December 5

Eviction penalty paid by landlord after termination of French commercial lease

Under French law, a landlord must rent a commercial premise (a shop, a factory, a restaurant), under a commercial lease (“BAIL COMMERCIAL”); for a minimum mandatory duration of 9 year.

When the lease reaches this 9 year term, the tenant is entitled to continue the contract.

If the landlord wishes to repossess the property an eviction penalty must be paid to the tenant (unless the tenant is in serious breach of contract for repeatedly not having paid the rent for instance).

This eviction penalty is supposed to compensate the loss of turnover by the tenant induced by this repossession.

Payment of this penalty is a statutory requirement of French Commercial Code (“CODE DE COMMERCE”). Consequently, it does not have to be stipulated in the lease contract to be enforceable.

The statutory provisions on eviction penalty are mandatory, they cannot be excluded by the terms of the lease contract.

Nevertheless, under certain conditions, the tenant can renounce to benefit of the eviction penalty but only after termination of contract.

In case of dispute, a party can challenge the validity of such a renouncement before a Judge.

If the parties cannot agree on the value of the penalty, it will be decided by a Judge and is usually equivalent to two years turnover of the tenant.

It is advisable to seek the advice of a lawyer before considering termination of a commercial lease.

October 5

Duration of French commercial leases “bail commercial” when signed with the operator of a tourist residence “résidence de tourisme”

Commercial leases “bail commercial” are intended to organise the occupation of a commercial premises (a shop, a factory, a restaurant).

They must not be confused with professional leases “bail professionnel” for an activity that is not considered as “commercial” under French law but “professional” (such as medical or legal activities).

Neither must they be confused with a housing tenure “bail d’habitation”.

Because French laws on commercial leases were initially conceived to protect tenants, the minimum mandatory duration of a lease vary depending if you are an owner or a tenant.

Unless exceptional circumstances, such as breach of contract by the tenant (for non payment of rent for instance), owners cannot terminate the lease during a 9 year period, from the date when the lease became effective.

On the other hand tenants can terminate lease every 3 years.

For example, if a lease is signed on 05 June 2013, the owner will have to wait until 05 June 2022 to terminate lease. On the other hand, the tenant could terminate the lease on 05 June 2016 or 05 June 2019 or 05 June 2022.

Nevertheless, in some circumstances the legislator has considered that it was necessary to protect the owner because the tenant was in a more powerful position.

A recent law (Loi N°2009-888 22-07-2009) has been enacted by French Parliament to protect owners of apartments in Tourist Residences.

It stipulates that when a commercial lease is signed with the operator of a Tourist Residence “Residence de Tourisme” the minimum mandatory duration of a commercial lease will be nine year for both the owner and the tenant.

This rule only applies to leases signed after enforcement of the law.

The termination of lease is not automatic. At the end of the stipulated period a notice must be served by bailiff “huissier de justice” on the other party and in some circumstances an eviction penalty can be due.

This question will be developed in a next poste.

In any case when faced with such a situation, it is advisable to seek the advice of a lawyer.