A let property, sub-let by its tenant, is transferred by amicable sale (cession amiable, a transfer agreed with the acquiring body instead of a court order) to a developer for a project declared of public utility. The developer asks the expropriation judge (juge de l’expropriation, the civil judge who sets compensation) to set the tenant’s eviction compensation (indemnité d’éviction); the sub-tenant, claiming its own, is told that the sale extinguished its rights. In a reported decision of 16 June 2016, the Third Civil Chamber of the Cour de cassation (the French supreme court for civil and commercial matters) held on the contrary that “the extinction of the rights in rem and in personam existing over the property transferred gives the holders of those rights a right to compensation” (translated from the French). For the valuer, each occupier whose right disappears represents a separate compensation, quantified on its own loss.
The facts
Property belonging to an owner, needed for a project declared of public utility, was transferred by amicable sale to a development company, Marseille Aménagement, to whose rights the municipality of Marseille has succeeded.
The developer applied to the expropriation judge to set the eviction compensation due to the tenant of the property, a company. Another company intervened voluntarily in the proceedings, as sub-tenant, to claim eviction compensation as well.
By a ruling of 5 March 2015, the Aix-en-Provence Court of Appeal dismissed the sub-tenant’s claim. It held that articles L. 13-2 and R. 13-15 of the Expropriation Code (code de l’expropriation pour cause d’utilité publique) did not apply; that an owner who has agreed to an amicable sale is not required to disclose their tenants, nor the acquiring body to notify them of the sale; that it was not established that the developer knew, at the time of the sale, of the sub-lease granted by the tenant; and that the sale had extinguished all the sub-tenant’s rights, so that it could not rely on the failure to carry out those formalities. That ruling was appealed.
The decision
The Cour de cassation quashed the ruling, but only in so far as it dismissed the sub-tenant’s claims (Cass. 3e civ., 16 June 2016, appeal no. 15-18.143, reported). It ruled on the first and second grounds of appeal together, under article L. 12-2, now L. 222-2, of the Expropriation Code.
The Court faulted the Court of Appeal for ruling as it did “whereas the extinction of the rights in rem and in personam existing over the property transferred gives the holders of those rights a right to compensation”: the Court of Appeal, “which gave effect to a forfeiture provided for by provisions it had declared inapplicable”, “breached the above-mentioned article”.
The reasoning rests on two propositions. The first is a principle: the extinction of the rights over the property transferred carries a right to compensation, and the wording covers all holders of rights in rem (over the property itself: usufruct, easement) and in personam (arising from a contract: lease, sub-lease, occupation agreement), without distinguishing the tenant from the sub-tenant. The second is consistency: having held inapplicable articles L. 13-2 and R. 13-15, under which the formalities of disclosing tenants and notifying the sale fall, the Court of Appeal could not deprive the sub-tenant of compensation as if the forfeiture (déchéance) provided for by those texts, that is, the loss of the right to compensation of an occupier who has not made itself known to the acquiring body, applied.
The Court set no amount: it remitted the case to the Aix-en-Provence Court of Appeal, differently composed, which is to rule again on the sub-tenant’s claims. The ruling says nothing about whether the sub-lease was regular under the head lease, nor about how the compensation is calculated.
What this changes for valuation
The amicable price does not settle the occupiers’ rights. An amicable sale agreed after the declaration of public utility (déclaration d’utilité publique, DUP, the administrative decision that authorises compulsory purchase) clears the property of the rights that burdened it. The ruling of 23 September 2020, discussed in the article on the amicable sale after a declaration of public utility, recalls that such a sale produces the effects of the expropriation order (ordonnance d’expropriation, the court order transferring ownership) and extinguishes at its date any right in rem or in personam over the property, while remaining a private-law contract of sale. That more recent decision does not go back on the 2016 one: it confirms the extinctive effect to which the 2016 ruling attaches a right to compensation. The price agreed with the owner pays for the owner’s property; it does not settle the position of the occupiers, whose compensation is set separately and adds to the cost of acquisition.
Listing every right holder before any figure. As the ruling was quashed even though the developer’s knowledge of the sub-lease had not been established, the report begins with an inventory of the occupiers: head lease and amendments, sub-leases, occupations granted without a lease. A free, precarious permit still in force has itself given a right to compensation, as the article on the precarious occupier and compulsory purchase shows. The report also records the sub-tenant’s title: deed, date, term, floor area, permitted use, the authority to sub-let, whether given by the lease or by the landlord.
Compensation specific to the sub-tenant. The Expropriation Code requires compensation for the whole of the direct, material and certain loss caused by the expropriation (article L. 321-1). For a sub-tenant, that loss is as a general rule measured within the framework of the head lease, which limits the term and the permitted use of the sub-lease. The valuer then establishes whether the business can relocate or disappears, a decisive question according to the article on compulsory purchase of a regulated business: removal and reinstallation costs, loss of clientele and trading disruption in the first case, the value of the business (fonds de commerce, the business as a going concern) in the second, quantified on the sub-tenant’s accounts.
Two compensations that do not overlap. The head tenant loses, where relevant, what it operates itself and the income from the sub-lease; the sub-tenant loses its business on the premises. The report presents the two losses separately, so that neither is counted twice or left out.
What the valuer takes from it
- An amicable sale after a declaration of public utility extinguishes the rights in rem and in personam over the property; that extinction gives their holders a right to compensation, sub-tenant included.
- A court that sets aside the texts on disclosing tenants cannot apply the forfeiture they provide for, even where, as here, the developer’s knowledge of the sub-lease is not established.
- The report first lists every occupier of the property transferred and the title of each.
- The sub-tenant’s compensation is quantified on its own loss, within the framework of the head lease, according to whether the business relocates or disappears.
- The amicable price paid to the owner and the occupiers’ compensation are separate items.
Further reading
The Compulsory purchase and pre-emption page describes the assignment, its timescale and its fee. The guide My business premises are compulsorily purchased and the glossary entries indemnité d’éviction, déclaration d’utilité publique and juge de l’expropriation complement this article. Two other 2016 rulings, on lost added value, are discussed in Annulled compulsory purchase: lost added value when return fails and Pre-empted land resold: no lost added value for the seller. On the same theme: Amicable sale after a public utility declaration: still a sale and Compulsory purchase of a regulated business: proving relocation. The decision is available on Légifrance.
What next
Tenant or sub-tenant of premises sold amicably for a public project?
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