French Leaseback

Adagio Marseille Saint-Charles lessors win their case

The case concerns a dispute between several owners of the Adagio Marseille Saint-Charles residence and the société par actions simplifiée PV HOLDING, now PV-CP CITY, over unpaid rents for the years 2020 and 2021, during the COVID-19 crisis.

The dispute

The plaintiffs are individual owners of the Adagio Marseille Saint-Charles residence. They claim payment of unpaid rent from PV HOLDING/PV-CP CITY, which claimed to be unable to operate the premises due to government measures related to the pandemic.

Judgment

The court ruled that PV HOLDING’s claims were unfounded, pointing out that PV-CP CITY was PV HOLDING’s successor in terms of commercial lease obligations. The court also rejected the arguments of loss of the leased property and exception of non-performance put forward by the defense.

Reasons for the decision

1 Partial loss of the leased property (article 1722 of the French Civil Code)

The court rejected the argument that the impossibility of operating the premises due to government measures constituted a partial loss of the leased property. It was specified that the loss must be definitive, which was not the case here since use of the premises was temporarily suspended but not destroyed.

2 Exception of non-performance (article 1219 of the French Civil Code)

PV-CP CITY cannot invoke the exception of non-performance, since the restrictive measures were external and independent of the lessors, and the premises were still available for use.

Lack of proof of a partial contribution to exclude PV HOLDING from liability

The court ordered PV-CP CITY to pay the rent arrears, specifying the amounts due to each plaintiff, and rejected the claims of PV HOLDING, which had not proved that it had been exonerated by a partial contribution agreement.

56,328 € in covid rents

On April 11, 2024, the Marseilles Magistrates’ Court ordered a PIERRE ET VACANCES company to pay a total of €56,328 in unpaid covid rents to the lessors of the Adagio Marseilles Saint-Charles tourist residence.

11,040 in legal fees

The judges ordered PIERRE ET VACANCES to pay €11,040 in legal fees (23 lessors x €480).

67,368 in total condemnation

The operator must make a total payment of €67,368.

Provisional enforcement

In accordance with article 514 of the French Code of Civil Procedure, the decision is enforceable on a provisional basis.

Abusive resistance by the operator

It is difficult to understand the obstinacy of PIERRE ET VACANCES group companies in the matter of covid rents since the Court of Cassation rulings of June 30, 2024. Court dockets have been clogged since the covid years.

Feel free to ask us any questions you may have, free of charge, using the contact form at the bottom of the page.

Adagio Paris Tour Eiffel: lessors join forces

The lessors of the Adagio Paris Tour Eiffel tourist residence have formed a group to prepare for commercial lease renewals in 2025-2026, with the PIERRE ET VACANCES group ( Pv Cp City after Pv Holding and Residences Resorts France).

At the time of the last renewal, a majority of lessors defended their interests before the Commercial Rents Judge.

Many lessors who renewed their leases directly with the operator joined our group to obtain a better commercial rent.

Feel free to ask us any questions you may have, free of charge, using the contact form  at the bottom of the page.

How much costs the eviction ?

Residence Nexity Studea Clichy: The judgment handed down on July 1, 2024 by the Nanterre judicial court concerns a dispute between NEXITY STUDEA and a lessor.

Summary of facts and decision: eviction compensation for the Nexity Studea Clichy residence.

Background to the Nexity Studea Clichy residence

In 2008, Mr B M leased premises to LAMY RESIDENCES (now NEXITY STUDEA) for a student residence. 2010 M. A purchased the premises in 2010. In 2017, Mr. A refused to renew the lease and proposed an eviction indemnity. The parties have not reached agreement on the amount of this indemnity for the Résidence Nexity Studea Clichy apartment.

Legal proceedings: expert appraisal and main proceedings

NEXITY STUDEA sued Mr. A for payment of the eviction indemnity. In 2021, the court confirmed that NEXITY STUDEA was entitled to eviction compensation and ordered an expert appraisal to determine the amount. The expert, Ms. BACOT-REAUME, estimated the eviction indemnity at 15,549 euros and the annual occupancy indemnity at 5,500 euros.

Claims by the operator of the student residence and the lessor of the Nexity Studea residence

– NEXITY STUDEA claimed 34,045.83 euros in eviction compensation.

– Mr. A requested judicial termination of the lease or eviction compensation set at 13,479.30 euros for the apartment in the student residence in Clichy.

