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

The lease-management contract must be published within fifteen days from its date in the form of excerpts or notice in medium empowered to receive legal announcements (Commercial Code, Article R. 144-1). The end of the lease-management must also be published. The duty to publish the lease-management contract does not require a new publication in case of renewal of the contract where there has been …

Formal conditions.

The lawfulness of a lease-management contract depends on the fulfillment of a certain number of criteria. In addition to the fact that, as lease-management concerns business or a craft establishments within the meaning of Article L. 144-1 of the Commercial Code , the existence of a clientele attached to the business on the date of conclusion of the contract is required , the lease manager and the lessor must also fulfill certain conditions for the contract to be valid.

According to Article L. 144-2 of the Commercial Code, the lease-manager is a merchant and is subject to all the resulting obligations. However, the future lease manager has no obligation of entry in the trade and companies register at the time of the signing of the contract since the act of signing the agreement results in granting him the status of merchant pursuant to Article L. 144-2 of the Commercial Code . The lessor can, under Article L. 144-1, be the owner or operator of the business, i.e. a natural person or a legal entity. This may refer to an usufructuary, an administrator of another person's property or to a lease manager authorized to sublease , excluding court-appointed agents charged in any capacity whatsoever with the administration of a business. The court-appointed agent is however still under an obligation to comply with the publication measures (Commercial Code, Article L. 144-8).

In order to simplify and facilitate recourse to lease management, Law No 2019-744 of 19 July 2019 repealed Article L. 144-3 of the Commercial Code which imposed, on subject to nullity of the contract, personal exploitation of the business by the lessor for the two years prior to it being put under lease management, and Articles L. 144-4 and L. 144-5, whose provisions  were related to those of Article L. 144-3. As the law does not mention its date of entry into force, the assumption is that the repeal produces its effects, in accordance with the rules of the Civil Code, as of 21 July 2019. For the purposes of ongoing litigation the following relates to the rules applicatble up to that date.

According to former Article L. 144-3, the person who grants the lease-management must have operated the business placed under lease-management for at least two years . It was not necessary for the period of prior exploitation of the business by the owner to immediately precede the lease-management contract . The condition of personal involvement in the exploitation of the business was fulfilled even if the activity only consisted in selling the stock .

The lessor had to have taken part in person in the operation for business purposes . Where the business belonged jointly to a husband and wife, either of them could individually place it under lease management provided that the condition in that case has only has to be met by one of them . Where the lessor was also a lease-manager the condition had to be fulfilled by that person and not the owner of the business .

There were numerous exceptions to the two-year condition (Commercial Code, former Article L. 144-5) and a judicial dispensation (Commercial Code, former Article L. 144-4).

Former Article L. 144-5 of the Commercial Code listed the cases in which the condition of personal exploitation for two years was not required. Outside the cases where there was no actual business (State, territorial authorities), and those specific to public institutions created by Article L. 325-1 of the Planning Code, and credit institutions aimed at authorizing financial leasing on the business, the condition of personal operation was not required where the owner of the business had lost the capacity to operate the business (persons having reached the age of legal majority who are subject to a legal protection measure, persons hospitalized on account of mental illness, heirs or legatees of a deceased trader or craftsperson or beneficiaries of a lifetime division of estate between relatives in direct ascending line , a spouse who is the recipient of a business following the dissolution of a marriage ).

The condition as to time was not required for certain businesses for which the operation by a manager was usual from a business standpoint (lease-management whose main object was to achieve retail sales of the products made or distributed by the lessor himself under an exclusive contract, cinema, theatre and music-hall businesses).

By application from the interested party, and after consulting the public prosecutor, the two-year period could be suppressed or reduced by order of the presiding judge of the Tribunal de grande instance (Commercial Code, Article L. 144-4) . The exemption must have been granted - and not only requested - before the conclusion of the contract . Only the civil court had jurisdiction to suppress or reduce the two-year period . An order by the summary court which without settling disputes between the parties, gave an authorization to place under lease management a business that did not meet the conditions of former Article L. 144-3 of the Commercial Code, did not have the force of res judicata .

Former Article L. 144-4 cited as an example of a justification the owner's inability to operate his business personally or through agents . This was the case in particular of an exemption on health grounds. Nevertheless, an exemption on such grounds had to be reiterated on the occasion of each lease-management of the business . The list was not exhaustive and other reasons may be the basis of an exemption . Lease-management has notably been held to be the only system which might provide franchisees - who are independent merchants without sufficient investment capacity - with a satisfactory level of profitability . Thus, the franchise/lease-management system implemented by a fast food giant benefited from judicial dispensation because of the guarantees it had given the franchisor. Three factors in that case favored the trial court's preference for lease management rather than an employer-employee situation, justifying an exemption from the time-period: the impossiblity of a centralized management sytem due to the large number of establishments, the protection of the tangible and intangible assets inherent in the lease-management system, and the absence of any speculative intention . Likewise, exemption from the personal exploitation obligation was allowed for the transfer of a business located nearby which was immediately leased, where the transfer did not result in creating a new clientele . On the other hand, the courts refused applications for dispensation where the purpose was speculative .

