When establishing a business, many entrepreneurs choose not to purchase premises but to seek a commercial lease instead. This choice offers various advantages, notably by not putting pressure on the company’s cash flow at its inception and by more easily allowing the possibility of changing locations to accommodate the company in places better suited to its future growth.

The commercial lease is subject to a particular regime, balancing between the principle of contractual freedom and public order. It is subject to the principle of contractual freedom, which is protected by the French Constitutional Council. Contractual freedom is associated with the freedom to undertake, of which it is an extension.

Commercial lease law is also subject to public order rules following excesses to which landlords, in the name of contractual freedom and the fundamental nature of property rights, had indulged. It was considered that resorting to public order was necessary to preserve the continuity or value of the business.

In accordance with the provisions of Article 1709 of the Civil Code, the lease is a contract by which one party undertakes to grant the other the enjoyment of a thing for a certain time, and for a certain price that the latter undertakes to pay. Except for exceptions, the lease is neither a written contract nor a formal contract. The lease can therefore be verbal, although this presents evidential difficulties. However, the law implies the use of a written document for leases of premises used as theaters, which must be authorized by the Minister responsible for culture, leases of premises housing establishments serving alcoholic beverages, which must be executed in authentic form, as well as leases concluded for a duration exceeding 12 years, which must also be executed in authentic form.

At the time of signing, it is important for lessees to be aware of the energy performance diagnosis, the environmental annex, the lead exposure risk assessment, the asbestos technical diagnosis, the termite diagnosis, and any other relevant diagnostic for the property, as well as to verify the accuracy of the inventory of fixtures.

To benefit from the commercial lease regime, it is necessary for a business to exist and be effectively operated. Nevertheless, it has been judged that temporary cessation of activity does not imply in itself the disappearance of clientele and consequently of the business.

The Commercial Code provides that the lease must cover a building or premises in which the business is operated, that it must be enclosed and covered, and that it must present a form of stability and permanence. Traders established in a shopping center, unlike those in a commercial gallery, generally do not benefit from management autonomy allowing them to own personal clientele. It has thus been held that a company holding a location in a shopping center for shoe repair and key duplication does not benefit from the commercial lease status, even if it alone ensures the management of its stocks and sales, as it is subject to the opening hours of the shopping center, which handles payment of expenses, organization of advertising, and pricing policy.

Prospective tenants approached by commercial agents of center promoters have every interest in keeping received emails, as the new contract law allows obtaining a guarantee of the commercial nature of the premises or, failing that, damages or even cancellation of the lease.

The duration of the lease often constitutes one of the main interests of the commercial lease regime. The Commercial Code provides that the minimum duration cannot be less than 9 years and prohibits the conclusion of a perpetual lease (which is automatically reclassified as indefinite duration). However, it is possible to provide for a derogatory or short-term lease allowing, in part, the conclusion of a lease for a duration not exceeding 3 years. The Rural Code of Maritime Fishing also provides for the possibility of concluding an emphyteutic lease for a duration ranging from 18 to 99 years. The same applies to the Construction and Housing Code, which provides for a building lease for a duration ranging from 18 to 99 years. It is possible to provide for an option of early termination allowing the lessee to give notice for the end of a triennial period (3, 6, 9). It is possible to contractually arrange the lessee’s right to terminate.

The commercial lease does not cease at the contractual term. An affirmative act by one or the other party is required to terminate the lease. The lessor must thus serve notice, and the lessee, failing notice, must notify a renewal request if they wish to remain in the premises or notice if they wish to vacate them. Failing that, the lease is extended beyond the stipulated term for an indefinite period until one of the parties decides to terminate it. The lease is extended with the same clauses, obligations, and conditions without the formation of a new contract. The lessee must be attentive to exceeding the 12-year duration, as it marks the lifting of the rent cap.

During the lease, the lessee may terminate at the end of a triennial period without any particular reason (subject to a notice period of 6 months) or at any time for retirement or disability. It is recommended to use a bailiff for serving notice. Landlords rarely use the option to terminate the lease since they are subject to paying an eviction indemnity or offering equivalent premises to the tenant in case of works.

As for the price, the parties enjoy a substantial freedom in its determination. Rent capping is not a matter of public order. It is possible to provide for an indexation clause, which will be particularly relevant when the date of the lease’s signature is not the same as the one when the lease takes effect and thus the rent. In this case, the parties establish from the outset the method of determining the rent at its commencement by using an index, usually the construction cost index. It is also possible to provide for a staggered lease allowing the parties to agree from the outset on different tiers for rent payment during a specified period. Some contracts use a revenue clause providing that the rent may vary according to the lessee’s revenue. Some contracts also provide for an entry fee, often called “key money.”

As for charges, the legislator has not provided for a very clear distribution, and it is preferable to specify in the lease the agreed distribution. As for taxes and duties, the lessor can no longer claim the property tax or the household waste removal tax from the lessee (for the waste removal tax, the lease contract may stipulate otherwise). The same applies to the sweeping tax, the development tax, and the territorial economic contribution. Apart from these taxes, it is possible to contractually distribute taxes and duties.

The commercial lease status does not contain any insurance obligation for the lessor or the lessee. However, it is common for a clause to require insurance. The lease generally provides that the lessor is responsible for insuring the building and civil liability for damages caused to third parties by the building, while the lessee is responsible for insuring movable property and civil liability for rental risks.

Pursuant to Article 1754 of the Civil Code, the lessee is responsible for maintenance or minor repairs, unless otherwise provided in the commercial lease. These works are defined in relation to the major repairs of Article 606 of the Civil Code. The latter are the responsibility of the lessor. Major works include major walls and vaults, restoration of beams and entire roofs, dikes, and retaining walls. In the absence of a contrary clause, works resulting from obsolescence are the responsibility of the lessor. In case of force majeure, the tenant is not responsible for any repairs. For compliance works, the works are the responsibility of the lessor unless otherwise provided. Lessee’s works are subject to accession regime, meaning that in the absence of a clause, the lessor becomes the owner against payment of compensation to the lessee (unless otherwise provided). Lessee’s works can be invoked as a reason for lifting the rent cap by the lessor on the occasion of the second renewal of the lease following the execution of the works.

The commercial activity must be legal. The commercial lease may thus be null if the activity carried out is contrary to public policy. The contract may specify the agreed destination of the premises. It is possible to partially change the activity without the lessor’s permission, but a total change will require the lessor’s agreement.

Assignment of the commercial lease is free. It is not subject to any particular formalism, but it is advisable to inform the lessor.

Termination of the lease may result from the operation of a resolutive clause inserted in the lease. It is necessary for the resolutive clause to expressly provide for the reason for termination. Otherwise, it will not be possible to proceed with the termination of the lease contract. The existence of harm is irrelevant. It is not even necessary to send a demand letter. However, it is necessary to send a command by a judicial officer expressly targeting the resolutive clause. The command must, under penalty of nullity, mention a one-month deadline. After this deadline, it will be possible to apply to the court for an expedited procedure before the Judicial Tribunal to obtain termination of the lease contract.

The parties may also decide amicably to terminate the commercial lease.

For any questions regarding commercial lease law, do not hesitate to contact the firm.

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Government summary article: Commercial lease | Entreprendre.Service-Public.fr