A landlord refuses to renew the lease of a shop in a shopping centre and offers eviction compensation (indemnité d’éviction, the compensation a French commercial tenant receives when renewal is refused). The tenant relocates to premises of equivalent size, for the same business, at a lower rent and without key money. The Paris court of appeal concludes that the leasehold right lost is worth nothing: no “rent differential”, so no main compensation, only ancillary heads. The Cour de cassation (the French supreme court for civil matters), on 13 October 2021, in a reported decision, quashed: eviction compensation “must be set taking into account the value of the leasehold right of the premises from which the tenant is evicted, which is an element of the business”. Comparing the two rents is not enough; the leasehold right of the premises left must be valued. For the valuer, the ruling fixes the object of the valuation and rules out a common shortcut.
The facts
IMFRA, owner of commercial premises in a shopping centre, lets them to MIM. It serves notice refusing renewal and offering eviction compensation. MIM relocates to other commercial premises, then sues its former landlord to have the compensation set.
The Paris court of appeal, on 27 May 2020, holds that the value of the leasehold right is nil and limits the compensation to ancillary heads, 127 971 €. Its reasoning: where the tenant has actually relocated to equivalent new premises before the compensation is set, the rental cost of those premises must be taken into account; here the rent of the transfer premises is lower than that of the premises left, the new lease allows the same business in an equivalent area, without key money; there is therefore “no positive rent differential”. MIM’s liquidators appealed to the Cour de cassation.
The decision
The third civil chamber quashed, under article L. 145-14 of the Commercial Code (Cass. 3e civ., 13 October 2021, no. 20-19.340, reported). It recalls the text: eviction compensation “must be equal to the loss caused by the refusal to renew” and “includes in particular the market value of the business, determined according to the customs of the trade, increased where applicable by the normal costs of removal and reinstallation, as well as the costs and transfer duties payable for a business of the same value, unless the owner proves that the loss is smaller”. Then it states the rule: “Eviction compensation must be set taking into account the value of the leasehold right of the premises from which the tenant is evicted, which is an element of the business.”
By holding the value nil on the sole ground that there was no positive differential between the rent of the relocation premises and that of the premises left, “without taking into account the value of the leasehold right over the premises from which the tenant was evicted, the court of appeal breached the above provision”. The ruling is quashed on that point and the case sent back to the Paris court of appeal, differently composed.
What this changes for valuation
The leasehold right is valued on the premises left, not on the replacement premises. The leasehold right (droit au bail) is the value, for a tenant, of holding premises on the terms of its lease: a location, an area, a permitted use, a rent below open market rental value. That value is measured on the premises from which the tenant is evicted, by comparing the rent of the expired lease with the market rental value of those premises, over the period during which the tenant could expect to benefit from them, with a location coefficient. The glossary defines the droit au bail and its calculation. That the tenant found a lower rent elsewhere says nothing about that value: it may have accepted a less sought-after location, benefited from a depressed market, or simply negotiated better.
The “rent differential” shortcut is ruled out. The differential method, which capitalises the gap between the rent of the new lease and that of the old one, is useful to measure the extra cost of relocating; it does not replace the valuation of the leasehold right lost. A valuer who concluded that the value is nil because the tenant now pays less would expose the report to the criticism upheld by the Court. The report therefore presents two distinct calculations: the value of the leasehold right of the premises left and, where relevant, the extra rental cost of relocation, without the second cancelling the first.
Transfer or loss of the business: the first question remains. The article on the eviction compensation of a photo shop shows the distinction between replacement compensation, equal to the value of the business when the customer base is lost, and transfer compensation, when the business survives the move. Here the actual relocation placed the case in the second category. But even in a transfer, the compensation includes the leasehold right lost, because it is an element of the business; that is what the Court recalls. The article on leasehold and tenant’s buildings after pre-emption applies the same rule in another setting.
The landlord may prove a smaller loss, but by a valuation. The text reserves proof, by the owner, that the loss is smaller than the value of the business. That proof bears on the elements of the loss, not on reasoning by equivalence: cheaper replacement premises may reduce some ancillary heads, such as trading disruption or reinstallation costs, but they do not make the value of the leasehold right disappear. The landlord’s expert report, if it contests the amount, must therefore also value the leasehold right of the premises left, with its own rental value evidence.
Market evidence for the premises left. In practice the report gathers the market rents of the shopping centre or the street at the date of eviction, for premises of comparable area and trading position, and compares them with the rent of the expired lease. The guide My landlord refuses to renew my commercial lease describes the documents to gather and how the compensation is built.
Replacement premises offered by the landlord must exist at the date of notice. A landlord refusing renewal in order to rebuild may avoid eviction compensation by offering premises matching the tenant’s needs and means, at an equivalent location (article L. 145-18 of the Commercial Code). In a reported ruling of 14 January 2016 (Cass. 3e civ., no. 14-19.092), the Cour de cassation upheld a court of appeal which had ordered the owner of a shopping arcade under reconstruction to pay eviction compensation because, despite the building work under way and the plan sent to the tenants, “the premises offered as a replacement did not exist at the time the notice was served”. Premises that are merely promised therefore do not relieve the landlord of the compensation: the valuer first checks the existence and equivalence of the premises offered at the date of notice, then, if the offer does not meet those conditions, quantifies the eviction compensation, including the leasehold right (droit au bail) in the premises vacated. The article on replacement premises existing at notice presents that ruling.
What the valuer takes from it
- Eviction compensation takes into account the value of the leasehold right of the premises from which the tenant is evicted, an element of the business.
- That value cannot be declared nil on the sole ground that the tenant relocated to equivalent premises at a lower rent.
- The leasehold right is valued by comparing the rent of the expired lease with the market rental value of the premises left.
- The extra rental cost of a relocation is a separate calculation that does not replace the valuation of the leasehold right lost.
- A landlord who argues a smaller loss must also produce a valuation of the leasehold right.
Further reading
The Eviction compensation page describes the assignment, its timescale and its fee. The guide My landlord refuses to renew my commercial lease and the glossary entries droit au bail, indemnité d’éviction and fonds de commerce complement this article. On the same theme: Eviction compensation: a photo shop in a French shopping centre and Modified renewal offer: it is a refusal, compensation is due. The decision is available on Légifrance.
What next
A notice without renewal, a relocation already done, and eviction compensation to quantify?
I value the leasehold right of the premises left, the value of the business if transfer is impossible and the ancillary heads of loss, in a report the rent judge or the court expert can take up head by head.
Free quote, by email or by phone. No commitment before the quote is accepted. Fees are never linked to the value of the property (Charte de l’expertise, Title I, §2.1).
