Terminating a commercial lease: the rights of the owner (landlord)

A landlord who has granted a commercial lease often discovers, when wishing to recover the premises, how extensively the tenant is protected. The right to renewal, known as commercial property rights (propriété commerciale), considerably limits the owner's freedom and turns a simple wish to take back possession into a regulated, formalistic and sometimes costly procedure. Refusing renewal exposes the landlord, in principle, to payment of an eviction indemnity (indemnité d'éviction) which may exceed several years' rent. This guide sets out the landlord's real rights: the conditions on which notice may be served, when renewal may be refused without an indemnity, how the eviction indemnity is calculated, and what means of termination exist during the term of the lease.

The commercial lease statute: a landlord's freedom strictly limited

The commercial lease is governed by Articles L.145-1 et seq. of the French Commercial Code, which derive from Decree No. 53-960 of 30 September 1953 and have since been codified. This public-policy statute pursues one objective: to protect the tenant who has built up a clientele attached to the premises, which is what is called commercial property rights.

The consequence for the owner is direct. The tenant has, subject to conditions, a right to renewal of the lease on expiry (Article L.145-8). That right presupposes that the business has actually been operated during the three years preceding expiry of the lease and that the tenant owns the business operated. Where those conditions are met, the landlord may evict the tenant only within a precise framework: either the landlord refuses renewal and pays an eviction indemnity, or the landlord establishes a ground allowing it not to pay one.

Understanding this architecture is decisive. The question is never "can I recover my premises?" but "at what cost and in what form?". Contractual freedom gives way here to a protective regime which the courts apply strictly.

Notice served by the landlord: form and time limits

The commercial lease does not end automatically on reaching its term. It continues by tacit extension (tacite prolongation) for as long as neither party has served notice. To end the lease at its expiry, the landlord must therefore take the initiative of serving landlord's notice of a commercial lease and observe strict formalities.

Article L.145-9 of the French Commercial Code sets the time limits:

Leases of premises in which a business is operated end only by virtue of notice given for the last day of the calendar quarter and at least six months in advance.

The notice must therefore target the last day of a calendar quarter (31 March, 30 June, 30 September or 31 December) and observe a minimum notice period of six months. Notice that is wrongly dated or served late is ineffective: the lease then continues until the next available quarter-end.

Service by a commissaire de justice (bailiff), a non-negotiable requirement

On this point, the law draws a clear distinction between the two parties. Since Law No. 2014-626 of 18 June 2014, known as the Pinel Act, the tenant may give notice by registered letter with acknowledgement of receipt. The landlord, for its part, remains bound to serve notice by extrajudicial instrument, that is, by an instrument of a commissaire de justice (bailiff), formerly known as an huissier de justice. Notice given by the landlord by registered letter is void. That nullity deprives the owner of any effect and forces the procedure to be restarted, with the risk of losing an entire term.

The notice must also, on pain of nullity, state the grounds on which it is given and reproduce the terms of Article L.145-9, informing the tenant that it has a period in which to challenge the notice or claim an eviction indemnity. The content of the notice binds the landlord: depending on whether it offers renewal, refuses it with an indemnity or refuses it without an indemnity, the legal consequences differ radically. The formalities and time limits of notice served by the landlord are covered in detail in our guide on terminating a commercial lease by notice (renon).

Notice at the three-yearly break dates: an exceptional right

The commercial lease is concluded for a minimum term of nine years (Article L.145-4). The tenant ordinarily has a right to terminate at the end of each three-year period. The landlord, conversely, may serve notice at the three-yearly break dates only in limited, exhaustively listed cases.

Article L.145-4 reserves that right to the owner who intends to rely on the provisions relating to certain works or operations:

• to build, rebuild or raise the height of the existing building
• to reassign ancillary residential premises to housing use
• to carry out works required or authorised as part of a property restoration operation (opération de restauration immobilière)

Outside those cases, a three-yearly notice from the landlord is inadmissible. Merely wishing to take the premises back for another use, to sell them with vacant possession or to install another business there does not allow the lease to be ended before the nine years expire.

Refusing renewal by paying the eviction indemnity

The founding principle of the statute can be stated in one sentence: the landlord remains free to refuse renewal, but that refusal gives the tenant a right to an eviction indemnity. This is the mechanism encountered by the owner who wishes to recover the property without having a ground that exempts it from payment.

Article L.145-14 lays down the principle and the measure of compensation:

The landlord may refuse to renew the lease. However, save for the exceptions provided for in Articles L.145-17 et seq., the landlord must pay the evicted tenant an indemnity known as an eviction indemnity, equal to the loss caused by the failure to renew.

In other words, terminating a commercial lease as owner at the end of the contract requires no particular justification, but the absence of a ground has a price. The indemnity aims to put the tenant in the position it would have been in had the lease been renewed. It is the counterpart of commercial property rights.