Court ruling on eviction compensation

The court rejected the request for judicial termination of the lease on the student residence property.

– It set the eviction compensation at 13,549 euros, including :

– 12,673 euros for the main indemnity,

– 180 euros for the commercial disturbance,

– 696 euros for unamortized work.

It rejected the claims for ancillary compensation that were not supported by sufficient evidence.

– The occupancy indemnity payable by NEXITY STUDEA was set at 5,396 euros per year, from October 1, 2017, until the premises are vacated.

– Costs, including expert fees, will be borne equally by each party.

Feel free to ask us any questions you may have, free of charge, using the contact form at the bottom of the page.

Information on eviction compensation for purchasers

Information on eviction compensation is governed by the French Tourism Code, although this information for purchasers of tourist residences remains unsatisfactory.

Article L321-3 of the French Tourism Code stipulates that marketing documents distributed to purchasers of accommodation in tourist residences referred to in article L. 321-1 of the present code must explicitly mention the existence of the right to the so-called eviction indemnity provided for in article L. 145-14 of the French Commercial Code in the event of refusal to renew the lease, as well as the general terms and conditions for its calculation.

Article L321-3 of the French Tourism Code imposes specific obligations concerning transparency and information for purchasers of accommodation in tourist residences. Here are the key points to bear in mind.

Transparency obligations of tourist residence marketers

1°) Marketing documents: mandatory information for purchasers

Marketing documents, such as brochures or prospectuses, which are given to potential purchasers of accommodation in tourist residences, must include certain mandatory information.

2°) Information on eviction compensation: mention of the right to eviction compensation:

– Documents must explicitly mention the right to eviction compensation.

– This indemnity is provided for in article L. 145-14 of the French Commercial Code, applicable in the event of refusal by the lessor to renew the commercial lease.

3°) Calculation of eviction compensation:

– The documents must also include the general terms for calculating this eviction indemnity.

– This generally includes the market value of the business, moving and relocation costs, and other elements that could compensate for the damage caused by the non-renewal of the commercial lease in a tourist residence.

Importance of this obligation to inform the purchaser

1°) Protection of purchasers of tourist residences:

This obligation aims to protect purchasers by providing them with full and accurate information on their rights, particularly in the context of real estate investments in tourist residences.

2°) Theoretical prevention of disputes:

By requiring purchasers to be informed of their right to an eviction indemnity, article L321-3 of the French Tourism Code contributes, in theory, to preventing disputes between lessors and lessees by clarifying rights from the outset in the event of non-renewal of the lease.

Legal background

1°) Definition of a tourist residence:

Tourist residences are classified establishments offering furnished accommodation for tourists. They are subject to specific regulations, notably concerning commercial leases.

2°) The right to eviction compensation under commercial lease law:

Article L. 145-14 of the French Commercial Code, to which article L321-3 refers, concerns commercial leases and the conditions under which an eviction indemnity is due when the lessor refuses to renew the lease without legitimate grounds.

In short, article L321-3 of the French Tourism Code enhances transparency and information for purchasers of accommodation in tourist residences, by clearly informing them of their rights to eviction compensation and the terms and conditions for calculating such compensation. This will help to better protect the interests of investors in this specific real estate sector.

Feel free to ask us your question free of charge using the contact form at the bottom of the page.

Arguments in favor of the legality of eviction compensation waiver clauses

1. Tourism residences and eviction compensation clauses: the context

Eviction indemnity waiver clauses in commercial leases often provoke debate because of their potential impact on the tenant’s rights. However, it is possible to support their legality by relying on sound legal principles, such as freedom of contract and the informed consent of the parties.

2. The principles of freedom of contract and party autonomy

Freedom of contract, a fundamental principle of the law of obligations, is enshrined inarticle 1102 of the French Civil Code. This principle enables the parties to freely negotiate and adopt the clauses of their contract, subject to compliance with the mandatory provisions of the law. Article 1102 of the Civil Code states: “ Everyone is free to contract or not to contract, to choose his or her co-contractor and to determine the content and form of the contract within the limits set by law. Contractual freedom does not permit derogation from rules of public policy.

In this context, the waiver of eviction compensation clause can be considered as an expression of this freedom, as long as the tenant is fully aware of his rights and makes an informed waiver.

