Leases in France: rent, minimum rental period, termination, subletting.
Pursuant to Art. L. 145-1 ff. Code de Commerce, a commercial lease exists when a rental property is rented to commercial tenants for commercial, industrial or trade purposes in exchange for payment of rent. Tenants receive special protections in the framework of a commercial lease in France. These include, for example: the right to unilateral lease extension for all tenants; the tenant’s right to sell their commercial operation and the lease at any time without the landlord being able to terminate the lease with the purchaser.
This is different from the sole transfer of the lease agreement without the commercial operation, which may be contractually excluded, or the three-year solidarity liability of the former tenant for outstanding rent payments upon transfer of the commercial operation. The nationality of the tenant is now also of no importance to their protection under French commercial lease contracts.
Requirements for a commercial lease in France:
Four cumulative conditions are required for a French commercial lease, pursuant to Art. L. 145-1-I, alinéa 1er du Code de Commerce:
the property must also be registered as a commercial rental property. Otherwise, a change of dedication is required in accordance with Art. L.631-7 du Code de la construction et de l’habitation (in this case, please also consult the provisions of the municipal regulations). In the framework of the dedication purpose, it is also absolutely advisable for the tenant to agree to a “tous commerces” clause in the commercial lease agreement;
a commercial lease contract (i.e. “bail commercial”) must also be signed. The commercial lease status is not derived from the actual use of the property;
the tenant must be registered with the chamber of commerce or trade. This means that freelance professionals (lawyers, doctors, etc.) or associations may not engage in commercial leases;
a “fond de commerce,” i.e. an established and exercised commercial operation, must then be conducted on the rental property.
The implementation of the French Pinel Act, which took effect on June 20, 2014, has led to significant changes and tightened regulations (e.g. freely arranged contractual division of utilities, taxes, and fees is no longer possible; new, detailed distribution of which repairs are the responsibility of the tenant and of the landlord; obligatory handover certificate upon occupying and vacating; indexing of rent to the ICC is no longer possible; 10% maximum ceiling for rent increases; etc.). The rent may be adjusted every three years, whereby only the ILC or ILAT indexes apply since the change in the law.
Mandatory minimum commercial lease period
A French commercial lease is signed for at least nine years, with unilateral termination possible by the tenant after three or six years. For this reason, this form of lease is commonly also known as 3/6/9 in France. A commercial lease in France can of course also be signed for a longer period.
Commercial leases with longer or shorter legal lease agreement periods are not subject to the French commercial lease regulations (e.g. bail emphytéotique, bail à construction, concession immobilière, baux dérogatoires, contrat de location saisonnière, convention d’occupation précaire, etc.).
Unlimited commercial lease agreements are prohibited. In principle, the tenant can unilaterally terminate the lease every three years. Contractual exceptions to this rule are possible for office rentals or for minimum lease agreement periods of longer than nine years. These require, however, that the tenant comply with a termination notice period of at least six months and that notice of termination is delivered by a bailiff. Since the implementation of the Pinel Act, the commercial lease agreement can now also be terminated via registered letter with return receipt.
Termination of the commercial lease
As already stated, in France, the tenant, unlike the landlord, in principle has the option of terminating the lease unilaterally every three years. The tenant also has the right to a lease extension after expiration of the contractual minimum lease duration (i.e. nine years). The owner can, in principle, only deny an extension of the rental agreement after expiration of the contractual minimum lease period in exchange for a sometimes very high compensation payment (“indemnité d’eviction”).
Defining a flat-rate amount for this compensation in the commercial lease agreement is not allowed. Exceptions to the unilateral lease extension and compensation payment exist when there is an important reason (e.g. the condition of the building does not enable further rental or major construction or even the demolition of the building is planned). It is also possible to contractually define these exceptions so that the landlord also has a unilateral right to terminate the lease every three years if these exceptions are in place.
In general, exceptional contractual termination clauses are also included in French lease agreements (“clause resolutoire”). With these clauses, the parties to the lease can each terminate the lease agreement unilaterally at any time, in accordance with certain formal requirements, if the other party does not comply with important contractual provisions (e.g. non-payment of rent).
It is of course possible for the contracting parties to terminate the lease early by mutual agreement at any time.
If the landlord wishes to sell the rental property, the tenant has a preemptive right to purchase as of December 18, 2014.
Sublease of a commercial rental property is only possible with the agreement of the owner. Implied approval by the landlord is only sufficient in certain circumstances. If a tenant wishes to sublet, when this is not already contractually excluded, it is advisable that they notify the owner of the planned sublease via court bailiff or registered letter with return receipt, and offer a deadline for the owner to approve or reject the sublease.
Rent and security deposit
French commercial lease agreements generally stipulate that the rent, which is freely agreed upon at the latest upon signature of the contract (the legal protection mechanisms apply to lease extensions), be paid in advance monthly, and a security deposit equal to one to three months rent. No VAT applies to the security deposit. A “clause recettes,” in which the rent depends on the tenant’s revenue, should be avoided. It may, however, be agreed that the rent is due only at the end of each month.
This article has been prepared for informational purposes only. It is not a substitute for legal advice addressed to particular circumstances. You should not take or refrain from taking any legal action based upon the information contained herein without first seeking professional, individualized counsel based upon your own circumstances. The hiring of a lawyer is an important decision that should not be based solely upon advertisements.
Information by ALARIS AVOCATS