A company leases commercial premises for a caterer, restaurant and bar business, but the waste-water drainage system is inadequate for that use. The lease is annulled, and the landlord claims, in the alternative, an occupation indemnity (indemnité d’occupation, the sum owed for occupying premises without a valid lease). In a reported decision of 3 November 2021, the Cour de cassation (the French supreme court for civil and commercial matters) held that this indemnity is the consideration for the enjoyment of the premises: without enjoyment of premises fit for their contractual use, nothing is owed.
The facts
An SCI (société civile immobilière, a French property-holding company) let commercial premises to a company, then served on it a formal demand to pay the rent, invoking the termination clause, a first step towards terminating the lease for non-payment. The tenant sued to oppose the demand, to have the French commercial lease (bail commercial) annulled and to be compensated for its loss. On appeal, the landlord in turn claimed, in the alternative, an occupation indemnity.
The lease having been annulled, the Paris Court of Appeal, on 27 May 2020, found the landlord at fault for granting a lease over premises unfit for their purpose without warning the tenant of the inadequacy of the waste-water drainage system for the use provided for in the lease. It assessed the tenant’s loss at €130,000, taking into account a €100,000 loan intended to finance the fit-out, improvement and repair works of the business (fonds de commerce). Conversely, it ordered the tenant to pay €37,000 to compensate the landlord’s loss of use of the premises until 21 March 2016, the date on which they were returned: it mattered little, in its view, that the tenant could not trade, since the landlord was deprived of the use of its property until the keys were handed back.
Both parties appealed. The landlord argued that only expenditure actually incurred counted, the tenant having in its view proved only €6,298.33 excluding VAT. The tenant argued that it owed no occupation indemnity for premises that could not be used for trading.
The decision
The Third Civil Chamber partly quashed the judgment (Cass. 3e civ., 3 November 2021, appeal no. 20-16.334, reported).
The occupation indemnity. Under article 1304 of the French Civil Code, in its wording prior to Order no. 2016-131 of 10 February 2016, the Court held that “where a lease is annulled for a reason unrelated to the tenant’s conduct, the occupation indemnity represents the consideration for the enjoyment of the premises” (translated from the French). It went on: “Consequently, if the tenant did not enjoy premises in keeping with their contractual use, it is not liable to pay an occupation indemnity.” By ruling as it did “whereas it had found that the landlord had granted a lease over premises unfit for their contractual use”, the Court of Appeal “did not draw the legal consequences of its own findings” and breached the provision cited.
The damages. Under article 1382, now 1240, of the Civil Code and the principle of full compensation for loss, the Court recalled that “damages awarded to a victim must make good the loss suffered, without any loss or profit resulting for the victim”. By taking the €100,000 loan into account “without examining, as it had been invited to, the amount of the expenditure financed by the loan”, the Court of Appeal failed to give a legal basis for its decision.
The quashing covers the €130,000 and the €37,000, with remittal to the Paris Court of Appeal, differently composed; the Court set no figure.
What this changes for valuation
The indemnity is the consideration for the enjoyment received, not for the deprivation suffered. The Court of Appeal reasoned from the side of the landlord, deprived of the use of its property; the Cour de cassation reasons from the side of the tenant, and of what it got out of the premises. Premises unusable for the purpose set in the lease provided no enjoyment in keeping with that purpose, and holding the keys changes nothing. Before any figures, the valuer therefore establishes what the premises really allowed: was the agreed use possible, from when, which equipment was missing. These findings, supported where needed by a technical specialist’s opinion, decide whether the indemnity exists at all.
A regime distinct from the statutory indemnity. The indemnity under article L. 145-28 of the Commercial Code, owed by a tenant holding over after a refusal to renew, is set according to rental value, without the rent cap, as another reported decision of 2021 held (the article on the tenant holding over). After an annulment, the question is different: what enjoyment did the tenant receive? The report states on which basis it quantifies.
Where enjoyment was real, it must be paid for. In a more recent reported decision of 21 May 2026, given under former article 1304 among other provisions, the Cour de cassation held that the landlord of a restaurant on public land, lease annulled, could claim restitution in value of the actual enjoyment it had provided, even though it did not own the property (the lease over public land). The two decisions fit together without contradiction: what is paid for after annulment is the enjoyment actually provided, absent in 2021, real in 2026. For an annulled sale, the decision of 9 April 2026 follows a similar logic by making the buyer pay the value of the enjoyment of the house (the concealed foundation works case).
Partial use, a point left open. The decision does not say whether an ancillary use of the premises, such as storage, calls for a reduced indemnity or none: the Court did not have to consider it. If a party relies on it, the report describes and dates it, and leaves its legal characterisation to the judge.
Loss is measured on expenditure, not on borrowing. A loan finances expenditure; it does not measure it. The Court did not rule on the €6,298.33 excluding VAT put forward by the landlord: it faulted the Court of Appeal for not examining the amount of the expenditure financed by the loan. The report therefore starts from invoices and payments, works, equipment, repairs, each tied to a document, then reconciles them with their financing. This is the principle of full compensation, with neither loss nor profit, which the Court also applies to a fire-damaged building that cannot be rebuilt on site.
What the valuer takes from it
- After a lease is annulled for a reason unrelated to the tenant, the occupation indemnity is the consideration for the enjoyment of the premises, not compensation for the landlord’s deprivation.
- Premises unfit for their contractual use give rise to no occupation indemnity, even if the tenant kept the keys.
- The report first establishes what the premises really allowed, and from when.
- This indemnity is not the same as that of the tenant holding over, set according to rental value.
- The tenant’s loss is measured on the expenditure actually financed and documented, not on the amount of the loan.
Further reading
The Commercial rent and leases page describes the assignment, its timescale and its fee. The guide Producing a valuation in a French court: which format to choose? and the glossary entries indemnité d’occupation, bail commercial and perte de jouissance complement this article. On the tenant holding over: Occupation indemnity: rental value applies, rent cap does not. On the same theme: Lease over public land: void, but the use must be paid for and Fire: works costing more than the premises, lease terminated. The decision is available on Légifrance.
What next
A lease annulled, and an occupation indemnity claimed for premises that could not be used?
I establish what the premises really allowed, from which dates, and whether they provided enjoyment in keeping with their contractual use. The report also separates the tenant's documented expenditure from its financing, for the landlord, the tenant or their lawyer.
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