3. Informed consent as a guarantee of the residence operator’s rights

For the waiver of eviction compensation to be lawful, it is essential that the lessee (the commercial tenant) has given his or her informed consent. This consent must be free, informed and not the result of a manifest imbalance of power between the parties. The validity of this clause therefore depends on the transparency of the negotiations and the tenant’s understanding of the implications, in this case the operator of the tourist or student residence.

The lessee’s status as a professional in the management of commercial leases in the context of the operation of tourist or student residences must be taken into account when assessing the lessee’s informed consent.

Moreover, in practice, the professional has had his entire commercial lease drafted by a notary or lawyer. He is therefore the co-drafter of the deed.

Jurisprudence has ruled that the validity of these clauses must be clear and unequivocal.

4. real and serious consideration

The legality of an eviction indemnity waiver clause may be strengthened by the presence of real and serious consideration for the lessee. For example, the lessor may offer a reduced rent, a free period, or other benefits in exchange for this waiver. This quid pro quo makes it possible to maintain a contractual balance and justify the lessee’s waiver of his right to compensation.

5. Respecting the economic logic of the parties

In certain situations, the waiver of eviction compensation may reflect an economic rationale that is well understood by both parties.

For example, the tenant may prefer to waive his right to compensation in return for an immediate advantage, or to secure the continuation of his business under favorable conditions. This contractual flexibility makes it easier to respond to market realities and the specific needs of both parties.

6. Promote harmonious commercial relations

By allowing the parties to negotiate freely the waiver of eviction compensation, the law encourages harmonious and lasting commercial relations. Lessors may be more inclined to grant concessions to lessees, knowing that they can negotiate advantageous terms in return for waiving the indemnity. This encourages a climate of trust and cooperation that benefits both parties.

Conclusion

The legality of eviction indemnity waiver clauses is based on sound legal principles, notably freedom of contract and the informed consent of the parties. As long as such clauses are negotiated transparently, with adequate consideration and without manifest imbalance, they can be considered lawful. They offer the contractual flexibility needed to adapt commercial relations to economic realities, while respecting the legitimate interests of both parties. As a result, far from undermining the tenant’s rights, these clauses can contribute to the fluidity of contractual relations and the economic vitality of the commercial lease market.

Feel free to ask us any questions you may have, free of charge, using the contact form at the bottom of the page.

The lessor’s right to change his mind

Article L145-58 of the French Commercial Code, in its version in force since September 21, 2000, is of particular importance in the context of commercial leases, in that it offers the landlord a mechanism for avoiding payment ofeviction compensation while respecting the tenant’s rights.

Background and issues

When a commercial lease expires, the tenant is in principle entitled to renew the lease, provided certain conditions are met. If the landlord refuses to renew the lease without a legitimate reason, he is obliged to pay the tenant an eviction indemnity. This indemnity is intended to compensate the tenant for the loss of his business or the need to relocate.

The right to avoid payment of compensation

Article L145-58 of the French Commercial Code introduces a possibility for the owner to avoid payment of this indemnity, by agreeing to renewal of the lease after the event. This possibility is subject to strict conditions:

1. Exercise period

The owner has fifteen days from the date on which the court decision confirming the refusal to renew and the amount of the eviction indemnity becomes final. This means that the decision must be final, with no possibility of appeal.

2. Costs of proceedings

In deciding to avoid paying eviction compensation, the owner must bear the costs of the legal proceedings. This measure is designed to dissuade the landlord from wrongfully refusing to renew, while offering a way out if the burden of compensation proves too heavy.

3. Consent to lease renewal

The landlord must agree to renew the commercial lease. If the parties are unable to agree on the conditions of renewal, these will be set by the judge in accordance with the regulatory provisions in force, often based on market conditions and the specific features of the initial contract.

Requirements

The exercise of this right is subject to two major conditions, designed to protect the tenant’s interests:

1. The tenant must still occupy the premises

If the tenant has already left the rented premises, for example because of the initial refusal to renew, the landlord can no longer exercise this right. This prevents the landlord from imposing a lease renewal after the tenant has taken steps to relocate his business.

2. Tenant must not have re-let or purchased another building

If the tenant has already signed a lease or purchase agreement for another property with a view to relocating his business, the landlord loses his right to eviction compensation. This condition is designed to prevent the tenant from finding himself with two simultaneous real estate commitments, which could cause him significant financial prejudice.

Purpose of article L145-58 of the French Commercial Code

The aim of this article is to strike a balance between the rights of the tenant and those of the landlord. On the one hand, it protects the tenant against abusive refusal to renew by providing for compensation in the event of non-renewal. On the other, it offers landlords an alternative to avoid such compensation, provided that the tenant is not already committed to a new installation.

