Commercial leases in France
Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. French commercial property law is a complex subject and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.
Q. What should I think about before signing a lease of commercial premises in France?
A. Same sort of things as in England, exact description of what you are getting, length of lease, rents and increases, rent deposit, service charges, repairs, assignment and subletting and renewal. However the way commercial leases work in France is very different to England. Leases are usually shorter with parties relying more on the law than on specific clauses in the lease.
Q. What sort of preliminary checks should I make?
A. Check with the Mairie that the premises have planning permission for commercial use. Check also that the Mairie does not intend to acquire the premises using its rights of pre-emption which can apply to a lease as well as an outright sale. If the premises are in a building organised as a coproprieté check that the coproprieté rules permit the use you are planning. Some coproprieté rules may prohibit use as say a bar or dry cleaning business. Check also whether you need a change of commercial use. In short extensive preliminary checks are essential.
Q. What are the advantages of having a “commercial” lease?
A. The position is regulated by the Decree 53-960 of 30 September 1953. As a preliminary point you need to check you are a commercant as defined by French law and that the premises are commercial to come within the Decree. You have a minimum period of 9 years, a right to renewal after 9 years, rental capped on renewal and the right to change your business use to another business use.
Q. Do I need a notaire to enter into a commercial lease?
A. Usually not. It can simply be signed. You should register it (costs €25) as this gives certainty as to the date and gives notice of the lease to any future buyer of the building. A notaire is needed if either the lease is for more than 12 years or there will be alcohol sales on the premises. Sykes Anderson Perry can deal with the negotiation and registration of the lease and advice you thereon.
Q. What happens if the Landlord wants to use a notaire?
A. Landlord may want to use a notaire usually at the tenants’ cost. Tenants are best advised to get independent advice in all circumstances. The notaire is likely to have the landlord’s best interests at heart.
Q. Does the tenant have to be a registered business person?
A. Yes you have to be registered as a business at the Registre du Commerce et des Sociétés. You also have to carry on a commercial business from the premises.
Q. Can my French company sign the lease?
A. Yes normally a director can sign. Some French companies may require a majority of the shareholders to approve entering into a commercial lease. You should check the company’s constitution document. If you are signing the lease personally your marital status may be relevant.
Q. Should I have a document detailing the condition of the premises before I sign the lease?
A. Yes this is compulsory. You can do this with the landlord or get a professional to prepare it. It is in the tenant’s interests to have as detailed a report as possible. The report should state whether equipment works and whether it is new or used. The report should be signed by the landlord and the tenant when you sign the lease. You should also get one when you leave. It is a good idea in the lease to have a clause dealing with the report of the condition of the premises when you leave specifying its form and also dealing with works to be carried out.
Q. What are the main clauses in a commercial lease?
A. You have considerable freedom in drafting the lease. It should always define the premises, the use of the premises and the length of lease if more than the 9 year minimum. There is resistance in France to very lengthy lease documentation and landlords push for “standard” leases to be signed but you should insist on additional clauses being inserted if you need the protection.
Q. Can the landlord ask for a rent deposit?
A. Yes. This is called a depôt de garantie and can cover a variety of matters such as unpaid rents and repairs. It can be fixed freely but is usually two months’ rent.
Q. Can the landlord ask for a premium?
A. Yes. This is called “le pas-de-porte”. The money becomes immediately the property of the landlord. This usually happens when there is high demand for the premises from tenants.
Q. Is there any form of rent control?
A. No rents are fixed freely when the lease is entered into.
Q. Are turnover rents allowed?
A. Yes. These usually involve a basic rent and then an uplift based on the shops turnover. You normally find this in central city locations for boutiques in shopping centres.
Q. How are rents paid?
A. Normally quarterly but sometimes monthly. Remember TVA (French VAT) may be charged on rents as in England.
Q. When is the rent reviewed?
A. Every 3 years during the 9 year lease.
Q. By how much can the rent be increased?
A. The rent increase cannot broadly exceed the increase in the index of commercial rents. This is a complex area and expert advice is sensible here. There is a procedure for serving notices and you should prepare in advance and not ignore any notice served on you. The way this works is not the same as in England.
Q. What about service charges and repairs?
A. The landlord can require the tenant to pay charges for water, lift and general maintenance of the building. The charges have to be the real costs involved. The landlord cannot charge for main structural or roof works. The clauses in the draft lease should be carefully reviewed.
Q. Can we assign the lease?
A. Yes if you are selling the business at the same time. If there is no business carried on from the premises (you have say closed the business down) at the time, then you need the landlord’s consent either in the lease or given separately. The same applies if the new tenant carries on a different business to yours so there has been no real transfer of your business.
Q. What about the Mairie?
A. Communes are permitted to specify areas in which they have a right of pre-emption. This is in areas where they want to ensure businesses and diversity is maintained. If you are within one of these areas you have to give the Mairie notice and they have 2 months to decide whether they want to take the lease which they generally pass on to another business.
Q. Are we released from the lease when we assign?
A. Generally not. The lease normally provides that you continue to act as a guarantor for the new tenant. This guaranty can only be for 3 years after you assign the lease. If the new tenant defaults on its rent the landlord must tell you within one month. If you are a company which could be dissolved shortly after the assignment the landlord can apply to the court for bank or other guaranties for payment of rents if the new tenant defaults.
Q. Can we sublet all or part of the premises?
A. Unless specifically allowed in the lease you cannot. You can ask the landlord for permission.
Q. What rights do we have to renew after 9 years?
A. You will normally have a right to renew. Tenants cannot contract out of this right. You have to have run a business from the premises for the three years before the renewal to have the right to renew. The landlord can always refuse to renew but will then have to pay you normally a substantial sum to cover your loss in having to move. In practice courts normally appoint an expert to value the tenant’s loss in having to relocate the business and rebuild the clientele.
Q. What break clause do we have?
A. You can break the lease after each 3 year period. You will have no right to any compensation from the landlord. You must give the landlord 6 months’ notice. You need to follow the correct form and procedures.
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