Commercial lease (“bail commercial”) pursuant to French law
The commercial lease (“bail commercial”) is a lease of premises to which the parties give a commercial, industrial or craft destination. It is subject to a status that derogates from common law.
What is a commercial lease (“bail commercial”) pursuant to French law?
The commercial lease can be concluded in three different forms: verbal, under private signature or by authenticated deed.
Nevertheless, the written form, at least under private signature, is obligatory for the two parties are not merchants, in order to serve as proof.
The drafter of the contract must respect the provisions of articles 1104, 1112 and 1112-1 of the French Civil Code on the obligations of good faith and information.
It is imperative to attach a certain number of documents to the commercial lease in order to provide the tenant with all useful information about the premises.
The parties may determine the content of the commercial lease agreement, but certain provisions of public policy, such as the minimum nine-year term, rent review and the resolutory clause, must be respected.
The lessor must be the owner of the premises and have the legal capacity to enter into the commercial lease. The lessee must be a trader or craftsman or a commercial company.
What are the rules governing the duration of the contractual relationship between the lessor and the lessee under a commercial lease?
First, the minimum term of a commercial lease is nine years, and any clause to the contrary is considered void.
However, it is possible to agree on a term longer than nine years, excluding a perpetual lease, and the lease must be published in the mortgage office if it exceeds twelve years.
Seasonal rentals and precarious occupancy agreements are not subject to the status of commercial leases.
The rental is qualified as "seasonal" when three conditions are met:
The premises must be located in a tourist area;
The customers must be mainly tourists;
The operation of the premises shall be permitted only during the tourist season.
The judges of the court of first instance are sovereign in assessing the seasonal nature of the rental (French Supreme Court, Com. Chamber, 17 Oct. 1962).
Leases of less than three years may be entered into, but they must be exclusively for a first lease and must not be subject to the status of commercial leases.
Finally, tacitly renewed leases are concluded for a term of nine years, even if the previous lease was longer, but the parties may agree on a longer term.
How is the rent determined in a commercial lease (“bail commercial”) in France?
The commercial lease is a contract for valuable consideration in which the rent must be stipulated and the amount determined. The rent is the price of the commercial lease that the tenant must pay for the use of the premises. The rent must be fixed at the time the lease is concluded.
The initial rent is freely set by the parties. The parties can also insert variable rent clauses. The tenant must also pay charges. In case of renewal of the lease, the renewal rent is fixed in principle by amicable agreement between the parties or by the judge. The variation rate of the rent applicable upon renewal is capped. However, there are exceptions to this capping rule.
How are regulated rental charges in a commercial lease in France?
Rental charges refer to the charges, taxes and fees associated with the commercial lease that the tenant must pay.
Prior to November 5, 2014, the expenses recoverable by the lessor from the lessee and the regime applicable to them depended on the contractual stipulations for leases concluded or renewed. Case law had given certain guidelines relating to expense items, where routine and minor maintenance expenses were recoverable by the tenant, while major repairs remained the responsibility of the lessor. The Pinel Law of June 18, 2014 and its implementing decree marked a turning point by providing a binding framework for recoverable expenses, inserting specific articles to this effect into the French Commercial Code.
The French Commercial Code states that every lease contract must include a precise and limitative inventory of the categories of charges, taxes and fees related to this lease, including an indication of their distribution between the lessor and the lessee.
The lessor must also communicate a provisional statement of the work planned for the next three years and a summary statement of the work carried out in the previous three years as soon as the lease is concluded.
For real estate complexes, the allocation of charges must be specified according to the surface area used or the cost of the work, and may be subject to a conventional weighting. The amount of taxes and fees that can be charged to the tenant corresponds strictly to the premises occupied by each tenant and to the share of the common areas necessary for the operation of the leased property.
What are the general obligations of the parties under a commercial lease (“bail commercial”) in France?
As for the lessor :
The lessor has obligations to the lessee with respect to delivery and warranty. The obligation to deliver implies that the lessor must provide the lessee with premises in a good state of repair, with all the necessary accessory elements and comply with the regulations in force. The lessor must also make all necessary repairs during the term of the lease, unless otherwise stipulated.
The warranty obligation implies that the lessor must guarantee the peaceful enjoyment of the leased premises, including a warranty against latent defects, a warranty against eviction and a warranty for the peaceful conduct of the business. The lessor is liable for latent defects unless otherwise provided for in the lease, and may exempt himself from such liability by inserting a partial or total exemption clause. The lessor's warranty of eviction covers legal disturbances caused by third parties, but not de facto disturbances, unless the lessor did not facilitate the disturbance. The lessor must guarantee the peaceful exercise of the lessee's activity by refraining from acts of unfair competition.
The lessor must inform the lessee of any new charges during the course of the lease, as well as of any element likely to modify the distribution of charges between lessees. Expenses relating to major repairs, taxes and fees for which the lessor or the owner of the premises or building is legally responsible (with the exception of property tax and its additional taxes) and the lessor's fees relating to the management of rents cannot be recovered from the tenant.
The lessor shall provide the lessee with an annual summary statement of the inventory of charges, taxes and fees related to the lease, including an indication of their allocation between the lessor and the lessee. In addition, the lessor must communicate to the lessee, at his request, any document justifying the amount of the charges, taxes and fees charged to him. The statements and provisional budgets of the works to come in the three years, as well as the summary statement of the works carried out in the last three years with indication of their cost, must be communicated to the tenant within two months as from each triennial expiry.
