BEFA – Lease in the future state of completion: securing the transaction for the investor and the tenant

The lease in the future state of completion (bail en l'état futur d'achèvement, or BEFA) occupies a singular place in commercial real estate transactions: signed before the building has even come out of the ground, it commits an investor and a tenant to an asset that does not yet exist. For a property company financing the construction of a logistics warehouse or a head office, as for the business that undertakes to occupy premises designed to order, the stake is the same: securing a transaction whose main uncertainty, actual completion within the agreed time and conditions, is partly beyond the parties' control at the time of signing. This guide explains the structuring clauses of the BEFA, from the delivery date to late-delivery penalties, from the handling of snagging reservations to completion guarantees, and identifies the recurring friction points between landlord and tenant in build-to-suit structures.

What is a BEFA? Definition and legal framework

The BEFA, or lease in the future state of completion, is a contract by which a landlord lets premises that are not yet built or not yet completed, the tenant undertaking to take them on lease on delivery. Unlike an ordinary commercial lease, relating to existing premises available immediately, the BEFA is concluded before completion, often when the building permit is final and unchallengeable but works are only just starting.

The BEFA is not defined by any specific text. It is an unnamed contract, shaped by practice, which combines two distinct legal logics. On the one hand, it draws on the commercial lease statute governed by Articles L.145-1 et seq. of the French Commercial Code, of which it is a method of early conclusion. On the other, it takes inspiration from the mechanics of the sale in the future state of completion (vente en l'état futur d'achèvement, or VEFA) defined in Article 1601-3 of the French Civil Code, in particular as regards the technical description of the works to be carried out and the delivery arrangements.

The essential distinction from the VEFA

The confusion between BEFA and VEFA is common but carries heavy consequences. The VEFA entails a transfer of ownership: the purchaser becomes owner of the land and of the works as they are built, under Article 1601-3 of the French Civil Code. The BEFA, by contrast, effects no transfer of ownership. The landlord remains owner of the building; the tenant acquires only a right of enjoyment from delivery. This difference governs the whole applicable regime: guarantees, tax, security, accounting treatment on the investor's side.

The BEFA, the preferred tool for build-to-suit

The build-to-suit, literally construction made to measure, designates the transaction by which a building is designed and erected to meet the specific needs of a user identified from the outset. Logistics platforms, head offices, industrial sites, data centres: these highly specific assets find their tenant only upstream, which economically justifies the conclusion of an investor commercial lease before construction. The BEFA then secures the whole financing round: the tenant obtains a building tailored to its needs, the investor has a guaranteed rental income stream on which its bank financing depends, and the developer has a certain outlet.

How the BEFA fits with the commercial lease statute

Where the premises are intended for the operation of a commercial, craft or industrial business, the BEFA falls under the commercial lease statute. This characterisation is not neutral: it entails the application of mandatory rules that the parties cannot exclude, even though signing takes place before completion.

The term of the lease may not be less than nine years under Article L.145-4 of the French Commercial Code, the tenant having a right to terminate at the end of each three-year period, unless otherwise stipulated as permitted for certain long-term leases. In build-to-suit, investors generally seek firm long-term commitments, often exceeding nine years, with the tenant waiving its three-year termination rights in order to amortise the construction investment. This waiver, lawful for leases departing from the three-year periodicity, must be drafted with precision.

The starting point of these terms and the question of when the lease takes effect are one of the knots of the BEFA. The contract is signed on one date, but the lease takes effect, in particular the obligation to pay rent, only from delivery. This separation between signing date and effective date must be stipulated unambiguously, because it determines the starting point of the reciprocal obligations.

Delivery time and penalty clauses

The delivery clause is the heart of the BEFA. It fixes the date on which the landlord undertakes to make the completed premises available to the tenant, and organises the consequences of a breach of that undertaking.

Defining the delivery date

Two techniques coexist. The first fixes a firm calendar date. The second adopts a period running from a determined event, for example obtaining the building permit free of any appeal, the regulatory declaration of the opening of the site, or the actual start of works. The second technique is preferable in complex transactions, because it takes into account the administrative uncertainty weighing on the start of the site. The contract must specify what is meant by completion: completion in the sense of fitness for use and conformity with the specification, or completion within the meaning of Article R.261-1 of the French Construction and Housing Code, which treats the building as completed when the works have been carried out and the items of equipment indispensable to its use have been installed.

