Buying or selling a right to the lease: preliminary agreement and promise to sell

Buying a right to the lease (droit au bail) means acquiring the right to occupy commercial premises on the terms of a lease already in progress, without taking over the business (fonds de commerce) that was operated there. The transaction appeals to the trader who wants a location but not the activity found there. It nevertheless conceals serious pitfalls, starting with the landlord's power to refuse the new tenant and the exact scope of the commitments signed in the preliminary agreement. This guide sets out the specific clauses of a promise or preliminary agreement relating to a right to the lease, the conditions precedent never to be forgotten (the landlord's approval first among them) and the checks that protect the buyer before it commits.

What a right to the lease actually covers

The right to the lease is the asset value attached to the position of tenant under a commercial lease subject to Articles L145-1 et seq. of the French Commercial Code. What is sold is not the premises (they remain the landlord's property) but the benefit of the lease: the right to stay in the premises, the protection of the commercial lease statute and, above all, the right to renewal, which gives the tenant near-security of tenure in its location.

This value depends directly on the gap between the contractual rent and the real rental value on the market. Premises let well below the market price have a high right to the lease, because the buyer will enjoy a favourable rent for a long time. Conversely, premises let at an over-high rent may have a low or even nil right to the lease.

Right to the lease alone and sale of a business: not to be confused

The distinction is fundamental and conditions the whole preliminary agreement. In a sale of a business, the buyer takes over a whole: the customer base, the sign, the trade name, the equipment, possibly the employment contracts, and the right to the lease as one of the elements of the business. In a sale of the right to the lease alone, the buyer buys only the lease. There is no customer base transferred, and no continuity of activity imposed.

This difference has a direct consequence on the clauses of the lease itself. Many commercial leases contain a clause prohibiting or restricting assignment of the right to the lease on its own, while permitting assignment of the lease together with the business. This is because Article L145-16 of the French Commercial Code deems unwritten any clause prohibiting the tenant from assigning its lease to the buyer of its business. The landlord can therefore never block a sale of a business. By contrast, it may perfectly well make assignment of the right to the lease alone subject to strict conditions, or even prohibit it. This asymmetry changes everything for the buyer of a right to the lease on its own: it must check, before even discussing the price, what the lease allows.

Promise or preliminary sale agreement: two preliminary contracts with different effects

Before the final assignment, the parties sign a preliminary contract. Two forms coexist and their legal effects are not equivalent. The choice between them is not a formality: it determines the degree of commitment of each party and the buyer's room to withdraw. The differences between these two preliminary contracts, as applied to the sale of real estate, are compared in our guide to the promise to sell and the preliminary sale agreement.

The unilateral promise to sell

In a unilateral promise to sell (promesse unilatérale de vente) a right to the lease, the assignor undertakes to sell at a fixed price, but the buyer (the beneficiary) remains free to exercise the option or not during a set period. In return for this exclusivity, the beneficiary most often pays an immobilisation indemnity. If the buyer exercises the option within the period, the sale is formed. If it renounces, it in principle loses the indemnity paid, unless a condition precedent fails.

This formula protects the buyer: it reserves the premises while it finalises its financing, obtains the operating authorisations needed for its activity, or checks the condition of the premises, while keeping the option not to conclude. The unilateral promise to sell a right to the lease therefore suits particularly a project holder still uncertain of its ability to gather all the necessary approvals.

The preliminary sale agreement, a bilateral promise to sell

The preliminary sale agreement (compromis de vente) for a right to the lease, or bilateral promise (promesse synallagmatique), binds both parties: the assignor to sell and the buyer to buy. Under Article 1589 of the French Civil Code, a promise to sell amounts to a sale where there is reciprocal consent of the two parties on the thing and on the price. In other words, from the signing of the preliminary agreement the assignment is legally formed, and all that remains is for it to be completed by a final deed.

The practical consequence is heavy: unless a condition precedent operates, a buyer who refuses to sign the final deed is exposed to being compelled to perform the sale or to paying damages. The preliminary agreement therefore commits far more than the unilateral promise. That is precisely why the drafting of the conditions precedent is decisive there: they are the only legitimate ways out.

In both cases, writing is strongly recommended, not only as evidence but also because the assignment of a right to the lease is subject to registration duties and the tax authority expects a dated deed stating the price. Drafting by a legal professional (lawyer or notary) avoids incomplete drafting that turns against the buyer.

The specific clauses of a preliminary agreement relating to a right to the lease

A preliminary agreement for a right to the lease is not a conventional real estate preliminary agreement. Several clauses are specific to it and deserve particular attention.

Precise description of the lease assigned. The preliminary agreement must identify the lease by its date, its term, its expiry date, the amount of the rent and charges, the rent review conditions and the permitted use of the premises. This last item is crucial: an “all trades” lease is worth far more than a lease limited to a specific activity, because the buyer of a restricted right to the lease must either carry on the same activity or start a procedure for change of permitted use (déspécialisation) subject to strict conditions.

