Sub-letting under a commercial lease: the landlord's control (authorisation, joining in the deed, lifting the rent cap)

The reconfiguration of office space has made commonplace a practice that commercial leases regulate poorly: a tenant who, not occupying all of its premises, makes part of the space available to a third party, sometimes a subsidiary, sometimes a shared-office operator. For the institutional landlord, the issue is not theoretical: unauthorised sub-letting weakens control over the occupation of the asset, creates a risk of a right to renewal in favour of an unapproved third party, and deprives the landlord of the capture of the excess rent. Conversely, a sub-letting properly authorised and with the landlord called to join in the deed is an immediate financial lever during the lease, and an argument for lifting the rent cap (déplafonnement) on renewal. This guide sets out, from the landlord's point of view, the exact scope of sub-letting, the formalities of authorisation and of the landlord joining in the deed (concours à l'acte) provided for by Article L. 145-31 of the French Commercial Code, the sanctions for irregular sub-letting, and the consequences of the sub-rent for the rental value and the renewal rent.

Characterising the operation before sanctioning it: what is a sub-letting and what is not

Sub-letting presupposes a lease agreement entered into by the principal tenant, acting as landlord, with a third party, covering all or part of the leased premises, in return for rent. Three elements characterise it: the making available of specified premises, the financial consideration, and the exclusive enjoyment of the sub-occupant. The absence of one of these elements shifts the characterisation, and therefore the applicable regime. A general presentation of the principle of prohibition, its exceptions and the conditions of validity is found in our article on sub-letting in commercial leases.

An assignment of the lease is not a sub-letting. The assignee takes the tenant's place in the principal contract; the landlord has a direct legal relationship with him. Approval clauses and the assignor's joint liability clauses fall under a separate body of rules, in particular Article L. 145-16 of the Commercial Code, which deems unwritten any clause prohibiting assignment to the purchaser of the business (fonds de commerce). The levers available to the landlord in that situation, from approval to joint and several guarantee, are analysed in our article on control of the assignment of the business.

A management lease of a business (location-gérance), governed by Articles L. 144-1 et seq. of the Commercial Code, relates to a business and not to premises. It does not, in principle, entail sub-letting of the walls, the lessee-manager operating the business of which the leasehold right is one element. This distinction is regularly instrumentalised: a contract entitled management lease covering a business emptied of customers and intangible assets is in reality a disguised sub-letting. A landlord faced with a business being put into management must therefore examine the real substance of the business supposedly let. The rights and obligations arising from the management lease contract, for the lessor of the business as for the lessee-manager, are detailed in our article on that contract.

A services agreement, now widespread under the label of business centre or shared workspace, escapes characterisation as sub-letting where the occupant has no specified premises of which it would have exclusive enjoyment, and the provision of services economically predominates over the making available of space. The decisive criterion remains the exclusivity and stability of the occupation. An unassigned workstation in a shared open-plan floor is not a sub-letting; a closed, identified office permanently occupied by a third party's employees is.

The domiciliation of a company at the registered office of another, governed by Article L. 123-11 of the Commercial Code, does not in itself amount to sub-letting, provided that the occupation is limited to an address and is not accompanied by a physical installation.

Lastly, intra-group making available of space is a sub-letting. The sub-occupant's membership of the same group as the tenant does not neutralise Article L. 145-31. Only an express clause in the lease authorising the making available of space to related companies, with a precise definition of the group perimeter, secures the operation. Failing that, the occupying subsidiary is a third party.

The principle: prohibition unless stipulated or agreed, and drafting the clause on the landlord's side

Article L. 145-31 of the Commercial Code lays down a prohibition in principle, with a twofold corrective.

Unless the lease provides otherwise or the landlord agrees, any total or partial sub-letting is prohibited.

In the event of authorised sub-letting, the owner is called to join in the deed.

The rule is default in its first paragraph: the lease may authorise sub-letting, prohibit it entirely, or make it subject to conditions. It is not so in its second paragraph: even where the lease authorises sub-letting, the landlord's joining in the deed must be sought. This is the tenants' most frequent error, and the first point of control in a portfolio audit.