Legitimate grounds for suspending the time limit

No site escapes uncertainty. The BEFA therefore provides a list of legitimate grounds for postponing the delivery date, often described as bad-weather days, force majeure, delays attributable to utility providers, administrative injunctions, third-party appeals against planning permissions, or general strikes. The drafting of this clause is decisive: too broad, it empties the landlord's delivery undertaking of substance; too restrictive, it exposes the landlord to penalties for delays outside its control. Each ground for postponement must be defined in an objective and verifiable manner, with the arrangements for notification to the tenant and for justification.

Late-delivery penalties

Late-delivery penalties are the tenant's main lever of protection. They generally take the form of a fixed daily indemnity payable by the landlord where the contractual delivery date is exceeded, after the legitimate grounds for postponement are exhausted. These penalties are analysed as a penalty clause within the meaning of Article 1231-5 of the French Civil Code, which allows the court to moderate or increase the amount if it is manifestly excessive or derisory. Three parameters must be negotiated with care:

• the triggering event, namely the exceeding of the delivery date as postponed where applicable
• the unit amount, often indexed to the daily rent or to a percentage of it
• any cap, investors seeking to limit their exposure while tenants favour a high cap, or even no cap, coupled with a right to terminate beyond a critical delay

The penalty clause is best supplemented by a clause of termination by operation of law available to the tenant if the delay exceeds a determined threshold, which prevents it from being stuck in a transaction that is durably compromised.

Delivery of the building and handling of reservations

Delivery marks the pivotal moment of the BEFA: it triggers the lease taking effect and transfers enjoyment of the premises to the tenant. It gives rise to an adversarial delivery report (procès-verbal), a document of considerable evidential weight.

The delivery report and the formulation of reservations

On delivery, the parties walk through the premises and record in a report the state of conformity of the works with the technical specification annexed to the lease. The tenant formulates its reservations, that is the non-conformities, defective workmanship or incomplete works that it observes. A reservation not made on delivery is presumed accepted, except for latent defects. Rigour at this stage is essential: a tenant that neglects to have its technical teams or its project manager (maître d'oeuvre) attend the delivery risks retaining the burden of defects it could have attributed to the landlord.

A distinction must be drawn between minor reservations, which do not prevent taking possession and operating, and major reservations, which affect fitness for use or substantial conformity and may justify a refusal of delivery. The BEFA must define precisely what constitutes a non-conformity preventing delivery, failing which the tenant risks having the lease take effect in premises that cannot be used.

Clearing the reservations

The contract organises the timetable and arrangements for the landlord to clear the reservations. An effective mechanism provides a period for remedying the defects, an adversarial procedure for recording that they have been cleared, and a sanction for failure to clear them in time. Retention of part of the security deposit or the consignment of a sum until the reservations are fully cleared are common mechanisms, but their interaction with the commercial lease statute calls for vigilance, in particular as regards the fate of the security deposit.

Completion guarantee and financial security

The central question for the tenant in a build-to-suit is the risk of default by the landlord or developer during the works. What becomes of the transaction if the project owner stops paying or becomes subject to collective proceedings before completion?

Unlike the VEFA in the protected residential sector, for which Article L.261-11 of the French Construction and Housing Code requires a financial completion guarantee, the BEFA for commercial or industrial use benefits from no mandatory statutory completion guarantee. Security therefore rests entirely on the contractual stipulations and on the security negotiated.

Several mechanisms may be combined. A completion guarantee, financial or intrinsic, may be required of the landlord, embodied in the undertaking of a credit institution or insurer to complete the works or to finance their completion in the event of default. The tenant may also obtain security over the asset or undertakings from the developer's parent company. Finally, the legal structuring of the transaction, in particular the use of a dedicated project company, bears directly on the robustness of the guarantee. These elements must be audited before signing, because they determine the tenant's real ability to obtain a usable building even in the event of an industrial accident on the landlord's side. How this mechanism operates in a sale in the future state of completion is detailed in our article on the financial completion guarantee in a VEFA.

