A landlord who refuses to renew a French commercial lease (bail commercial) in order to build or rebuild owes eviction compensation (indemnité d’éviction, statutory compensation for a commercial tenant refused renewal), unless it offers the tenant replacement premises matching its needs and means, at an equivalent location. Can those premises still be a building site on the day of the notice? In a reported decision of 14 January 2016, the Cour de cassation (French supreme court for civil and commercial matters) upheld an award of eviction compensation against the owner of a shopping arcade, as the premises offered did not exist when the notice was served. For the valuer, the offer is therefore examined at that date, before any calculation.
The facts
A SCI (société civile immobilière, a French property-holding company) owning a shopping arcade let premises in it to a married couple under a commercial lease. Relying on article L. 145-18 of the French Commercial Code, it served on them a notice taking effect on 30 December 2008, refusing renewal without eviction compensation and offering replacement premises. On 30 June 2008, the date of the notice, it had started building a new shopping arcade and sent the tenants a plan of the site and of the premises offered; those premises did not yet exist.
The tenants sued the landlord for eviction compensation and various sums, including damages for a loss of enjoyment caused by the lack of maintenance of the premises and their surroundings.
On 28 March 2014 the Pau Court of Appeal ordered the landlord to pay eviction compensation, as the premises offered did not exist at the time of the notice. It rejected, however, the claim for loss of enjoyment, the works and maintenance ordered in summary proceedings (référé) having been carried out and no new defect being shown.
Both parties appealed: the tenants first (main appeal), then the landlord in response (cross-appeal). For the landlord, the premises need not be completed and available on the day of the notice: it was enough that the tenant could then decide on the premises offered and on the new letting terms.
The decision
The Cour de cassation rejected the single ground of the landlord’s cross-appeal (Cass. 3e civ., 14 January 2016, appeal no. 14-19.092, reported): “having found that, although the landlord had, on 30 June 2008, started building the new shopping arcade and sent the tenants a plan of the site and of the premises offered, the premises offered as a replacement did not exist at the time the notice was served, the Court of Appeal, on that ground alone, legally justified its decision” (translated from the French). The summary published in the Bulletin draws out the rule: “The replacement premises which the landlord may offer to the evicted tenant under article L. 145-18, paragraph 3, of the Commercial Code must exist at the time the notice is served” (translated from the French).
The words “on that ground alone” matter: the non-existence of the premises on the day of the notice is enough, and the Court of Appeal’s other ground, that the premises offered could not be equivalent to those let, did not need examining. The decision therefore says nothing about how to assess the equivalence of premises that do exist.
On the tenants’ main appeal, the Court quashed under articles 1147 and 1719 of the French Civil Code, together with article 484 of the Code of Civil Procedure (former article 1147, prior to the 2016 reform of contract law): the claim for damages could not be dismissed because the works had been carried out, “whereas the performance of measures ordered in summary proceedings to put an end to a manifestly unlawful disturbance does not exclude compensation for the loss that disturbance may have caused” (translated from the French). The quashing is partial: only the dismissal of the claim for loss of enjoyment is set aside, and that question is sent back to the Pau Court of Appeal, sitting with different judges.
What this changes for valuation
The offer is assessed on the day of the notice, not on delivery. The tenant decides on the basis of the offer made in the notice, which must state the new letting terms (article L. 145-18). The valuer therefore first establishes, from dated documents, the state of the premises offered on that date: bailiff’s report, photographs, progress of the works. A plan does not prove that the premises exist. The decision requires only that the premises exist; it does not say what degree of completion is enough. The report records these facts and leaves the validity of the offer to the judge.
If the offer fails, eviction compensation follows the ordinary rules. The eviction compensation under article L. 145-14 is then calculated as for any refusal of renewal: market value of the business (fonds de commerce) if the customers are lost, leasehold right (droit au bail) and moving costs if the business can be relocated, plus the ancillary heads (the distinction applied to an evicted shop in a shopping centre, where replacement compensation was awarded). The leasehold right is valued on the premises vacated, even if the tenant has relocated more cheaply (the leasehold right lost after a cheaper relocation). Until payment, the tenant may remain in the premises (article L. 145-28) and owes an occupation indemnity (indemnité d’occupation) set by reference to the rental value, without a cap (the occupation indemnity of a tenant holding over).
If the offer is valid, compensation changes its object. Article L. 145-18 then grants the tenant an indemnity for its temporary loss of enjoyment and the loss in value of its business, and repayment of its normal moving-out and moving-in costs. The report measures the margin lost during the move and compares the value of the business in the old and the new premises.
Loss of enjoyment is quantified for its whole duration. Distinct from the eviction, it arises from the landlord’s maintenance obligation (article 1719 of the Civil Code). Works carried out after the summary proceedings end the disturbance for the future without erasing the past loss. The report covers the period from the appearance of the defects to the performance of the measures, using the bailiff’s reports and summary orders, and measures the loss of enjoyment (perte de jouissance) over it, by reference to the rental value or the proven trading loss.
What the valuer takes from it
- Replacement premises offered by a landlord who rebuilds must exist on the day of the notice; a building site and a plan are not enough.
- The valuer first records, from dated documents, the state of the premises offered on that date, without ruling on the validity of the offer.
- If the offer fails, eviction compensation is due under the ordinary rules: value of the business or leasehold right in the premises vacated, plus ancillary heads.
- If it is valid, the report quantifies the temporary loss of enjoyment, the loss in value of the business and the moving costs.
- Works carried out after summary proceedings do not erase the past loss of enjoyment, which is quantified for its whole duration.
Further reading
The Eviction compensation page describes the assignment, how it runs and its fee. The guide My landlord refuses to renew my commercial lease and the glossary entries indemnité d’éviction, droit au bail and perte de jouissance complement this article. Two other reported decisions of 2016 are discussed separately: Occupation indemnity during site restoration: the lease rent and Trade register entry must cover the activity actually carried on. On the same theme: Relocated for less, the leasehold right lost still has a value and Eviction compensation: a photo shop in a French shopping centre. The decision is available on Légifrance.
What next
Replacement premises offered with the notice, while the building is still under construction?
I compare the premises offered, as they exist on the date of the notice, with those you trade from. I then quantify the eviction compensation, or the temporary loss of enjoyment and the loss in value of the business if the offer is upheld, head by head and with my references.
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).