For an institutional landlord, the sub-letting clause should not be limited to a bare prohibition. An absolute prohibition is admittedly the most protective position, but it leaves the landlord without any framework when it decides, for commercial reasons, to accept a sub-letting on an occasional basis. Effective drafting combines a prohibition in principle and a locked-down derogation regime:

• prior written approval of the landlord, excluding any tacit acceptance, with communication of the draft sub-lease and of the financial and legal information on the prospective sub-tenant;
• retention of the principal tenant as the sole debtor of the rents, charges and obligations of the lease, without novation or delegation;
• prohibition on conferring on the sub-tenant rights exceeding those of the tenant, in particular as to duration and permitted use;
• obligation to reproduce in the sub-lease the essential clauses of the principal lease, including permitted use and the clauses on charges, works and insurance;
• express stipulation of the sharing or capture of the excess sub-rent, which sets out contractually what Article L. 145-31 provides for only as an option;
• reference to the prohibition on sub-letting in the termination clause (clause résolutoire), a condition of its effectiveness.

A clause authorising sub-letting “subject to the landlord's written agreement” never dispenses with joining in the deed. The safest wording expressly recalls the obligation to call the landlord to join in and the consequences of omitting to do so.

Formalities of authorisation and of joining in the deed: a decision timetable

Article L. 145-31 sets out a precise procedure, often neglected in practice, the non-observance of which gives the landlord a litigation lever.

The tenant must notify the owner of its intention to sub-let by extrajudicial document, today a document served by a commissaire de justice (bailiff) since the merger of the professions of huissier and commissaire-priseur judiciaire took effect on 1 July 2022, or by registered letter with acknowledgement of receipt. The text allows no equivalent: an email, delivery by hand or a mention in an exchange of correspondence does not satisfy the legal requirement.

The landlord has fifteen days from receipt of the notice to state whether it intends to join in the deed. Three attitudes are possible, which do not carry the same consequences.

The landlord may join in the deed, that is to say become a party to the sub-letting contract, sign the instrumentum and, where appropriate, stipulate its own conditions in it. This is the option to be preferred: it makes it possible to control the drafting of the sub-lease, to record in it the sub-tenant's knowledge of the terms of the principal lease, and to insert in it an express waiver of any claim exceeding the tenant's rights.

The landlord may refuse to join in, or abstain. The last paragraph of Article L. 145-31 then provides that it is passed over. This provision is frequently misinterpreted. It means that a refusal to join in does not prevent a sub-letting that is otherwise authorised; it does not mean that the landlord's silence amounts to authorisation to sub-let where the lease prohibits it. Authorisation and joining in the deed are two separate questions: the first conditions the lawfulness of the sub-letting, the second its enforceability and the scope of the sub-tenant's rights.

The landlord may finally reply by making its participation subject to conditions, for example a review of the principal rent, the provision of additional security or a limit on the duration of the sub-lease. This negotiation must take place within the fifteen-day period, failing which it loses part of its force.

For a property department, good practice is to treat any notification of a sub-letting project as a calendar event with a short deadline: immediate acknowledgement of receipt, characterisation of the operation, check of the lease clause, written position notified within the period. A silence suffered through a lack of internal handling durably weakens the landlord's position.

A last point of vigilance: where the sub-tenant carries on an activity different from that provided for in the principal lease, authorisation to sub-let does not amount to a change of use (déspécialisation). A change of permitted use requires the application of Articles L. 145-47 et seq. of the Commercial Code, with notification to the landlord and, for full change of use, the procedure of Article L. 145-48. Authorising a sub-letting without expressly reserving the question of permitted use amounts, de facto, to accepting an activity that was not provided for.

Irregular sub-letting: unenforceability, termination, refusal of renewal without compensation

A sub-letting granted in breach of a contractual prohibition, or without calling the landlord to join in, is unenforceable against the landlord. The landlord owes no obligation to the sub-tenant, who cannot assert against it any right to remain in the premises, any right to renewal or any right to eviction compensation (indemnité d'éviction). On expiry or termination of the principal lease, the irregular occupant has no title.

Beyond this unenforceability, three routes open to the landlord.

The termination clause, governed by Article L. 145-41 of the Commercial Code, requires that the prohibition on sub-letting be expressly referred to in the clause. Its implementation requires a formal notice to comply with the clauses of the lease (commandement), served by a commissaire de justice, referring to the termination clause, and remaining without effect for one month. Acquisition of the clause is recorded in summary proceedings (référé). The difficulty lies in the object of the formal notice: it must require the tenant to bring the sub-letting to an end, which presupposes precisely identifying the occupant and the areas concerned. A prior report by a commissaire de justice, establishing the physical presence of the third party, the sign put up, the letterbox or the furniture, secures the step.

