 |
 |
 |
 |
 |
Country - France
Commercial Leases
|
A. SOURCES OF LEASE LAW
Applicable legislation
Decree no. 53-960, dated 30 September 1953, relating to commercial, industrial and small business premises, codified under Articles L. 145-1 et seq of the French Commercial Code.
These provisions specify the particular conditions which are applicable to commercial leases (the "Legislation") and supplement the generally applicable provisions of the French Civil Code.
Do any specific rules apply to commercial leases?
Commercial leases are subject to many specific rules as contained in the Legislation which do not apply to residential leases or to short-term leases.
Do different regimes apply to leases of commercial premises depending on the use of the premises by the lessee (offices, warehousing, industrial, retail)?
See below.
B. DURATION AND TERMINATION OF LEASES
Is there a minimum or maximum obligatory term?
The minimum obligatory term is nine years and the lessee has the right to terminate the lease upon the expiration of each three- year period by giving six months' prior notice. Short leases can be granted for less than two years but in such cases they are outside the legislation relating to commercial leases.
This right to terminate the lease may, however, be waived by the lessee under certain circumstances, or the parties may agree that the exercise of such right to terminate the lease will give rise to a financial penalty to be paid by the lessee to the lessor.
There is no maximum obligatory term. The parties may agree to a term in excess of nine years.
However, a lease entered into for more than 12 years should be recorded with the Mortgage Office (Bureau des Hypothèques) where the premises are located. This involves payment of a fee which is a small percentage of the total of the rent payable over the whole term.
In addition, a lease for a term of more than 12 years must be entered into before a notary.
Does the lessee have a right to renew the lease upon expiry of the initial contractual period?
With certain exceptions specified by the law, the lessee has a right to renew the lease for a similar term to that initially agreed.
If the lessee wishes to renew the lease and has not already received a notice from the lessor refusing to renew, the lessee may request a renewal. The lessor must answer the request within three months.
In the absence of an answer from the lessor, the lessor is deemed to have accepted the renewal of the lease.
Unless the lessor refuses the renewal on the grounds specified below, the lessor must pay compensation to the lessee. The grounds on which the lessor can refuse to renew and avoid paying compensation to the lessee are:
- serious and legitimate reasons usually resulting from a default by the lessee under the lease (e.g. sub-letting without consent); and
- under certain circumstances provided by law (e.g. in order to perform works, to sell the business, etc.).
Do lessees enjoy security of tenure (i.e. the right to remain in occupation after their lease expires)?
See above.
Do leases involve a lengthy procedure for the effective recovery of possession?
Legal proceedings for the recovery of premises by the lessor usually take a year or more and may require the assistance of a bailiff and eventually that of law enforcement in order for the recovery to be effective.
Expulsion proceedings can be undertaken throughout the year in respect of commercial premises but not during the winter months in respect of residential premises.
Can government/local authorities require the compulsory termination of a lease?
No.
Is there a preferential right of acquisition?
No such right exists under the Legislation in the case of commercial leases.
However, the lease may provide for a right of pre-emption (a right of first refusal, or a right of first offer), typically in the event of the proposed sale of the business of the lessee, or the proposed sale of the shares capital of the lessee by its parent company.
C. RENT AND COSTS
Are variable rental agreements common?
Variable rents, although permitted by law, are not common in leases of offices.
Variable rents are, however, a common feature of hotel and retail leases. In the case of retail leases, for example, variable rent is expressed as a percentage of the yearly gross revenues of the lessee's business, with a minimum fixed rent specified in the lease (the minimum rent is itself subject to indexation). For hotels, variable rents are also frequent and are based on occupancy.
Most common indexation
The most frequently used index is the National Index of Construction Costs published by INSEE (National Institute of Statistics and Economical Studies). The use of consumer prices or compensation-linked indexes is not permitted.
Who usually pays the common expenses?
Under the French Civil Code, expenses related to the maintenance of the premises and important repairs are payable by the lessor.
However, it is typical practice to make the lessee assume all (or the major part of) maintenance expenses.
Are there any other expenses connected with the lease?
In addition to the payment of the rent and maintenance charges, other expenses connected with the lease generally include the following:
- real estate tax (taxe foncière): payable by the lessor but typically reimbursed by the lessee; and
- other fiscal and parafiscal charges and levies assessed in connection with the use of the premises (e.g. waste collection taxes, etc.).
Which indirect taxes are applicable?
Depending on the specific election made by the lessor, VAT is payable (at 19.6%) and recovered by the lessee in the ordinary course of its business or CRL (Contribution sur les Revenus Locatifs - Contribution on Rental Revenues) at 2.50%, which is not recoverable but constitutes a deductible expense.
D. OBLIGATIONS OF LESSOR AND LESSEE
Who is responsible for the different works on the premises?
Structural repairs are the responsibility of the lessor (unless otherwise specified in the lease, which is not customary).
Other repairs and works are usually the responsibility of the lessee and works are subject to the prior consent of the lessor where they impact on the structure of the premises (walls, floors and roof) or where such works alter the character of the premises. These works are usually paid for by the lessee.
However, leases typically provide that upon expiration of the lease, improvements automatically become the property of the lessor, unless the lessor requests the removal of the improvements and/or the restoration of the premises to its initial state.
Can the lessee alter or improve the premises?
See above.
What restrictions are there on the lessee's right to use the premises?
Leases usually specify the permitted use, which is narrowly defined, and change requires the consent of the lessor.
Is there a right to transfer the lease?
Leases usually provide that the transfer of the lease by the lessee to a third party requires the prior written consent of the lessor.
However, this requirement does not apply where the transfer of the lease is linked to the sale of the lessee's business (fonds de commerce) to another party.
Is there a right to sub-let the premises?
In accordance with Article L 145-31 of the French Commercial Code, sub-letting is not permitted, except if otherwise agreed in the agreement.
Sub-letting is however usually permitted in leases, subject to the prior consent of the lessor.
What are the usual guarantees?
A security deposit for the agreed amount is usually equal to three months' rent or sometimes more. The security deposit will bear interest for the benefit of the lessee to the extent of the excess over the first three months' rent. More and more frequently, cash security deposits are being replaced by bank guarantees.
Payment of the rent and charges is also often secured by guarantees given by a parent company, another affiliate or by a third party.
E. PARTICULAR TYPES OF LEASE
Do office leases have any particular characteristics?
No, save as mentioned above.
Do retail leases have any particular characteristics?
No, save as mentioned above.
Do hotel leases have any particular characteristics?
No, save as mentioned above.
|
|
|