Calculation of the eviction indemnity

The indemnity comprises a principal indemnity and ancillary indemnities. Two valuation methods coexist depending on the real consequences of the eviction for the business.

Where the eviction causes the business (fonds de commerce) to disappear, because the clientele is inseparably tied to the location and cannot be transferred, the principal indemnity corresponds to the market value of the business, determined according to the practice of the trade. This is the most costly scenario for the landlord and is often adopted for a retail business that depends on passing trade.

Where, on the contrary, the tenant can transfer its activity elsewhere without losing the bulk of its clientele, the principal indemnity is limited to the value of the leasehold right (droit au bail), that is, the value of the location itself. The court then adopts the lower of the two valuations, the one that compensates exactly the loss without exceeding it.

Ancillary indemnities are added to this principal indemnity: removal and re-installation costs, costs and transfer duties for the acquisition of an equivalent business, and possibly an indemnity for commercial disruption and for the loss of the right to remain in the premises. Where the amount is disputed, the commercial rent judge (juge des loyers commerciaux) generally appoints an expert. The landlord must therefore anticipate not only the principle of the indemnity but also its scale, which is regularly valued at several hundred thousand euros for a well-located business. The grounds for refusing renewal and the methods of calculating the eviction indemnity are dealt with separately in our article on non-renewal of a commercial lease.

One point deserves the owner's attention: until the eviction indemnity has actually been paid, the tenant has a right to remain in the premises (Article L.145-28). It stays in the premises and pays an occupation indemnity until payment in full. Refusing renewal therefore does not free the premises immediately.

Refusing renewal without an indemnity: the exemption cases

The landlord escapes payment of the eviction indemnity in precise cases provided for in Articles L.145-17 et seq. These exceptions are interpreted strictly and the burden rests on the landlord, who must prove the ground relied on.

Serious and legitimate grounds against the tenant

Article L.145-17 allows the landlord to refuse renewal without an indemnity if it establishes a serious and legitimate ground against the outgoing tenant. That ground relates to the tenant's wrongful conduct.

Where the ground consists in the non-performance of an obligation or in the cessation of operation of the business, a procedural safeguard applies: the breach must have continued or been repeated more than one month after the landlord's formal notice, served by extrajudicial instrument and reproducing the text of the article. The tenant thus has a last chance to regularise its position. If it does not comply, the refusal of renewal without an indemnity becomes well founded.

Serious and legitimate grounds regularly accepted include: a clear failure to maintain the premises in breach of the lease obligations, unauthorised irregular sub-letting, a change of activity without following the procedure for changing the permitted use (déspécialisation), or persistent unpaid rent. By way of illustration, a landlord faced with a tenant who has ceased all actual operation of the business for several months, or who has allowed the premises to deteriorate over time despite a formal notice that went unheeded, has solid arguments for a refusal of renewal without eviction indemnity. The seriousness of the breach is assessed at the court's sole discretion by the courts of first instance and appeal (juges du fond), who verify the reality and persistence of the breach.

Recovery of an unfit or to-be-rebuilt building

The landlord may also refuse renewal without an indemnity where the building must be wholly or partly demolished as being in a state of insalubrity recognised by the administrative authority, or where it can no longer be occupied without danger because of its condition (Article L.145-17). In those situations, the general interest in safety takes precedence over the protection of the tenant.

Other provisions allow recovery without a full eviction indemnity, sometimes subject to a reduced indemnity or a priority right of re-housing for the tenant: recovery in order to build or rebuild the existing building, recovery in order to raise its height, and recovery of ancillary residential premises in order to reassign them to housing use. Each of these mechanisms is subject to its own conditions, notably as to the works actually planned and, where applicable, the offer of replacement premises. A landlord who relies on such grounds must be able to demonstrate the reality and feasibility of its project, failing which the court recharacterises the refusal as one giving rise to an indemnity.

Terminating the lease during its term: termination clause and judicial termination

Notice and refusal of renewal concern the expiry of the lease. During the term, the landlord has two means of obtaining termination where the tenant fails to perform its obligations.

The termination clause

Almost all commercial leases contain a termination clause (clause résolutoire) providing for termination by operation of law in the event of the tenant's breach, in particular non-payment of rent. Article L.145-41 strictly governs its implementation:

Any clause inserted in the lease providing for termination by operation of law takes effect only one month after a payment demand that has remained unsuccessful. The demand must, on pain of nullity, mention that period.

The landlord must therefore have a commissaire de justice serve a demand to pay or to comply expressly referring to the termination clause. If the tenant does not regularise its position within one month, the clause is acquired and the lease terminated. The owner then applies to the court to record that the clause has taken effect and to order eviction.

