Relocation compensation (indemnité de transfert)

Relocation compensation, which the Charte de l’expertise en évaluation immobilière (French property valuation charter) also calls displacement compensation, is due when the evicted tenant can carry on its business in other premises without losing its clientele. This is the case of a business whose customers come for the brand or the know-how rather than for the location: a craftsman, a wholesaler, a specialist practice, an online business with a collection point. The loss does not concern the business, which survives, but the loss of the leasehold right and the costs of moving.

The landlord has an interest in showing that relocation is possible, since article L. 145-14 allows it to prove that the loss is smaller than the value of the business. The tenant often argues the opposite. The valuer brings facts to the debate.

Where the rule comes from

Article L. 145-14 of the French Commercial Code includes in eviction compensation the normal costs of removal and reinstallation, and reserves to the owner the proof of a loss smaller than the value of the business. The Charter (Title III § 1.19) states that, if the tenant can reinstall itself and continue trading, it is awarded the value of the leasehold right for premises identical to those it leaves, in quality and floor area, together with financial compensation for the temporary loss of earnings, even if the business is loss-making or barely profitable. It lists double rent during the move among the ancillary heads.

In a valuation report

I begin by checking that relocation is feasible: availability of premises in the catchment area, suited to the activity, at a reasonable rent and within a reasonable time. I then value the leasehold right of the premises being left, and cost on quotes the removal, the reinstallation and fitting-out of the new premises, the double rent during the transition, the trading disturbance caused by the interruption or slowdown of the business, and sundry communication and administrative costs. Finally, I note whether a partial loss of clientele is to be feared despite the move, which may justify an additional head.

Example

A physiotherapy practice of 90 m² occupies commercial premises at €12,000 per year, for a rental value of €16,000. The leasehold right, with a multiplier of 4 on a gap of €4,000, is worth €16,000. Equivalent premises exist 800 metres away. I adopt: leasehold right €16,000, removal €4,500, reinstallation and fitting-out €28,000 on quotes, double rent for three months €4,000, trading disturbance €9,000, sundry costs €2,500. Relocation compensation: €64,000, against a business value that would have exceeded €150,000.

Not to be confused with

Replacement compensation, due when the business is lost, and the reinvestment allowance, an ancillary head corresponding to the costs of acquiring a replacement business or leasehold right.