Two reported rulings of 2019 touch eviction compensation (indemnité d’éviction, the compensation a French commercial tenant receives when renewal is refused) at its edges: what is given back, and who owes it. In the first, evicted traders obtained, by a final ruling, compensation including reinvestment, trading disruption and removal allowances, computed for a relocation; they never relocated. The Cour de cassation (the French supreme court for civil matters), on 28 March 2019, approved their order to return those sums: “res judicata cannot be relied upon where later events have altered the situation previously recognised by the court”. In the second, a commercial building is split between a usufructuary and a bare owner, who together refused renewal. On 19 December 2019 the Court held that the usufructuary, “having alone the capacity of landlord, whose obligations towards the tenant they fully assume”, alone owes the eviction compensation. For the valuer, the first ruling recalls that ancillary heads are conditional, and the second tells them whom the report is addressed to.
The facts
In the first case, a final ruling of 17 June 2010 orders an SCI landlord to pay its former commercial tenants various sums for the non-renewal of their lease, including a reinvestment allowance, a trading disruption allowance and removal costs, heads that presuppose the relocation of the business. The tenants do not relocate. The SCI sues them for repayment of those three allowances; they plead res judicata. The Aix-en-Provence court of appeal, on 28 February 2017, orders the repayment, the SCI having proved the absence of relocation and of any intention to relocate.
In the second, a usufructuary and a bare owner of a commercial building serve together, on 5 March 2004, a refusal of renewal without compensation, held in 2008 to lack a serious and legitimate ground. The Toulouse court of appeal, on 3 October 2018, orders them jointly to pay the eviction compensation, including 134 250 € of main compensation, on the ground that a refusal of renewal exceeds the powers of the usufructuary alone and that the bare owner has the capacity of landlord.
The decision
In the first case (Cass. 3e civ., 28 March 2019, no. 17-17.501, reported), the Court dismissed the appeal: “res judicata cannot be relied upon where later events have altered the situation previously recognised by the court”; “having noted that, after the decision of 17 June 2010, Mr and Mrs Y. had not relocated, the court of appeal legally justified its decision”.
In the second (Cass. 3e civ., 19 December 2019, no. 18-26.162, reported), it quashed. The usufructuary “cannot, under article 595, last paragraph, of the Civil Code, grant a commercial lease or renew it without the concurrence of the bare owner”, but “has the power to end the commercial lease and, consequently, to serve on the tenant, without the concurrence of the bare owner, a notice refusing renewal”; “having alone the capacity of landlord, whose obligations towards the tenant they fully assume, the eviction compensation due under article L. 145-14 of the Commercial Code, whose purpose is to compensate the loss caused to the tenant by the non-renewal of the lease, is borne by them”. By ordering the bare owner to pay jointly, the court of appeal breached those provisions.
What this changes for valuation
Ancillary heads rest on a hypothesis. The reinvestment allowance, trading disruption and removal costs are computed for a business that relocates: duties and costs of acquiring a business of the same value, disruption of trading during the transfer, cost of the move. When the tenant does not relocate, those losses do not occur, and the sums received on that basis are returned, even after a final ruling. The expert report must therefore state, for each head, which hypothesis it corresponds to, and quantify both where necessary: transfer compensation with its extras, replacement compensation with its own. The glossary distinguishes the indemnité de remplacement and the indemnité de transfert.
Compensation that is revised on the facts. The 2019 ruling tempers the reach of a decision that has become final: res judicata sets the compensation in the situation then known, and later events, here the absence of relocation, may reopen the account for the heads that depended on it. A landlord who paid transfer compensation therefore keeps a claim if the business disappears; a tenant who received it has an interest in documenting the relocation. The article on the tenant’s two-year time limit and the one on the photo shop’s compensation show how these heads are built.
The debtor is the usufructuary. In a building under split ownership, the usufructuary collects the rents, may serve notice and owes the eviction compensation, alone, even if the bare owner signed the notice with them. For the valuer, this identifies the client, the addressee of the report and the person whose solvency governs payment; it also affects timing, since a life usufruct may end during the proceedings, and the compensation, a debt of the usufructuary, then passes to their estate. The bare owner, for their part, will recover a vacant building without having paid to free it, which the report notes when valuing the building in full ownership or the split rights. The article on SCI shares under split ownership deals with another division of value between usufructuary and bare owner.
A notice the usufructuary may serve alone. Renewing a commercial lease requires the bare owner’s concurrence, because it binds the building beyond the usufruct; refusing renewal does not. A valuation of rental value or eviction compensation in a building under split ownership therefore checks the capacity of the person who acted, because the validity of the notice and the identity of the debtor depend on it. The guide My landlord refuses to renew my commercial lease describes the documents to gather.
The value of the leasehold right stays in the calculation. In the second case, the Toulouse court of appeal had held, on the report of the court-appointed expert who valued the business at 36 000 € and the leasehold right at 125 500 €, that where the value of the leasehold right alone exceeds the market value of the business, the eviction compensation must correspond to the value of the leasehold right; that point was not argued before the Cour de cassation. The article on the leasehold right of the premises left develops it.
The accession clause does not remove reinstallation costs. In a reported ruling of 13 September 2018 (Cass. 3e civ., no. 16-26.049), the Court held that “an accession clause without compensation stipulated in the landlord’s favour in the lease that has ended does not prevent the tenant’s right to be compensated for its reinstallation costs under the eviction compensation”. A tenant who fitted out the premises at its own expense and leaves them to the landlord may therefore claim, within the eviction compensation, the cost of redoing those fittings elsewhere; the report quantifies that head on estimates, without reducing it because of the clause.
What the valuer takes from it
- Reinvestment, trading disruption and removal allowances presuppose the relocation of the business; without relocation, they are returned, even after a final decision.
- The report states for each ancillary head the hypothesis on which it rests, transfer or loss of the business.
- In a building under split ownership, the usufructuary alone has the capacity of landlord: they may refuse renewal alone and alone owe the eviction compensation.
- The bare owner is not liable, even if they signed the notice with the usufructuary.
- The identity of the debtor and the duration of the usufruct enter into the analysis of the case and the valuation of the split rights.
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 indemnité d’éviction, indemnité de transfert and usufruit complement this article. On the same theme: Relocated for less, the leasehold right lost still has a value and Eviction compensation in France: the tenant has two years to act. The decisions are available on Légifrance: no. 17-17.501 and no. 18-26.162.
What next
Eviction compensation to quantify, with ancillary heads that depend on a relocation?
I value the main compensation and each ancillary head, stating which hypothesis it corresponds to, transfer or loss of the business, relocation or not, so that the amount retained can be adjusted to the facts.
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