A business in a collective shop of self-employed merchants may also be subject to lease-management (Commercial Code, Article L. 125-14).

Cass. com., 13 February 2007, LawLex200700000231JBJ.

Cass. com., 11 December 2007, LawLex200700002016JBJ, which confirms CA Aix-en-Provence, 2 June 2005, LawLex200800000265JBJ: the surviving spouse, who has the status of heir, may grant a business under a lease-management without fulfilling the conditions laid down in Article L. 144-3(1) of the Commercial Code.

Where that spouse has participated in its exploitation for at least two years prior to the dissolution of the marriage contract or the division (Commercial Code, Article L. 144-5, 7º).

Only the civil court may suppress or reduce that period. See CA Versailles, 3 May 2001, LawLex200200005336JBJ.

Cass. com., 4 February 1997, LawLex200200005636JBJ, which quashes and cancels CA Pau, 28 June 1994, LawLex200200005404JBJ. See also CA Agen, 18 June 1984, LawLex200200005686JBJ.

CA Versailles, 3 May 2001, LawLex200200005336JBJ.

Cass. com., 4 February 2004, LawLex200400000433JBJ.

For an example CA Amiens, 17 June 1994, LawLex200200005402JBJ; CA Paris, 3 November 1994, LawLex200200005420JBJ.

Cass. com., 13 September 2017, LawLex201700001555JBJ.

See, inter alia, CA Limoges, 13 May 1985, LawLex200200005689JBJ, which fully exempts from the time-period of personal operation a business under lease-management concluded before the acquisition of the business.

CA Versailles, 18 January 1988, LawLex200200005712JBJ.

Cass. com., 14 June 2000, LawLex200200005311JBJ.

CA Paris, 1 December 1994, LawLex200200005424JBJ; CA Amiens, 17 June 1994, LawLex200200005402JBJ; CA Paris, 3 November 1994, LawLex200200005420JBJ; CA Toulouse, 22 March 1999, LawLex200200005192JBJ. Compare, CA Versailles, 26 March 2009, LawLex200900003004JBJ: the application for court exemption from personal operation of the business for two years, made by the lessor, must be dismissed where other methods of operation are likely to guarantee the rights of creditors and employees of the business more efficiently than lease-management.

Cass. com., 15 June 1994, LawLex200200005401JBJ.

See CA Toulouse, 8 September 1997, LawLex200200005039JBJ: the purchaser of a business who knows that he has no human and material means to directly guarantee the operation of a new activity acquired for the only purpose of increasing his initial activity is pursuing a speculative aim; CA Versailles, 18 January 1988, LawLex200200005712JBJ; CA Poitiers, 13 November 1991, LawLex200200005870JBJ; CA Orléans, 2 March 1994, LawLex200200005377JBJ; CA Montpellier, 29 January 1996, LawLex200200005532JBJ; CA Toulouse, 22 March 1999, LawLex200200005192JBJ.

Cass. com., 18 October 1994, LawLex200200005417JBJ.

CA Orléans, 14 June 2007, LawLex200900001779JBJ: A lease-management agreement is null and void where the lessor has not operated the business at least two years before its conclusion, even if only two days are missing; Cass. 3e civ., 15 June 1994, LawLex200200005401JBJ: the condition of personal operation for two years is not required for the business transferred near and immediately leased where the transfer did not resulted in created a new clientele.

Cass. com., 7 February 1995, LawLex200200005445JBJ. See, also, Cass. com., 18 February 2004, LawLex200400000503JBJ which confirms CA Aix-en-Provence, 19 March 2002, LawLex200400001041JBJ, as regards a business in temporary cessation of activity for six months. The placement under lease-management remains valid where that closure does not imply in itself the disappearance of customers, since the business remains capable, given its attractive situation for tourists, of guaranteeing a seasonal clientele comparable to that of the previous season. Cass. com., 3 June 2014, LawLex201400000733JBJ,  temporary closure for refurbishment.

Cass. com., 12 March 1996, LawLex200200005550JBJ, which confirms CA Paris, 14 May 1993, LawLex200200006001JBJ. 