Judicial termination of the lease, based on the seriousness of the breach, remains available where the termination clause is non-existent, poorly drafted, or where the landlord prefers to be free of the formalities of the formal notice. The assessment of seriousness falls within the sovereign discretion of the trial judges, who take into account the scale of the sub-letting, its duration, the existence of a higher sub-rent, and the tenant's attitude after formal notice.

Refusal of renewal without eviction compensation, based on Article L. 145-17 of the Commercial Code, requires a serious and legitimate reason against the tenant. The text requires a prior formal demand, by extrajudicial document, to put an end to the breach, the breach having to have continued or been repeated more than one month after that demand. For a landlord who has identified an irregular sub-letting several months before the expiry date, this route offers major economic interest: it eliminates eviction compensation, which is the main cost of recovering a commercial asset. It does, however, require a rigorous chronology, the formal demand having to be served in good time for the one-month period to have expired and the breach to persist on the day of the notice to terminate.

The landlord also has an immediate financial lever: an action for payment against the sub-tenant, based on Article 1753 of the Civil Code, whose application to commercial leases is accepted. The sub-tenant is liable to the owner only up to the amount of the sub-rent of which it is the debtor, without being able to rely on payments made in advance. Where the principal tenant is in default, this action makes it possible to capture the occupant's rental flow directly.

The trap of tolerance and tacit approval

The landlord's weapon turns against it where it has tolerated the situation. Authorisation to sub-let may be tacit, and result from unequivocal conduct: collecting rent in knowledge of the sub-letting, correspondence addressed directly to the sub-tenant, issuing access badges, mention of the occupant in inventories of condition or service charge statements. Article L. 145-32 moreover expressly makes the sub-tenant's right to renewal against the landlord subject to an authorisation or approval given expressly or tacitly.

For an institutional landlord managing a portfolio, the risk is organisational as much as legal: the property manager who invoices, corresponds or deals with an occupant that is not the lease holder creates, unknowingly, the constituent elements of tacit approval. Three measures limit this risk: centralising correspondence in the name of the principal tenant alone, issuing a written reservation as soon as occupation by a third party is discovered, and prohibiting managers from maintaining a de facto contractual relationship with the sub-occupant.

Capturing the value: increasing the principal rent during the lease

The third paragraph of Article L. 145-31 gives the landlord an autonomous option: where the rent of the sub-letting is higher than the price of the principal lease, the owner may demand a corresponding increase in the rent of the principal lease. Failing agreement between the parties, the increase is determined under a procedure laid down by Conseil d'État decree, which refers to the litigation for fixing rent before the commercial rent judge (juge des loyers commerciaux), that is the President of the judicial court (tribunal judiciaire) or the judge he delegates.

This mechanism calls for several operational observations.

It is neither a three-yearly review within the meaning of Article L. 145-38, nor a fixing of the renewal rent within the meaning of Article L. 145-34. It is a specific procedure, based solely on the gap between sub-rent and principal rent, which is subject neither to index capping nor to the annual 10% smoothing introduced by Law No. 2014-626 of 18 June 2014, known as the Pinel law.

The increase is corresponding, that is proportionate to the gap found and, in the case of partial sub-letting, to the share of the areas sub-let. It presupposes that the landlord knows the exact amount of the sub-rent, which justifies requiring communication of the sub-lease as a condition of authorisation, and inserting in the lease an obligation of continuing disclosure of any change in the sub-rent.

The option is available only where there is an authorised sub-letting. For an irregular sub-letting, the landlord faces a choice: rely on the irregularity to terminate or refuse renewal without compensation, or regularise the situation to capture the excess rent. The two routes can hardly be combined, regularisation amounting to a waiver of the right to rely on the breach. The choice is made on the value of the asset: if the landlord wishes to recover the space to re-let it at market price or to undertake a restructuring, the sanction route prevails; if it intends to keep a solvent tenant, the financial route is preferable.