This mechanism has an important qualification: the court may, at the tenant's request, grant time to pay and suspend the effects of the termination clause for as long as the tenant complies with the schedule set. The landlord therefore does not automatically recover its premises, especially where the tenant offers guarantees of payment.

Judicial termination

The landlord may also seek judicial termination of the lease for serious breach, independently of any termination clause. Unlike the clause, judicial termination leaves the court a full discretion to assess the seriousness of the breach and whether termination is appropriate. This route is useful where the breach does not fall within a ground expressly covered by the termination clause, for example failure to insure, unauthorised works or use of the premises not in line with the contractual purpose. The court may order termination, refuse it or make it subject to conditions.

The right of repentance: withdrawing a refusal of renewal

A landlord who has refused renewal while agreeing to pay the eviction indemnity may change its mind. Article L.145-58 gives it a right of repentance (droit de repentir): the owner may, until fifteen days have elapsed from the date on which the decision fixing the amount of the indemnity becomes final (force de chose jugée), avoid payment by ultimately offering renewal of the lease.

This right has two limits. Repentance is possible only if the tenant is still in the premises and has not already leased or purchased other premises for its relocation. It is a safety mechanism for the landlord who, on discovering the real amount of the indemnity fixed by the court, prefers to keep its tenant rather than bear a disproportionate burden. Once exercised, repentance is final: the lease is renewed and the landlord may no longer go back on its decision. On the interplay between payment or deposit of the eviction indemnity with a third party (consignation) and the exercise of the right of repentance, see our specific analysis.

Conclusion: plan ahead before serving notice

The law of commercial leases leaves the landlord no room for improvisation. The real difficulty is not wanting to recover premises, but choosing the appropriate legal route and measuring its cost. Notice served by registered letter is void; wrongly dated notice loses an entire term; a refusal of renewal without an exempting ground exposes the landlord to an eviction indemnity often equivalent to the value of the business. Conversely, a serious and legitimate ground properly established, supported by a regular formal notice, allows recovery without an indemnity.

The position is clear: in this litigation, mastery of formalities and evidence determines the outcome far more than the substance of the law. Before serving any notice, a prudent landlord has its situation audited: the exact nature of the breach relied on, the regularity of the formal notice, a forecast valuation of the eviction indemnity, and whether a right of repentance may be useful. In practical terms, have an adviser prepare an assessment of the potential eviction indemnity before deciding between refusing renewal and keeping the tenant: that simulation conditions the whole strategy.

Frequently asked questions

Can a landlord give notice of a commercial lease by registered letter? No. Article L.145-9 of the French Commercial Code requires the landlord to serve notice by extrajudicial instrument, that is, by an instrument of a commissaire de justice. Only the tenant may, since the Pinel Act of 18 June 2014, give notice by registered letter with acknowledgement of receipt. Notice given by the landlord by post is void and of no effect.

Can the landlord refuse renewal of a commercial lease without paying an indemnity? Yes, but only in limited cases. The landlord must either establish a serious and legitimate ground against the tenant (Article L.145-17) or fall within a particular recovery case (unfit building to be demolished, dangerous building, reconstruction). Outside these strictly interpreted exceptions, refusal of renewal gives rise to an eviction indemnity.

How is the eviction indemnity for a commercial lease calculated? The eviction indemnity compensates the loss caused by non-renewal (Article L.145-14). It comprises a principal indemnity, equal to the value of the business where the eviction causes its loss, or to the value of the leasehold right alone where the activity can be transferred. Ancillary indemnities are added: removal and re-installation costs and transfer duties. In the event of disagreement, the amount is fixed by the commercial rent judge, often after an expert's report.

Can the landlord give notice at the three-yearly break date? In principle, no. The landlord's notice may be given at the three-yearly break dates only in the cases provided for in Article L.145-4, notably to build, rebuild or raise the height of the building or to reassign residential premises. Outside those cases, the landlord must wait for the nine years to expire before serving notice.

What should be done about a tenant who no longer pays its rent? The landlord must have a commissaire de justice serve a payment demand referring to the termination clause of the lease. If the tenant does not regularise its position within one month, the clause is acquired and the landlord may apply to the court to record the termination and order eviction. The tenant may, however, ask the court for time to pay suspending the effects of the clause.

Must the tenant leave the premises as soon as refusal of renewal is notified? No. Until the eviction indemnity has been paid in full, the tenant has a right to remain in the premises (Article L.145-28). It stays in the premises, paying an occupation indemnity until the eviction indemnity is actually settled. The landlord therefore recovers physical possession of the property only after payment.

Can the landlord withdraw its refusal of renewal? Yes, by virtue of the right of repentance provided for by Article L.145-58. The landlord may renounce evicting the tenant and offer renewal until fifteen days after the decision fixing the eviction indemnity has become final. This right presupposes that the tenant is still in the premises and has not already leased or purchased other premises. Once exercised, repentance is irrevocable.