Taking over the obligations of the lease. The buyer takes over the lease as it stands, with its advantages but also its burdens: level of rent, works obligations, allocation of charges, security deposit. The preliminary agreement must specify what happens to the security deposit and the state of accounts between the assignor and the landlord (rent and charges up to date or not).

The assignor's joint guarantee clause. Many leases provide that the assignor tenant remains jointly liable as guarantor for payment of the rent by the assignee. Since the Pinel Act of 18 June 2014, Article L145-16-2 of the French Commercial Code limits this guarantee to three years from the assignment. The preliminary agreement must reproduce this clause faithfully, because it concerns the assignor (who remains exposed) as much as the buyer (whose solvency will be scrutinised by the landlord).

Arrangements for informing and serving notice on the landlord. The assignment of a right to the lease must be enforceable against the landlord. In the absence of a derogating clause, it requires service by a commissaire de justice (bailiff) in accordance with Article 1690 of the French Civil Code, or acceptance by the landlord in a notarised deed. Many leases further require the landlord to be a party to the deed of assignment. The preliminary agreement must organise this formality precisely, failing which the assignment becomes unenforceable against the owner of the building.

The price and its breakdown. The price of the right to the lease must be clearly separated from any other element (equipment, fittings) in order to determine the base for registration duties and to avoid reclassification as a sale of a business, which is subject to a different tax and legal regime. The procedure, the fixing of the price and the tax treatment of the transaction are detailed in our article on assignment of the commercial right to the lease.

The essential conditions precedent

A condition precedent is the mechanism that makes the final formation of the sale subject to the occurrence of a future event. As long as it has not been fulfilled, the assignment does not take effect and the buyer recovers the sums paid. On a right to the lease, certain conditions are not optional: leaving them out amounts to committing with one's eyes closed.

The landlord's approval: the central condition

This is the most sensitive point of an assignment of a right to the lease on its own. Whereas Article L145-16 of the French Commercial Code prevents the landlord from blocking assignment of the lease with the business, assignment of the right to the lease alone may be restricted, or even made subject to the prior approval of the owner of the building, where the lease so provides.

In concrete terms, three configurations exist. The lease may be entirely free as regards assignment of the right to the lease, a rare case for a stand-alone assignment. It may make the assignment subject to the landlord's approval, the landlord checking the candidate's solvency and activity. Or it may simply prohibit assignment of the right to the lease alone, permitting it only with the business.

Where approval is required, the preliminary agreement must make that approval a condition precedent. Without this clause, a buyer who signs a preliminary agreement remains bound even though the landlord refuses its entry into the premises: it finds itself liable for a price for a right it will never be able to exercise. The clause must specify the period allowed to obtain approval, the party responsible for the step (generally the assignor, but the buyer has an interest in being involved) and what happens to the sums in the event of refusal.

Imagine a craftsman who spots ideally located premises and signs a preliminary agreement to assign the right to the lease without reading the approval clause carefully. The landlord rejects its application on the ground that its activity falls outside the permitted use of the lease. If no condition precedent of approval has been provided for, the craftsman may be held to pay the agreed price or compensation, even though it will never obtain the keys. The condition precedent of approval is its only protection.

The municipality's right of pre-emption

Article L214-1 of the French Town Planning Code allows municipalities to establish, within a protection zone for local shops and crafts, a right of pre-emption over assignments of commercial leases, craft businesses and businesses. Where the premises are located within such a zone, the assignor must send the town hall a prior declaration of assignment, and the municipality has a period in which to pre-empt at the price and on the terms stated.

The preliminary agreement must provide for a condition precedent of non-pre-emption: the sale becomes final only if the municipality waives its right or lets its period expire. Neglecting this check exposes the transaction to paralysis, or even to the authority stepping into the buyer's place.

Other useful conditions precedent

Depending on the project, several other conditions deserve to be inserted:

• the buyer obtaining financing, stating the amount, term and maximum rate of the loan sought
• obtaining the administrative authorisations specific to the intended activity (licence, commercial operating authorisation, compliance with accessibility and safety standards)
• the absence of any easement or planning restriction incompatible with the intended use
• evidence that the assignor is up to date with its rent and charges, and that the lease is subject to no notice to quit and no termination proceedings

Each condition must be accompanied by a period for fulfilment and a clause providing that its failure, if not attributable to the party it protects, causes the preliminary agreement to lapse and the sums paid to be returned.

Pitfalls on the buyer's side

The buyer of a right to the lease is structurally in a weak position: it buys a contract that it did not negotiate and whose terms often elude it. Several pitfalls recur regularly.

Ignoring the permitted use under the lease. A buyer planning a restaurant business cannot set up in premises whose lease is limited to an office activity or non-food retail. It will have to start a procedure for change of permitted use, which is uncertain and sometimes costs a payment of compensation to the landlord. Checking the permitted use clause before signing is an absolute prerequisite. The two forms of change of permitted use, partial and full, and the position that the landlord may adopt are dealt with separately in our dedicated article.