Sub-letting and renewal: the sub-tenant's direct right, rental value and lifting of the rent cap

The authorised sub-tenant's right to renewal

Article L. 145-32 of the Commercial Code governs the sub-tenant's rights. The sub-tenant may request renewal of its lease from the principal tenant to the extent of the rights that the latter itself holds from the owner: the sub-lease cannot outlive the principal lease or confer wider rights. As against the landlord, the sub-tenant's right to renewal exists only if the sub-letting has been authorised or approved, expressly or tacitly, and, in the case of partial sub-letting, if the premises let do not form an indivisible whole, physically or in the common intention of the parties.

Indivisibility is therefore, for the landlord, the second lock after authorisation. It is assessed having regard to the configuration of the premises, the existence of shared access and facilities, and above all the intention expressed by the parties. A lease clause stipulating expressly that the premises form an indivisible whole, physically and in the common intention of the parties, and that no partial sub-letting can entail divisibility, is an effective contractual protection against the emergence of a direct right to renewal in favour of the sub-tenant.

The effect of the sub-rent on the rental value

The rental value is determined according to the five elements of Article L. 145-33 of the Commercial Code: the characteristics of the premises, the permitted use of the premises, the respective obligations of the parties, local trading factors and the prices commonly charged in the neighbourhood. Sub-letting bears on two of these elements.

First, the prices charged in the neighbourhood. The sub-rent, where it has been freely negotiated between two professionals, is an indicator of what the market is willing to pay for the areas concerned. It is accepted that the amount of the sub-letting may be taken into account as an element in assessing the rental value, subject to being adjusted: the sub-rent frequently includes ancillary services, equipment, services or a short term, which make it not directly comparable with the rent of a bare commercial lease. A landlord wishing to rely on it must produce the sub-lease and isolate its property component.

Second, the respective obligations of the parties. Authorisation to sub-let granted during the lease, especially where it is general and not limited to a specific operation, modifies the contractual obligations in the tenant's favour by conferring on it a freedom of operation that it did not have. That modification may, if it is significant and has had a favourable effect on the activity carried on, justify lifting the cap on renewal on the basis of Article L. 145-34, which disapplies the capping rule in the event of a significant modification of the elements referred to in 1° to 4° of Article L. 145-33.

Building the case for lifting the cap

Lifting the cap on the basis of an authorisation to sub-let cannot be improvised at the stage of the preliminary statement (mémoire préalable). It is prepared from the moment the authorisation is granted, through a written record of the modification consented to and of its date. A landlord who, during the lease, accepts a sub-letting by letter and without formalisation deprives itself of proof of a significant modification of the parties' obligations.

Two other grounds for lifting the cap must be examined in parallel, because they are often more solid: the effective duration of the lease exceeding twelve years through tacit extension (tacite prolongation), and a contractual duration of more than nine years, both referred to in Article L. 145-34. Where several grounds coexist, the landlord's statement sets them out in order of evidentiary robustness.

Finally, smoothing must be taken into account. Where the lifting of the cap results from a significant modification of the elements of Article L. 145-33 or from the duration of the lease, the change in rent cannot lead to increases exceeding, for any one year, 10% of the rent paid in the preceding year, unless the parties expressly waive this. For a heavily sub-let asset, the effect of smoothing may make the route of Article L. 145-31 during the lease economically more attractive than waiting for renewal.

Landlord's checklist: portfolio audit and acquisition due diligence

The purchaser of a let asset inherits the sub-lettings granted, and the vendor's implied waivers. The following control points structure a lease review on this ground:

• identification, in each lease, of the sub-letting clause, its exact wording, and its possible reference in the termination clause;
• search for any notification of a sub-letting project by extrajudicial document or registered letter, and for the landlord's reply within the fifteen-day period;
• production of the sub-leases in force, their duration, permitted use and amount, with comparison to the principal rent;
• examination of correspondence and invoicing flows to detect tacit approval in favour of an occupant that is not the lease holder;
• physical report of actual occupations, signs, letterboxes and signage, compared with the declared rent roll;
• verification of consistency between the sub-tenant's activity and the permitted use under the principal lease, and of whether a change-of-use procedure has been completed;
• identification of leases whose effective duration is approaching twelve years, so as to coordinate the sub-letting strategy and the strategy for lifting the cap.

An undeclared sub-letting discovered during due diligence is not only a risk: it is a price negotiation point, and sometimes a lever to recover the space without eviction compensation, provided the chronology of formal demands is observed.

