Two reported rulings of 2021 frame the occupation indemnity (indemnité d’occupation, the sum owed for occupying premises without a current lease) payable by a French commercial tenant, in two opposite situations. In the first, the lease expired on a notice without renewal, then the landlord changed its mind; in between, the tenant stayed. On 17 June 2021 the Cour de cassation (the French supreme court for civil matters) held that “the rent cap rule applies to the setting of the rent of the renewed or revised lease, but not to the occupation indemnity owed by the tenant kept in the premises”, which “had to be set according to rental value”. In the second, the lease had been annulled because the premises, let for a restaurant, had no waste-water drainage. On 3 November 2021 the Court held that “where a lease is annulled for a reason unrelated to the tenant’s conduct, the occupation indemnity is the consideration for the enjoyment of the premises”, so that “if the tenant did not enjoy premises in keeping with their contractual use, it owes no occupation indemnity”. For the valuer, the two rulings say what must be measured: the rental value of the premises, and the enjoyment they actually provided.
The facts
In the first case, the Société parisienne de distribution de viandes is the tenant of commercial premises owned by an SCI (a French property-holding company). On 23 March 2011 the SCI serves notice effective 1 October 2011, refusing renewal and refusing to pay eviction compensation. A judgment of 11 March 2013 rejects the application to validate the notice and orders an expert appraisal of the eviction compensation. On 13 April 2016 the SCI exercises its right to withdraw the refusal and grants a nine-year renewal. The Paris court of appeal, on 15 January 2020, sets the occupation indemnity for 1 October 2011 to 13 April 2016 at rental value. The tenant argues that article L. 145-28 refers to the sections of the Commercial Code that contain the cap rule, and that the cap should have applied.
In the second, an SCI lets commercial premises to a company for a caterer-restaurant-bar business. With no waste-water drainage, the business cannot be carried on there. The tenant sues to have the lease annulled and to be compensated; the landlord counterclaims, in the alternative, for an occupation indemnity. The Paris court of appeal, on 27 May 2020, annuls the lease, orders the landlord to pay 130 000 € in damages, including 100 000 € corresponding to a loan taken out by the tenant to finance its fit-out, and orders the tenant to pay 37 000 € as an occupation indemnity until the premises were returned, holding that it matters little that it could not trade, since the landlord was deprived of the use of its property.
The decision
In the first case, the third civil chamber dismissed the appeal (Cass. 3e civ., 17 June 2021, no. 20-15.296, reported). “The rent cap rule applies to the setting of the rent of the renewed or revised lease, but not to the occupation indemnity owed by the tenant kept in the premises on expiry of the lease under article L. 145-28 of the Commercial Code”, in line with rulings of 1978 and 2002 which it cites. “Consequently, the court of appeal rightly held that that indemnity had to be set according to rental value.”
In the second, it quashed twice (Cass. 3e civ., 3 November 2021, no. 20-16.334, reported). On damages, under article 1240 of the Civil Code and the principle of full compensation: the court of appeal used the amount of the 100 000 € loan “without examining, as it was invited to, the amount of the expenditure financed by the loan”. On the occupation indemnity, under former article 1304: “where a lease is annulled for a reason unrelated to the tenant’s conduct, the occupation indemnity is the consideration for the enjoyment of the premises”; “consequently, if the tenant did not enjoy premises in keeping with their contractual use, it owes no occupation indemnity”. Having found that the lease concerned premises unfit for their purpose, the court of appeal “did not draw the legal consequences of its own findings”. Remittal to the Paris court of appeal, differently composed.
What this changes for valuation
After the lease, rental value, not the capped rent. The tenant kept in the premises after a notice without renewal owes, until it leaves or until the landlord withdraws its refusal, an indemnity set “taking all elements of assessment into account”, that is, according to the rental value of the premises, without the limit of the index variation. The valuer therefore establishes that market rental value, period by period, with rent evidence from comparable premises, as for an uncapped renewal rent. The glossary defines the indemnité d’occupation and valeur locative. The article on the two rulings that change the occupation indemnity after a commercial lease deals with the precariousness allowance and property tax, which come next.
The withdrawal does not act retroactively on the indemnity. Between the notice and the withdrawal, nearly five years here, the tenant occupied without a lease. The renewed lease takes effect on the withdrawal; the earlier period remains governed by the occupation indemnity at rental value. The report therefore clearly separates the two periods and does not apply the renewal rent, capped or uncapped, to the past.
After an annulment, the measure is actual enjoyment. Where the lease is annulled for a cause unrelated to the tenant, the indemnity does not compensate the landlord’s deprivation; it is the consideration for what the tenant actually got out of the premises. Premises that could not serve their purpose, a restaurant without waste-water drainage, provided no enjoyment in keeping with their use: nothing is owed, even though the landlord could not use its property. A valuer given such an assignment therefore establishes, before any figures, what the premises really allowed: which uses were possible, at which dates, with which fittings missing. The article on the void lease over public land shows the opposite case, where the enjoyment was real and must be paid for.
Partial enjoyment is measured, not presumed. Between fully usable premises and unusable premises there are intermediate situations: reduced use, storage, degraded trading. The report then quantifies a rental value matching the use actually possible, not the contractual use, with the reasoning that leads from one to the other.
Loss is proved by expenditure, not by borrowing. The second ruling also recalls that a 100 000 € loan is not a 100 000 € loss: only the expenditure actually incurred counts. A valuer quantifying the losses of an evicted or misled tenant relies on invoices and payments, not on financing. The guide My landlord refuses to renew my commercial lease describes the useful documents.
Restoring the site of a classified installation: the lease rent, not the rental value. In a reported ruling of 23 June 2016 (Cass. 3e civ., no. 15-11.440), the Cour de cassation overturned a court of appeal which had set at the rental value of farmland the occupation indemnity owed by the operator of a landfill which had stayed on the land for nearly five years, after giving notice itself, in order to perform its legal obligation of restoration. The summary published with the ruling draws out that this indemnity “must be set by reference to the rent provided for in the lease” while that obligation is being performed. The measure is therefore not the same as for the tenant remaining in the premises under article L. 145-28: here, the tenant which had itself ended the lease stays on to complete an obligation arising from its operation, and the indemnity follows the agreed rent, not the rental value of the depreciated land. The article on site restoration after a classified installation presents that ruling.
What the valuer takes from it
- The occupation indemnity of a tenant kept in the premises after the lease is set according to rental value, without applying the cap.
- The landlord’s withdrawal of its refusal does not change the indemnity owed for the period between the notice and the withdrawal.
- After a lease is annulled for a reason unrelated to the tenant, the occupation indemnity is the consideration for the enjoyment of the premises.
- Premises unfit for their contractual use provided no enjoyment in keeping with that use: no indemnity is owed.
- The tenant’s damages are measured on expenditure incurred, not on the amount of a loan.
Further reading
The Commercial rent and leases 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’occupation, valeur locative and loyer plafonné complement this article. On the same theme: Occupation indemnity after a French commercial lease: two rulings and Lease over public land: void, but the use must be paid for. The decisions are available on Légifrance: no. 20-15.296 and no. 20-16.334.
What next
A tenant kept in the premises after the lease, or a lease declared void, and an occupation indemnity to set?
I establish the rental value of the premises for each period, derive the occupation indemnity from it and document the actual condition of the premises, for the landlord, the tenant or the court expert.
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