CA Versailles, 29 November 2001, LawLex200300000661JBJ.

Cass. 1re civ., 16 May 2000, LawLex200200005305JBJ which quashes and cancels CA Chambéry, 21 January 1998, LawLex200200004771JBJ, regarding the former condition of registration in the trade register fulfilled only by the husband. Contra, Cass. com., 13 November 1963, LawLex200200005681JBJ; 9 June 1992, LawLex200200005926JBJ. The placement under lease-management of a business requires the express consent of the spouse where he/she takes part in the professional activity as a spouse working in the undertaking (Commercial Code, Article. L. 121-5).

Cass. com., 18 October 1994, LawLex200200005417JBJ, which quashes and cancels CA Bordeaux, 12 February 1992, LawLex200200006001JBJ.

Substantial conditions.

Where the validity of the lease-management contract is challenged, it is for the lessor to bring evidence that at the time of conclusion of the contract customers were attached to the business  and that the condition regarding personal exploitation is met , even if he is a defendant in the action for nullity .

A contract concluded in breach of the legal provisions is null and void and, as such, unlikely to be upheld . An annulment may be requested by each of the contracting parties and by interested third parties, but cannot be relied upon by the contracting parties with respect to third parties (Commercial Code, Article L. 144-10(1)). This will give rise, for the lessee, to the automatic deprivation of his rights to the renewal of the commercial lease  even if the cause of nullity has then ceased  and prevents the lessor from demanding occupancy compensation from the lease manager who is only bound to restitute the business . Even if “all obligations taken out as part of a contract that is null and void are deemed to have never existed”, the courts limit the effects of the nullity for the future to take account of the fact that the performance of a lease-management contract is spread over time. The alternative consists in indemnifying injuries that are not offset by the restitutions and proceed to a settlement of account depending on the value of the services of each of the parties and the benefit that the other party derived from it. The lessor is responsible for reimbursing rents received and paying for the stock, and the lessee is responsible for paying an occupancy compensation . According to the Court of Cassation, although this compensation must take into consideration the fact that the lease manager has benefited from the availability of the business, it must also take account of the fact that, by his work, he has contributed to its enhancement .

Cass. com., 27 October 2009, LawLex200900003256JBJ.

Cass. com., 18 April 2000, LawLex200200005297JBJ, confirming CA Orléans, 27 April 1997, LawLex200200005072JBJ.

Cass. com., 9 June 2004, LawLex200400001460JBJ, which quashes and cancels CA Paris, 30 May 2001, LawLex200200005337JBJ.

Cass. 3e civ., 22 March 2018, LawLex201800000556JBJ.

Cass. com., 30 June 1992, LawLex200200004644JBJ. Solution that has been set forth since in Article. L. 144-10(2) of the Commercial Code.

CA Orléans, 14 June 2007, LawLex200900001779JBJ.

CA Aix-en-Provence, 10 September 1991, LawLex200200005858JBJ.

See Cass. com., 28 April 2004, LawLex200400000996JBJ which confirms CA Caen, 29 November 2001, LawLex200400001596JBJ and retains an indemnity assessed at 90% of the amount of the fee set forth in the invalidated contract.

Sanction for breach of substantial conditions.

The lease-management contract must be published within fifteen days from its date in the form of excerpts or notice in medium empowered to receive legal announcements (Commercial Code, Article R. 144-1). The end of the lease-management must also be published. The duty to publish the lease-management contract does not require a new publication in case of renewal of the contract where there has been no change in the nature of the exploitation or in the person of the operator since the inital publication of the contract .

Under Article L. 144-7 of the Commercial Code, the lessor is jointly liable “until publication of the […] contract and for a period of six months with effect from this publication”. Thus, failure to register and the non-publication of the lease-management has consequences only in terms of the relationship of the lease-manager and the lessor of the business with third parties: it does not affect the validity of the contract .

The lease-manager acquires the status as merchant and is subject to all the resulting obligations (Commercial Code, Article L. 144-2) and must thus be entered in the trade and companies register. The start and end dates of the lease-management contract are stipulated in the register as well as the option to tacitly renew the contract, if applicable (Commercial Code, Article R. 123-38, 8º). The lease-manager indicates his status on his business documents, such as invoices, order statements, price lists and advertising documents, correspondence and any receipts regarding the activity and signed by him or in his name (Commercial Code, Article R. 123-237, 6º).

See, inter alia, Cass. com., 16 January 1996, LawLex200200005524JBJ.

CA Rouen, 20 October 1994, LawLex200200005418JBJ.

French Distribution Law

540. Formal conditions.

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

540. Formal conditions.

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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