Conclusion

Sub-letting is one of the few mechanisms of the commercial lease statute in which the landlord keeps real control, on two conditions: having drafted a clause that combines prohibition in principle, written approval and reference in the termination clause, and handling any notification within the fifteen-day period of Article L. 145-31. Passivity is doubly costly here: it exposes the landlord to a tacit approval that gives the sub-tenant an enforceable right to renewal, and it loses the capture of the excess rent.

Our position, on the landlord's side, is never to treat sub-letting as a mere commercial tolerance. Each request must be the subject of an explicit choice between three strategies: refuse and sanction, authorise while capturing the excess rent through Article L. 145-31, or authorise while preparing the case for lifting the cap on renewal through the significant modification of the parties' obligations. These three routes cannot be combined, and the choice engages the value of the asset.

Before any reply to a sub-letting request, have an adviser check the exact wording of the lease clause, the date of receipt of the notification and the expiry date of the lease: it is this triptych, and not the amount of the sub-rent, that determines the lever you actually have.

Frequently asked questions

Does the landlord's silence for fifteen days amount to authorisation to sub-let? No. The fifteen-day period of Article L. 145-31 of the Commercial Code relates to joining in the deed, not to authorisation in principle. If the lease prohibits sub-letting, the landlord's failure to reply does not lift the prohibition, and the sub-letting remains irregular. On the other hand, where the sub-letting is authorised by the lease, the landlord's refusal or abstention does not prevent it: the text provides that it is passed over. The landlord nonetheless has every interest in replying within the period in order to set its conditions.

Does a sub-letting authorised by the lease dispense with calling the landlord to join in the deed? No. The obligation to call the landlord to join in appears in the second paragraph of Article L. 145-31 and applies to any authorised sub-letting. Failure to call the landlord to join in makes the sub-letting unenforceable against the landlord and deprives the sub-tenant of any direct right against it. A lease clause expressly recalling this obligation strengthens the landlord's position in the event of litigation.

Can the landlord increase the principal rent as soon as it learns of a higher sub-rent? It has this option where the sub-letting is authorised, under the third paragraph of Article L. 145-31. The increase must correspond to the gap between the sub-rent and the principal rent, adjusted where appropriate for the share of areas sub-let. Failing amicable agreement, the fixing falls to the commercial rent judge. This procedure is autonomous: it is subject neither to index capping nor to the annual 10% smoothing.

Does an irregular sub-letting allow renewal to be refused without eviction compensation? Yes, on the basis of the serious and legitimate reason in Article L. 145-17 of the Commercial Code, provided the prior formalities are observed. The landlord must serve a formal demand by extrajudicial document to put an end to the breach, and the breach must have continued or been repeated more than one month after that demand. The timetable is decisive: the formal demand must be served far enough in advance for the period to have expired and the breach to persist on the day of the notice to terminate.

Can a sub-tenant obtain renewal directly against the landlord? Only if two conditions are met within the meaning of Article L. 145-32: the sub-letting was authorised or approved by the landlord, expressly or tacitly, and, in the case of partial sub-letting, the premises let do not form an indivisible whole physically or in the common intention of the parties. An express indivisibility clause in the principal lease is the most effective protection against this risk.

Can the amount of the sub-rent be used to lift the cap on the renewal rent? It is not in itself a ground for lifting the cap. It may, however, be taken into account as an element in assessing the rental value under the prices commonly charged in the neighbourhood, referred to in Article L. 145-33 of the Commercial Code, provided that the strictly property component of the sub-rent is isolated. Lifting the cap properly so called requires a separate basis, in particular a significant modification of the parties' respective obligations resulting from an authorisation to sub-let granted during the lease, or the duration of the lease within the meaning of Article L. 145-34.

Does making premises available to a subsidiary constitute sub-letting? Yes, unless there is a clause to the contrary. The occupant's membership of the same group as the tenant does not take it outside Article L. 145-31. Only an express stipulation in the lease authorising the making available of space to related companies, with a definition of the group perimeter and an obligation to inform the landlord, secures the operation. In the absence of such a clause, the landlord may rely on the irregularity of the occupation.

Is coworking set up by a tenant in its premises a sub-letting? The characterisation depends on the reality of the occupation. If the third party has specified premises with exclusive and stable enjoyment in return for a price, it is a sub-letting, whatever the title of the contract. If the provision of services predominates and the occupant has no assigned space, characterisation as sub-letting is excluded. A report by a commissaire de justice on the actual configuration of the premises is often the indispensable first step for any action by the landlord.