This provision is in line with economic pragmatism, enabling the parties to find common ground even after a court decision. It thus encourages negotiation and the preservation of the tenant’s business activity, while taking into account the landlord’s financial imperatives.

This rule plays a crucial role in the management of commercial lease disputes, offering a potentially favorable outcome for both parties, subject to compliance with the precise conditions it lays down.

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The notice must be delivered by a bailiff

Notice for your French leaseback

Notice of termination of a commercial lease must be given by a bailiff.

A January 24, 2024 ruling by the Paris judicial court (18th chamber, 2nd section) illustrates this point once again. The recipient of the notice, in this case the lessee, does not need to prove the existence of prejudice.

Failure to comply with legal formalities is sufficient to invalidate the notice.

In this case, the acknowledgement of receipt of the notice given by registered letter is not sufficient to give it the legal effects of a valid notice.
As a reminder, the lessee has two years in which to contest the validity of the notice by a bailiff.

The court has ruled:
“On the validity of the notice given by Mr [O] [H] [Z] and Mrs [F] [K] by registered letter with acknowledgement of receipt dated February 10, 2020
Under the terms of article L. 145-9 paragraph 5 of the French Commercial Code, the notice of termination issued by the lessor must be given by extrajudicial deed. It must, under penalty of nullity, specify the reasons for which it is given and indicate that the tenant who intends either to contest the notice or request payment of an eviction indemnity, must bring the matter before the court before the expiry of a two-year period from the date for which the notice was given”.
The notice must be given by extrajudicial deed, and failure to comply with this imperative formality is sanctioned by the nullity of the notice at the request of the lessee, who is not required to prove any prejudice in this respect.
In the case in point, although they wrote in their registered letter dated February 10, 2020: “We are giving you notice of termination of the commercial premises by bailiff’s deed dated 10/02/2020, with refusal to renew the commercial lease with effect from 08/31/2020”, Mr [O] [H] [Z] and Mrs [F] [K], who are in default in the present proceedings, do not prove that they gave notice of termination by extrajudicial deed, the existence of which is disputed by OHLE. In his reply dated March 4, 2020, the lessee wrote: “We take note of your decision, but have serious doubts about the legal validity of the form of your notice”.
OHLE having contested the validity of this notice within the two-year period following its delivery by a writ of summons delivered on February 4, 2022, it should be noted that the notice given by letter by the lessors does not meet the imperative formal conditions set out in article L. 145-9 of the French Commercial Code, and must therefore be declared null and void.”
Tribunal judiciaire, Paris, 18th chamber, 2nd section, January 24, 2024 – n° 22/01721

If you need to give notice of your French leaseback, please feel free to ask our firm any question you might have.

French Leaseback : Is my commercial lease over ?

End date doesn’t mean end of the lease with the operator

Is the end date of the lease the end of the issues with the operator (lessee) ?

The expiry of a commercial lease does not automatically mean that it is no longer in force. The lessor/owner of a tourist/student residence is not “without a lease” or free of any obligation to the operator/tenant of the premises.

It means that the landlord cannot reclaim his property once this date has passed.

There are two possible scenarios: 1. the operator leaves and the apartment is vacated without compensation; 2. the tenant stays and the landlord must pay him compensation for eviction, continue the old contract or sign a new one.

Moreover, the parties are not in a “legal vacuum”. All the clauses of the old commercial lease remain in force, in particular those relating to rent, charges and works.

These complex rules may seem counter-intuitive to those unfamiliar with commercial lease law. Worse still, it is rare for marketers of tourist/student accommodation to explain these specific rules to prospective owners who will discover them 9 or 18 years later.

Please, feel free to ask us any questions.

End of the leaseback in the French Alps

Lessors/Landlords of a leaseback in the French Alps wishing to terminate the commercial lease of an operator must have a bailiff issue a notice of termination.

At the end of the notice period, the operator must return the keys to the owners, after payment of an eviction indemnity, unless the tenant has waived the eviction indemnity subsequent to signing the commercial lease.

The turnover method is often used to determine the eviction compensation. In the case of a tourist residence in the mountains, case law applies special coefficients for that kind of leasebacks.

How to calculate eviction damages ?

The turnover method

The Chambéry Court of Appeal is the main source of the case law applied to leaseback in the French Alps.

