Commercial lease

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A commercial lease is a rental agreement between a trader, an artisan or a manufacturer that operates a business in a premises, and the owner of those premises.

  • Who signs a commercial lease?

    • In principle, the persons who are registered on the trade and companies register or on the trades register who wish to carry on a commercial, industrial or artisanal business in the leased premises sign a commercial lease. The minimum term is nine years.

  • Why is the term "commercial property" used?

    • The status of the commercial lease offers considerable advantages for the tenant. The person running the business must be able to count on a stable professional or commercial address for a long period of time. The loyalty of their customers depends upon it.

    • In principle, the tenant is entitled to have the lease renewed and it is this special protection which is sometimes referred to as the commercial property.

    • During the term of the lease, the tenant is almost immune from eviction; they can only be evicted in special circumstances and only if the owner provides compensation.

  • Is the landlord entitled to require the payment of a lease premium ("pas-de-porte")?

    • Yes. The entry fee, commonly known as the "pas-de-porte" is, in a sense, the consideration for the commercial property].

    • The tenant pays a sum of money when they take possession of the premises. The fee can be analysed either as an additional rental payment, or as an indemnity.

  • How are the rent and the service charges set?

    • The original rent is set by the landlord and the tenant, who are free to negotiate. It may then be revised every three years, within the limits of a statutory upper limit, which prevents excessive increases.

    • Commercial leases usually provide for the rent to be index-linked on the basis of the index of commercial rents or the quarterly rent index for tertiary activities for tertiary activities other than commercial or craft activities.

    • In addition, the landlord and the tenant are free to allocate the service charges (land tax, commonhold service charge, etc.) between them, as they think fit.

  • Can the owner recover their premises?

    • The commercial property does not deprive the owner of the right to recover their property at the end of the lease term or at the end of a three-year period, in certain circumstances, such as: construction, reconstruction, personal occupation if the premises include residential accommodation, demolition, or any serious, legitimate reason.

    • Also, if the tenant fails to fulfil their rental obligations (by not paying the rent, for example), the landlord may recover possession of the premises quickly, if the lease was prepared by a notaire.

    • Note that unless the landlord is in possession of a notarised lease agreement they will have to obtain a court judgment against the tenant in order to require the payment of the rent and to terminate the lease rapidly.

  • Can the tenant terminate the lease?

    • The tenant is authorised to give notice of their intention to quit on the expiry of each three-year period, i.e. at the end of the 3rd, 6th or 9th year, hence the common expression "bail 3-6-9" [a 3-6-9 lease].

    • The tenant is also free to assign the lease to their successor, as part of the transfer of the business, or may assign the right to the lease in isolation. This scenario, in which the trader in situ ceases their business activity and assigns their right to the lease to a trader carrying on a different activity, is more and more frequent. While clauses in the lease may prohibit or restrict such an assignment, the law provides this possibility when the tenant asserts their rights to retire.

  • In what circumstances is the tenant entitled to have the lease renewed?

    • At the end of nine years, the tenant has the right to have their lease renewed for the same term, at a rent that may not exceed an upper limit.

    • If the landlord does not wish to renew the lease, they are required to pay the tenant compensation for non-renewal of the tenancy. The tenant is entitled to be fully compensated for the loss. The compensation may correspond to the market value of the business.

  • Is there any alternative to the commercial lease?

    • Yes, the French Commercial Code authorises parties to enter into agreements that do not have the status of a commercial lease. This applies particularly to tenancies-at-will which may not last for more than 3 years (not to be confused with precarious occupation agreement which are commonly known as tenancies-at-will). If, on the expiry of this term, the tenant is left in possession of the premises (or if the lease is renewed, or if a new lease is concluded for the same premises), a nine-year commercial lease automatically comes into existence.

    • Conversely, if the landlord wants the tenant to quit the premises, the tenant must comply and will not receive any compensation for non-renewal of the tenancy.