Your landlord refuses to renew your lease in a shopping centre and offers you compensation calculated on a simple move, on the ground that you can set up elsewhere. Or you are the landlord and want to know what separates relocation compensation from replacement compensation. A decision of the Court of Appeal of Saint-Denis (Réunion), in a dispute between King Invest (landlord) and Sodiphot (tenant), illustrates this distinction and the burden of proof that goes with it.
The facts
Sodiphot ran a photography shop in a shopping centre. The landlord refused to renew the lease; the principle of an indemnité d’éviction (statutory eviction compensation under a French commercial lease) was not disputed, only its amount. The tenant moved to premises of comparable size on a shopping street. The first-instance court had set the compensation at €481,302.60. The landlord appealed, arguing that the business had been transferred without loss of customers and that only relocation compensation was due.
The legal framework
Eviction compensation must equal the loss caused by the failure to renew. It includes in particular the market value of the fonds de commerce (the business as a going concern: goodwill, lease rights, fixtures, clientele), determined according to the practices of the trade, increased where appropriate by the normal costs of removal and reinstallation and by the transfer costs and duties payable for a business of the same value, unless the owner proves that the loss is smaller (French Commercial Code, article L. 145-14).
This text creates a presumption: the evicted tenant is deemed to lose the business. The landlord can rebut it by showing that the business can be transferred without loss of customers; the compensation is then limited to the costs of the transfer and the temporary loss of earnings. The Charte de l’expertise en évaluation immobilière (French property valuation charter, 6th edition, Title III, §1.19) draws the same distinction between replacement compensation, based on the value of the business, and relocation compensation, based on the value of the leasehold right (droit au bail) and the loss of earnings, to which ancillary items are added: reinvestment allowance, removal, reinstallation, trading disruption, loss on stock, unamortised fittings, double rent.
What the court examined
Comparing the two premises
The court set the old and the new premises side by side, point by point:
- similar floor areas;
- a different commercial environment: a shopping-centre mall against a shopping street;
- lower attractiveness, accessibility and visibility in the new premises;
- different parking conditions;
- footfall of an entirely different order.
In a shopping centre, a shop benefits from the footfall generated by the whole mall and its anchor tenants. That footfall does not move with the brand. The Charte, moreover, provides a specific reading of floor areas and rents for shopping centres and malls (Title III, §6.3).
The effect of the move on trading
Certificates from the tenant’s chartered accountant established a significant fall in turnover after the move. The landlord expressed reservations about these certificates but offered no explanation in support of its request to disregard them. The court recalled two rules: it is for the landlord to show that the tenant’s loss is lower than the market value of the business, and the judge cannot make up for the parties’ failure to produce evidence (article 9 of the Code of Civil Procedure: each party must prove the facts necessary for the success of its claim).
The choice of replacement compensation
In the absence of proof of a transfer without loss of customers, the court awarded replacement compensation. It is made up of:
- the market value of the business: €398,850, an amount not contested by the parties;
- reinstallation costs: €57,534.60.
The compensation was set at €456,384.60, against €481,302.60 at first instance. As the value of the business was not in dispute, the difference from the judgment concerns the other items.
What the valuation expert takes from it
Compare the premises methodically. The expert describes both locations against the same criteria: weighted floor area, shopfront length, visibility, access, parking, footfall and commercial environment. This objective grid allows the judge to settle the question of transferability before the question of amount.
Measure the real effect of the move. The accounts before and after the transfer, adjusted for seasonal and economic effects, are the most direct evidence of a loss or retention of customers. A report that presents these figures, with their sources, carries more weight than an assertion about transferability.
Quantify the ancillary items one by one. Reinstallation costs, removal, unamortised fittings, trading disruption: each item is supported by quotes or invoices. Here, reinstallation costs represented close to 15 % of the value of the business.
Remember the burden of proof. The presumption works in the tenant’s favour; it is for the landlord to rebut it with precise evidence. A private valuation report, single-party or joint, prepares this discussion before proceedings and often makes an agreement easier.
The sovereign power of the trial judges. The amount of the compensation is a matter for the assessment of the trial courts. A clear report, with references and an explained method, gives them the means to reason their decision.
The decision can be consulted on Légifrance.
Further reading
The Eviction compensation page describes the valuation of the principal compensation and the ancillary items, its timescale and its fee. Two articles complete this one: decontamination costs as an ancillary item of eviction compensation and valuing an old shop’s inventory.
What next
Do you need to calculate or challenge an eviction compensation?
Value of the business or of the leasehold right, ancillary losses item by item, occupation indemnity: a report that can be checked line by line, for the landlord as for the tenant.
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).