Underestimating the lease expiry and the right to renewal. Buying a right to the lease whose expiry is near exposes the buyer to having to request renewal quickly, with the risk of the rent being uncapped (déplafonnement) or, in some cases, of a refusal of renewal accompanied by eviction compensation (indemnité d'éviction). The buyer must examine the expiry date, the history of rent reviews and the existence of any notice already served.

Neglecting the condition report and the works obligations. By taking over the lease, the buyer inherits the works and reinstatement obligations that fall on the tenant. A clause placing heavy repairs on the tenant, or the absence of an entry condition report, can prove expensive at the time of return. The preliminary agreement must provide for a condition report (état des lieux) drawn up in the presence of both sides and clarify the allocation of charges in light of the Pinel Act and the Decree of 3 November 2014.

Confusing the price of the right to the lease with the absence of future rent. Some buyers believe that paying for the right to the lease relieves them of paying a lasting favourable rent. Yet the rent remains due, and it will be reviewed, or even uncapped on renewal. The price paid remunerates the right to enter, not a future rent-free period.

Forgetting enforceability against the landlord. An assignment that has not been served on or accepted by the landlord in the prescribed forms remains unenforceable against it, and the landlord may continue to claim the rent from the assignor and contest the buyer's presence. Compliance with the formalities of Article 1690 of the French Civil Code and the clauses of the lease is therefore a condition of security, not a mere administrative formality.

Underestimating the assignor's joint liability and the guarantee clause. The buyer must understand that its solvency will be examined by the landlord, all the more so because the assignor remains jointly liable as guarantor for three years. A weak financial file may justify a refusal of approval and cause the transaction to fail, even after the preliminary agreement has been signed.

Conclusion

The assignment of a right to the lease has in common with a conventional real estate sale only the word “compromis”. Here, the thing sold is a contract of which the landlord holds a decisive key: that of approval. The real risk for the buyer is not negotiating the price badly, it is committing firmly by a preliminary agreement before having secured entry into the premises. Between the unilateral promise, which preserves the freedom to renounce, and the preliminary agreement, which binds immediately, the choice must be made according to how certain the project is and which authorisations remain to be obtained.

The rule to remember fits in one sentence: no preliminary agreement relating to a right to the lease should be signed without a condition precedent of the landlord's approval, without a condition of non-pre-emption by the municipality where the premises are within a protection zone, and without prior verification of the permitted use and expiry of the lease. Before signing, have the original lease and the draft preliminary agreement reviewed by a lawyer: it is at this stage, and not after the option has been exercised, that the security of the transaction is won or lost.

Frequently asked questions

What is the difference between a preliminary sale agreement and a promise to sell for a right to the lease? The preliminary sale agreement for a right to the lease, or bilateral promise, binds both parties from signing: under Article 1589 of the French Civil Code, the promise amounts to a sale. The unilateral promise to sell binds only the assignor and leaves the buyer free to exercise the option or not during a fixed period, in return for an immobilisation indemnity. The preliminary agreement therefore exposes the buyer more, which makes the conditions precedent all the more important.

Can the landlord refuse the assignment of the right to the lease? Yes, where it is an assignment of the right to the lease alone, without the business. The lease may make it subject to the landlord's approval, or even prohibit it. By contrast, Article L145-16 of the French Commercial Code deems unwritten any clause prohibiting assignment of the lease to the buyer of the business: the landlord can never block a sale of a business.

Must the landlord's approval appear as a condition precedent? Imperatively, where the lease requires that approval. Without this clause, the buyer remains bound by the preliminary agreement even if the landlord refuses its entry into the premises, and may be ordered to pay the price or compensation for a right it will never be able to exercise. The clause must fix the period for obtaining approval and what happens to the sums paid in the event of refusal.

Is the assignment of a right to the lease subject to the municipality's right of pre-emption? Yes, if the premises are within a protection zone for local shops and crafts established by the municipality under Article L214-1 of the French Town Planning Code. The assignor must then send a prior declaration to the town hall, and the preliminary agreement must provide for a condition precedent of non-pre-emption.

Does the assignor remain liable after the assignment of the right to the lease? If the lease contains a joint guarantee clause, the assignor remains guarantor of payment of the rent by the buyer. Since the Pinel Act of 18 June 2014, Article L145-16-2 of the French Commercial Code limits this guarantee to three years from the assignment. This clause must be reproduced in the preliminary agreement because it commits the seller financially beyond the sale.

How is the assignment made enforceable against the landlord? The assignment must be served on the landlord by a commissaire de justice (bailiff), in accordance with Article 1690 of the French Civil Code, or accepted by it in a notarised deed. Many leases further require the landlord to be a party to the deed of assignment. Failing that, the assignment remains unenforceable against the owner of the building, which may continue to claim the rent from the assignor.

Should the permitted use under the lease be checked before buying? Absolutely. The buyer may carry on only the activity authorised by the permitted use clause. An “all trades” lease offers great flexibility, whereas a lease with restricted permitted use requires a procedure for change of permitted use, which is uncertain and sometimes subject to payment of compensation to the landlord. This check must precede the signing of any preliminary agreement.