On the investor's side, security takes a symmetrical form: it requires guarantees of proper performance from the tenant, in particular a firm undertaking to take the lease, guarantees of payment of rent, a surety or an autonomous first-demand guarantee, or even security over the tenant's assets. The BEFA thus balances the risks of two parties whose interests converge on completion but diverge on the allocation of uncertainty.

The lease taking effect and the rent

The BEFA carefully distinguishes three dates: the date of signature of the contract, the date of delivery of the premises and the date the lease takes effect. In practice, the effective date most often coincides with delivery, but the parties may arrange a gap, for example to allow the tenant to carry out its own fit-out before rent starts to be paid.

The rent-free period and support for the tenant

It is common for the tenant to benefit from a rent-free period, during which it occupies the premises without paying rent, in return for a long-term commitment or to offset its installation works. This rent-free period must be precisely coordinated with the date the lease takes effect and with the calculation of the indexation indices, because imprecise drafting gives rise to disputes over the actual starting point of the financial obligations. On the mechanism of this rent-free period, its tax treatment and the drafting points to watch, see our analysis of the rent-free period in a commercial lease.

Setting and indexing the rent

The rent of a build-to-suit BEFA is generally set by agreement, according to the cost of the transaction and the yield expected by the investor, without reference to the market rental value of comparable premises. The rent is then indexed, most often to the tertiary activities rent index (indice des loyers des activités tertiaires, ILAT) published by INSEE, better suited to office and business premises than the construction cost index. The indexation clause must comply with the mandatory rules governing the revision of commercial rents resulting from the Pinel Act, Law No. 2014-626 of 18 June 2014, which in particular capped variations in revised rent under certain conditions.

Allocation of works and charges

The question of works and charges is structuring in a long-term BEFA. The tenant of a new building expects an asset free of defects, but the length of the lease will necessarily expose the parties to needs for major maintenance and renewal.

The French Civil Code distinguishes maintenance repairs, for the tenant's account, from the major repairs of Article 606, which in principle fall on the owner. Since the Pinel Act and its implementing Decree No. 2014-1317 of 3 November 2014, Article L.145-40-2 of the French Commercial Code requires a commercial lease to contain a precise and exhaustive inventory of the categories of charges, taxes and works, with an indication of their allocation between landlord and tenant. Article R.145-35 of the French Commercial Code prohibits passing certain expenses to the tenant, in particular the major repairs of Article 606 of the French Civil Code and expenses relating to the age of the building or to bringing it into compliance.

These rules apply fully to the BEFA. An investor who tried to transfer to the tenant, by a so-called triple net lease clause, all of the works including those falling under Article 606, would run up against the mandatory provisions resulting from the Pinel Act. Drafting the inventory of charges and the works clause therefore requires particular attention in order to reconcile the investor's net-return logic with the tenant's protective floor. The item-by-item allocation of expenses between the parties is the subject of a separate discussion in our table on the allocation of commercial lease charges.

Frequent points of dispute between landlord and tenant

Litigation experience brings out several recurring sources of dispute in transactions concluded under a BEFA. Anticipating them at the drafting stage avoids lengthy and costly disputes during performance.

The first concerns late delivery and the application of penalties. Disputes most often arise from the imprecision of the legitimate grounds for postponement, each party interpreting to its own advantage who is responsible for the delay. An objective definition and an adversarial mechanism for recording postponements significantly reduce this risk.

The second concerns the conformity of the delivered building with the technical specification. Differences of interpretation on the services due, the materials, the energy performance levels or the technical equipment generate abundant disputes. The precision of the technical specification annexed to the BEFA and the quality of the delivery report are decisive here.

The third concerns clearing the reservations and liability for defects that appear after possession is taken. The boundary between a non-conformity for which the landlord is responsible, a defect covered by the statutory construction guarantees and damage attributable to the tenant's use is often disputed. The interaction of the BEFA with the statutory guarantees on the works, the guarantee of perfect completion, the two-year guarantee of proper functioning and the ten-year guarantee, must be clarified, in particular as regards the tenant's ability to bring a direct claim against the builders.

