Linking with other leaseback owners

I am referring to loss of rental income, i.e. those rents the leaseback company would receive from sub-letting the property, not the rent re-paid to leaseback owners.

Dear Chris,

In case of non-renewal of the lease, the management company could get a French Judge to award them a fairly high level of damages.

Please note however that compensation is not due on the re-sale of leasebacks. When you sell, the lease agreement is automatically carried over to the next leaseback owner, thus no damages are due to the leaseback company.

Liability only arises where owners give the Lessee (the leaseback company) advance notice that the lease will not be renewed for a similar period of time.

These lease agreements are automatically renewable, unless Tenant or Landlord gives notice (usually 12 months in advance, through service of a special notice by a bailiff). Very few French leaseback owners are aware that if they decide not to renew after the initial 9 or 11 years rental period, the leaseback company could seek compensation from them. Such right is a statutory one and called 'Indemnité pour non-renouvellement du bail commercial'. I understand that some leaseback companies do not actually demand any payment in case of non-renewal of the lease, but this is at their discretion and no waiver, which the leaseback company could give in advance for example, would actually stand against statutes.

I hope this is informative.

Best regards,

Fabien
http://www.solicitor.fr

I would advise anyone approaching the 12 months period prior to renewal to formally ask the leaseback company whether a penalty will, or not, be applied in case of non-renewal. If the answer is yes, there should hopefully be some room for negotiation. In the event the leaseback company states that no damages will be due, this should be confirmed in writing, on the company's letterhead.


http://www.solicitor.fr

If you were told when buying your French leaseback property that once the 11 year lease was up you could decide not to renew the lease if you did not want to, then you were clearly mislead.

If the above is correct, the marketers and professionals that advised you that these leases could easily be cancelled could, at French law, be held professionally liable.

Did you seek legal advice from an 'avocat' (French lawyer) at the time of purchasing the property, or some 'French Property Specialists'?
http://www.solicitor.fr

Mary,

Thanks for your kind words. I appreciate that people have a choice of lawyers and most leaseback owners prefer not to arrange legal representation in the first place. I am contributing to this forum on a personal, impartial basis, so would prefer my details not to be mentioned please.

Best regards

If you break the lease and make your apartment revert into a classic property, then in addition to repaying VAT on a pro-rata basis, you risk having to pay the leaseback company compensation.

At French Commercial law (the Decree of 30 September 1953), where a lease agreement comes up for renewal, tenants are legally entitled to get their lease renewed for the same period of time as the one stated in the lease. This rule applies without any limit thus French business leases can go on like this virtually forever.

Landlords can decide not to renew a lease. However, in such a case, the Decree states that Tenant is entitled to claim damages for non-renewal. So, compensation is due to tenants whose landlord gives notice that the lease will not be renewed. Such notice must usually be issued 6 or 12 months prior to the lease's end date. The Notice ('Congé') is to be served upon the tenant i.e. your leaseback company through a bailiff (Huissier).

You cannot therefore break a business lease at any time. French law merely allows landlords to serve tenants notice that there will be no renewal.

Several possibilities exist to avoid the above restrictions, including:

- Where a tenant (leaseback company) is in default of paying rents, landlords can have a 'commandement de payer' served and if no payment is forthcoming within a given period, usually one month, landlords can apply to the Court for a confirmation that the lease is cancelled. If that happens, then obviously no compensation is due to the leaseback company, quite to the contrary in fact! Issuing a 'commandement' has not effect however if the tenant is placed in Receivership before the Court confirms that the lease is broken;

- Where a tenant already is in Receivership, one can ask the Court-appointed Receiver to state whether or not the lease will be kept. This stems from Article L621.28 of the Commerce Code. Pursuant to that article, landlords can send a formal request to the company's
Receiver, by registered mail (not a 'commandemen't - no bailiff's fees), seeking a
confirmation as to whether or not their lease will be continued. If the Receiver fails
to reply within one month, or replies favourably, your lease gets immediately cancelled without the need for such cancellation to be
approved/confirmed by a Judge. Unlike serving a non-renewal notice, cancellation of the lease by the tenant's Receiver does not expose you to having to pay compensation to the leaseback company.


I hope this is informative.

You managed to stop the lease from renewing and the leaseback company does not claim any damages. Well done! I hope this creates a precedent for other leaseback owners.

Apart from the VAT pro-rata payment, there should be no further costs other than those the leaseback company used to pick up under the lease e.g. building maintenance, taxe d'habitation, insurance, condoimium charges, cleaning etc. Do also check whether the leaseback's commons called 'parties communes' are owned by all co-owers or if the leaseback company, or a third part owns them, as this could lead to you and/or your future tenants being unable to use the resort's services & facilities e.g. pool, restaurant etc!

I did not realise that it is the leaseback company that broke the lease, not you.

Your lease agreement, and possibly the Title Deeds, should include information on who owns what and whether the leaseback company has exclusive use of the common areas.

Hi Fran,

I already act for another owner on behalf of whom I have recently had a 'commandement de payer' served on Murano Resort Paris. I can also do the same for you if you wish. If Hotel Murano fails to settle your rent within a defined period (up to 3 months), you could apply to the Court to cancel the lease.

Hi Chris,

The leaseback company's right to claim compensation at the end of the lease, in case of non-renewal of the same at the Landlord's initiative, stems from statutes - the Decree of 30 September 1953. As you rightly say, just because penalties are not mentioned does not mean they don't apply! In fact, even if the lease were to state that no penalities or damages are due, the leaseback company could insist and obtain damages, because of the compensation right's statutory nature.

If you gave 12 months notice (this must be done through a bailiff) at the end of the lease, the leaseback company could obtain up to 2-3 years, and possibly even more, worth of rents, in compensation. Neither the Decree or your lease states how much compensation will amount to. It is a matter of case-law and French Judges usually award tenants several years worth of rents as damages.


I cannot really comment the fact that some lawyers that are not qualified or registered as solicitors in France seem to ignore the issue. What I can confirm is that leaseback marketers rarely draw purchasers' attention on compensation for non-renewal of the lease.

I hope this helps.