Commercial lease: A renewal offer with different clauses is equivalent to a renewal refusal

The Cour de cassation has ruled that when the landlord serves a notice that includes a proposal to renew the commercial lease, but with clauses and conditions that differ from those of the expired lease, this must be interpreted as a notice refusing renewal, thereby entitling the tenant to eviction compensation. (Civ. 3e, Jan. 11, 2024 no. 22-20.872)

 

In this case, a commercial lease for restaurant premises was signed on January 15, 1999. On April 29, 2016, the lessor issued a notice of termination with an offer of renewal subject, in particular, to a change in the size of the leased premises and to the lessees’ maintenance obligations.

The tenants returned the leased premises and sued the lessor for payment of eviction compensation.

Although the Court of Appeal accepted that the modifications to which the lessor intended to make the renewal offer subject, which affected both the size of the leased premises and the lessee’s obligations, could not validly be included in a notice with an offer of renewal, it held that the notice nevertheless expressed an offer to regularize a new lease, so that it could not be analyzed as a notice without an offer of renewal.

The trial judges ruled that the notice given was invalid and that the fact that the tenants had remained in the premises without contesting the lease at the end of its initial period, until their voluntary departure, prevented them from claiming eviction compensation.

The Cour de cassation, citing article 1103 of the French Civil Code, which stipulates that contracts establish the rules between the parties, and articles L. 145-8 and L. 145-9 of the French Commercial Code, dealing respectively with the right to lease renewal and the conditions of notice, overturned the judgment, holding that :

“It deduced from this that “a notice of termination with an offer to renew the lease on terms and conditions different from those of the expired lease, except for the price, must be construed as a notice of termination with refusal to renew, giving rise to a right to eviction compensation”.

In this ruling, the Cour de cassation considers that if a notice includes a renewal proposal for a commercial lease, but with modified terms and conditions compared with the previous lease, this requires requalification.

Such a notice, which proposes modifications to the expired lease, must be interpreted as a refusal to renew. As a result, the tenant is entitled to claim eviction compensation.

For the record, the right to renew a commercial lease is protected by provisions of public order, which means that any contractual attempt to evade it, as confirmed by article L.145-15 of the French Commercial Code, is considered null and void. However, invoking this right is not automatic.

However, the tenant must meet certain prerequisites listed in article L.145-1 of the French Commercial Code:

  • Existence of a lease for a building or premises,
  • Registration in the Trade and Companies Register or the Trades Register,
  • The tenant must be the owner of the business;
  • The business must have been in operation for at least 3 years.

With regard to the latter condition, the business must have been effectively and continuously operated for at least three years prior to the end of the lease or its tacit extension, barring justified exceptions recognized as legitimate by the courts (e.g. health problems, bankruptcy proceedings affecting the tenant, etc.).

Continuous operation is a decisive criterion for access to renewal, regardless of whether the business has changed ownership during this period: the purchaser of a business can take advantage of the previous owner’s period of operation to claim the right to renewal.

However, if the lease is transferred during the last three years of the contract, the case law of the Cour de cassation prohibits the new owner from combining the period of operation with that of his predecessor to reach the required duration.

Renewal can only be requested if the new owner has operated the business for three years. To avoid losing the right to renewal due to an insufficient operating period, the transferee may seek to obtain a waiver of this condition from the lessor, or make the transfer after a lease renewal.

 

It will be necessary to assess the impact of this case law, since the consequences of a termination with an offer of renewal differ from those of a termination refusing renewal. However, the nature of the act determines the behavior to be adopted, particularly in terms of prescription.

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