As for the tenant :
The tenant has obligations under the general law of leases and the status of commercial leases. He must pay the rent and charges, use the leased property reasonably and with due care, make repairs and respect the rights of third parties. He must also respect the destination of the rented property and not modify it without the agreement of the lessor. Subletting is prohibited, unless authorized by the lessor and in compliance with the laws and regulations in force. In case of non-compliance with these obligations, the lessor may take legal action to obtain the termination of the lease or the payment of the amounts due. The transfer of the lease is permitted, but may be prohibited by a clause in the lease.
Is the commercial lease transferable to the purchaser of the tenant’s business?
The transfer of a lease to the purchaser of the business is a right of the tenant consisting in transferring his lease or the rights he has under the commercial lease statute to the purchaser of his business or enterprise or to the beneficiary of the universal transfer of his professional assets.
The principle of freedom governs the assignment of a lease, which is an assignment of a claim by the assignor to the purchaser of the business, the assignee. In the absence of a clause, any assignment of leasehold rights included in a transfer of a business cannot be prohibited.
In the case of clauses, a distinction must be made between prohibitive and restrictive clauses.
In the first case, clauses that absolutely and generally prohibit any transfer are void. Clauses that were deemed null and void included, for example, the requirement that the tenant operate the business personally, the prohibition on transferring the business to any company, the stipulation prohibiting any pledging of the right to the lease, and the sign clause.
In the second case, restrictive assignment clauses are permitted. Examples of clauses deemed valid include the agreement of the lessor, the intervention of the lessor in the transfer deed, the notarized form or the intervention of the lessor's notary, the establishment of a right of pre-emption in favor of the lessor, the clause providing for a preference pact with respect to a transferee of the lessor's choice, the commitment of the lessee to remain joint and several guarantor of his transferee...
What are the effects of the assignment of a commercial lease (“bail commercial”) in France?
When a tenant wishes to assign his or her lease, the new tenant takes over the rights and obligations of the lease, provided that the original tenant has the legal capacity to sell his or her leasehold interest. The landlord must be informed of the assignment, but if there is no warranty clause, the landlord cannot demand payment of any rent due after the assignment. If a warranty clause is included in the agreement, the lessor must inform the assignor of any default by the lessee. In the event of a merger or contribution of part of the assets of a company, the company resulting from the merger or the company benefiting from the contribution is substituted for the company to which the lease was granted. Two formalities are required for the transfer of a lease: an inventory of fixtures and a notification to the lessor.
How is the will to terminate the commercial lease manifested?
By a unilateral act called "leave" (“congé”) by which one of the parties to the commercial lease, lessee or lessor, expresses this will.
In order to be effective, a notice of termination must meet several conditions concerning the author and recipient, the time limit, the form and the content.
In principle, the lessor may not terminate the contractual term of the commercial lease before its end, except in the cases listed exhaustively by law (construction, reconstruction, raising the existing building, carrying out work prescribed or authorized within the framework of a real estate restoration operation, etc.). The lessee may give notice at any time in certain limited cases.
Before giving notice, it is important to verify the parties to the lease, the address for service and the existence of a domicile clause. The notice period for giving notice is at least six months. Failure to comply with this time limit will postpone the effect of the notice until the end of the next three-year term. In the event of a tacit extension of the lease, notice may be given at any time with at least six months' notice and by the last day of the calendar quarter.
Possibility of renewal
The renewal of a commercial lease is the right conferred on the lessee, at the end of the contract, to benefit from a new lease or, failing that, the payment of an eviction indemnity, without being able to impose it on the lessor. This right, of public order, is called "commercial property".
It consists on the one hand of the agreement on the principle of the renewal of the contract and on the other hand of the agreement on the amount of the renewed rent.
The refusal to renew a commercial lease is the act by which the lessor expresses his will to terminate the contract, in exchange for the payment of an eviction indemnity unless there is a legitimate reason.
Early termination of the contract is also possible. This is called termination of the lease.
- It can be anticipated by the parties who can decide at any time to terminate the lease by mutual consent,
- Be decided by the lessee or the lessor, both of whom have the option to terminate at the end of each three-year period.
- The termination of the lease may also be automatic.
- In the event that one of the parties fails to meet its obligations, the other party may seek judicial termination
- It is possible to terminate in case of insolvency of the lessee
Text of French law governing commercial leases ("baux commerciaux"):
- C. com. L. 145-1 to L. 145-60 and R. 145-1 to R. 145-38
- Decree No. 53-960 of 30 Sept. 1953, art. 33. - C. baux, C. com.
- C.Civ. art. 1714 and following
- C. civ., art. 1722, 1741
Main decisions of French Courts on commercial lease ("bail commercial"):
- Civ. 3rd, May 28, 2020, n° 19-15.001
- Civ. 3rd, Feb. 15, 2018, no. 17-11.329
- Civ. 3e, June 16, 2004, n° 03-11.314
- Cass. opinion, March 9, 2018, No. 17-70.040
- Civ. 3rd, Nov. 3, 2016, no. 15-16.826
- Civ. 3rd, Nov. 3, 2016, no. 15-16.827
- Civ. 3rd, Apr. 11, 2019, no. 18-16.121
- Com. March 1, 2016, No. 14-14.716
- Civ. 3e, Feb. 3, 2010, no. 08-19.420
- Civ. 3e, Feb. 16, 2000, No. 98-15.148
- Com. 28 Feb. 1956
- Civ. 3e, Feb. 9, 2017, no. 16-10.350
- Civ. 3e, Jan. 4, 2011, no. 10-19.975
- Cass. plenary session, June 18, 2010, No. 09-71.209 QPC
- Civ. 3rd, Sept. 12, 2019, no. 18-18.218
- Civ. 3rd, Jan. 24, 2019, no. 17-11.010
- Civ. 3rd, Feb. 1, 2018, no. 16-29.054
- Civ. 3rd, Sept. 7, 2017, no. 16-17.174