The Chambéry Court of Appeal applied the following coefficients to a tourist residence in a uniquely well-known ski resort (Pierre et Vacances Avoriaz):

– a coefficient of 0.7 of turnover. 

The Chambéry Court of Appeal used the following coefficient to assess eviction compensation for a chalet in the Le Village Gaulois tourist residence in the Saint François Longchamp ski resort (73130):

– a ratio of 1.2 of turnover.

The EBITDA method

The Chambéry Court of Appeal applied the following coefficients to a leaseback in the Alps in a uniquely well-known ski resort (Pierre et Vacances Avoriaz):

– a coefficient 8 applied to EBITDA. 

(Court of Appeal, Chambéry, Civil Division, 1^re section, March 20, 2018 – n° 14/00392)

The Chambéry Court of Appeal applied the following coefficients to a tourist residence in a ski resort with a unique reputation (Eurogroup, Macot la Plagne):

– a coefficient 6 applied to EBITDA.

(Court of Appeal, Chambéry, Civil Division, 1^re section, December 4, 2018, n°17/00978)

Concerning the valuation of the eviction indemnity for a chalet in the Le village Gaulois tourist residence in the Saint François Longchamp ski resort (73130), the court appointed expert used the following coefficient:

– 6 EBITDA

(expert report dated September 23, 2022 before the Albertville court)

Our law firm is representing owners in the following leasebacks properties in the French Alps:

1. L’orée des neiges, Vallandry, CGH
2. Hameau du glacier Les Arcs, Adagio Pierre et vacances
3. Le Quartz La Plagne, Pierre et vacances
4. Refuge du montagnard Les Arcs, Adagio Pierre et vacances
5. Le village Gaulois à Saint François Longchamp, Goelia
6. Douchka Avoriaz, Adagio Pierre et vacances

Please feel free to ask us any question regarding a leaseback in the French Alps.

On August 28, 2023, Pierre et Vacances (PV CP CITY) was ordered by the Nanterre judicial court to pay 43,845 euros to 31 lessors (41,845 euros in unpaid rent and 2,000 euros in article 700 CPC) of the Adagio Vanves Gare tourist residence.

1°) Adagio Vanves: a decision applying the case law of the Cour de cassation (French Supreme Court)

The court once again rejected the arguments put forward by the operator of the Adagio Vanves tourist residence, in line with the June 2022 ruling of the French Supreme Court (Cour de cassation). The exception of non-performance and force majeure invoked by the operator of the Adagio Vanves residence were rejected with regard to rents for the covid periods (2020 and 2021).

Europe’s leading group of tourist residences had benefited from substantial public subsidies, including a so-called “closure” grant.

Lastly, the court rejected the operator’s request for payment deadlines in the following terms:

“In the present case, although the lessee can justify the drop in sales he suffered during the years 2020 and 2021, i.e. during the period of the health crisis, he cannot justify his current financial situation.

The court is therefore not in a position to assess whether the lessee’s financial situation, and in particular its cash flow, requires it to be granted a payment moratorium and, should such a moratorium be granted, whether it would be in a position to clear the rental arrears while continuing to pay the current rents.

It should also be borne in mind that the plaintiffs themselves have to pay off the loans taken out to acquire the leased premises.

Consequently, PV-CP CITY’s request for a payment extension should be rejected.

The lessors of the Adagio Vanves Gare tourist residence can congratulate themselves on their patience.

2°) Individual lessors forced to advance cash

In this case, the operator postponed the amicable request and the proposal for a negotiated solution, and above all benefited from a de facto deferral of the obligation to pay rent for several years from 2020.

The role of individual lessors who have saved for their retirement and continue to make monthly loan payments despite the health crisis is not to substitute banking institutions for short-term loans free of charge for the sole benefit of the PIERRE ET VACANCES group.

This situation is all the more unacceptable as GROUPE PIERRE ET VACANCES is announcing to its shareholders a cash position of 510 million euros in January 2021 and 450 million in September 2020.

(PIERRE ET VACANCES communication at the Annual General Meeting on February 1, 2021).

This means that GROUPE PIERRE ET VACANCES has built up a “cash position” at the expense of individual lessors, who have invested their savings in its residences.

The lessors have executed the stipulations of the commercial lease in good faith, and have sought the intervention of the courts to ensure that the operator is finally forced to pay the outstanding commercial rents.