use entitles to compensation for eviction in case of notice without offer of renewal served by the lessor.

Cass. com., 21 July 1999, LawLex200200005233JBJ.

Cass. com., 26 November 1997, LawLex200200005069JBJ, which confirms CA Paris, 20 October 1995, LawLex200200005500JBJ. See also CA Paris, 14 March 1991, LawLex200200005834JBJ: the agreement requiring the lessee to pay the rent directly to the owner of the premises and to comply with all the charges, clauses and conditions of the initial lease is not a lease-management contract but a sublease; Cass., 3e civ., 5 October 1994, LawLex200200005411JBJ: the contract pursuant to which the owner of the business does not make available to his contracting party any component of the business other than the right to lease is analyzed as a sublease of commercial premises rather than a lease-management; CA Paris, 20 November 2002, LawLex200300000943JBJ: the placement in lease-management of a business not provided for in the commercial lease without the consent of the owner of the premises, and relating to an activity which does not fall within the corporate purposes of the lessor of the business, is a prohibited disguised sublease; Cass., 3e civ., 26 June 2007, LawLex200700001525JBJ which confirms CA Rennes, 22 October 2003, LawLex200700001717JBJ: a contract which allows the lessee to change the sign and the type of clientele, is analyzed as a sublease rather than a lease-management contract; Cass. 3e civ., 7 December 2010, LawLex201000001372JBJ, finding that the absence of customers excludes the existence of a business and therefore any lease-management contract.

A lease-management contract may be converted into an assignment of the business where it includes, on the same date and between the same parties, a bilateral promise to sell. Thus, the provisional sale agreement and the lease-management contract concluded between the same parties constitute an immediate sale of the business where the fees of the lease are deducted from the transfer price . In effect, insofar as there is consent as to the thing and the price, the promise to sell amounts to a transfer of business (Civil Code, Article 1589) of which only certain components, such as the transfer of ownership, are delayed until the option is exercised. The lease-management agreement which includes a term requires the lessee to purchase the business if the lessor exercises the option. The purpose is therefore not to grant the lease-manager a period of reflection with a view to purchasing the business or to enable him to accumulate sufficient cash-flow for the purchase , but rather to organize the period which precedes the transfer of ownership while waiting for an event that is essential for the transfer, such as the drawing up of a deed or the receipt of an administrative authorization. Both contracts are indivisible since they pursue a common objective, the sale of the business. For the period of exercise of the option, lease-management represents a material guarantee for the lessee who is the beneficiary of the promise to sell, and for the owner, who is the beneficiary of the promise to purchase. The intention to offset the security specific to the lease-management and the payment of the price shows that the parties are aware of that indivisibility .

However, lease-management must not be intended to fraudulently conceal an immediate transfer of business, in particular with respect to the tax authorities. The issue of the re-classification of the transaction into a sale agreement is all the more important where the lessor remains jointly and severally responsible with the lease-manager pursuant to Article L. 144-7 of the Commercial Code as long as the transfer of ownership of the business has not been completed. Furthermore, where the indivisibility of the two contracts is retained, the termination of the lease-management contract due to the non-payment of fees results in the invalidation of the promise to sell .

Cass. com., 2 November 1994, LawLex200200004615JBJ.

Assumption of unilateral promise to sell which often comes together with lease-management contracts: See Cass. com., 22 October 1996, LawLex200200004610JBJ.

Cass. com., 15 June 1999, LawLex200200005223JBJ, which confirms CA Grenoble, 28 January 1997, LawLex200200005632JBJ. See, also, Cass. com., 2 November 1994, LawLex200200004615JBJ which confirms CA Basse-Terre, 27 April 1992, LawLex200200004234JBJ, which re-characterizes the lease-management into a business transfer by reason of the compensation made between rental fee and sale price.

Cass. com., 15 June 1999, LawLex200200005223JBJ. See also CA Aix-en-Provence, 29 February 2000, LawLex200200005283JBJ: the exclusive sale mandate and the exclusive management mandate with promise to sell given by the owner of a business to a same person having an alternative character which prevents from cumulating the penalty clauses set forth in the two contracts in case of non-compliance by the owner of the exclusivity commitment.

French Distribution Law

536. Subleasing.

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

536. Subleasing.

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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