The fourth source of dispute concerns the allocation of charges and works during the lease, mainly around the allocation of major maintenance and renewal expenses, and the conformity of the inventory of charges with the requirements of the Pinel Act.

Finally, the date the lease takes effect and the counting of the rent-free period feed disputes over the starting point of the financial obligations, particularly where delivery takes place with reservations or in stages.

Conclusion

The BEFA is not simply a commercial lease signed earlier: it is an instrument for sharing the risks of a construction transaction, whose soundness depends on the precision of a few cardinal clauses. The delivery date and its postponement regime, the late-delivery penalties, the contractual definition of completion and conformity, the handling of reservations, the completion guarantees and the allocation of works in light of the mandatory floor of the Pinel Act are the points on which the balance of the transaction is decided. A well-drafted BEFA protects the investor by securing its rental income stream and its financing capacity, while guaranteeing the tenant a building that meets its needs and is delivered on time.

The temptation, in build-to-suit, to favour speed of signing at the expense of drafting precision is invariably paid for in performance. Before any commitment, have the technical specification, the regime of legitimate grounds for postponement and the interaction of the completion guarantees audited by an adviser who masters both construction law and the commercial lease statute. It is at this stage, and not in litigation, that the transaction is durably secured.

Frequently asked questions

What is the difference between a BEFA and a VEFA?

The VEFA, defined in Article 1601-3 of the French Civil Code, is a sale that progressively transfers ownership of the land and the works to the purchaser. The BEFA is a lease: it transfers no ownership, only a simple right of enjoyment to the tenant from delivery, the landlord remaining owner of the building. This distinction governs the regime of guarantees, the tax treatment and the accounting treatment of the transaction.

Does the commercial lease statute apply to the BEFA?

Yes, where the premises are intended for the operation of a commercial, craft or industrial business, the BEFA falls under Articles L.145-1 et seq. of the French Commercial Code. The minimum term of nine years under Article L.145-4, the regulation of charges by the Pinel Act and the prohibition on passing to the tenant the major repairs of Article 606 of the French Civil Code apply, despite the early signing of the contract.

When does the lease take effect in a BEFA?

The BEFA distinguishes the date of signature, the date of delivery and the date the lease takes effect. The effective date, which in particular triggers the obligation to pay rent, coincides in principle with delivery of the completed premises, unless the contract provides for a gap or a rent-free period. The drafting must clearly separate these dates to avoid any dispute over the starting point of the obligations.

Does the BEFA provide for a mandatory completion guarantee?

No. Unlike the VEFA in the protected residential sector, for which Article L.261-11 of the French Construction and Housing Code requires a financial completion guarantee, the BEFA for commercial use is subject to no mandatory statutory completion guarantee. The tenant's protection rests on the negotiated contractual guarantees, such as a financial completion guarantee of contractual origin or security over the asset.

What happens in the event of late delivery of the building?

The BEFA generally provides for late-delivery penalties, analysed as a penalty clause within the meaning of Article 1231-5 of the French Civil Code, payable by the landlord beyond the contractual delivery date and after the legitimate grounds for postponement are exhausted. It is advisable to couple these penalties with a right of termination available to the tenant if the delay exceeds a critical threshold, so as not to remain committed to a transaction that is durably compromised.

How are charges and major works allocated in a BEFA?

The allocation must appear in a precise and exhaustive inventory of charges, taxes and works, in accordance with Article L.145-40-2 of the French Commercial Code resulting from the Pinel Act of 18 June 2014 and its Decree No. 2014-1317 of 3 November 2014. Article R.145-35 of the French Commercial Code prohibits in particular passing to the tenant the major repairs of Article 606 of the French Civil Code and compliance expenses, which limits the reach of the triple net lease clauses sought by investors.

Is build-to-suit always concluded as a BEFA?

No. Build-to-suit designates the economic transaction of made-to-measure construction for an identified user, which may take the form either of a BEFA, where the user wishes to be a tenant, or of a VEFA or a property development contract, where it wishes to become an owner. The choice between leasing and acquiring depends on the asset and financial strategy of the user and of the investor.