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Some leaseback owners are finding themselves in a situation where the lease comes up to its term and, having repeatedly had to face late rents and lack of communication from the French leaseback company, they are considering non renewal.
Many of these are aware of the potential eviction fee, but are unsure as to how much advance notice is to be given, how the break notice should be served and how much the leaseback company is likely to claim.
It obviously is crucial to carefully review the lease and ascertain what the exact notice period is, as well as when exactly is the lease coming up to its contractual term or for renewal. Moreover, break notices called 'Congé' should be served in a legally-suitable manner, failing which the contract continues to run, albeit for an undetermined time-period.
Unless they issued a special waiver, in respect of the eviction indemnity, after the lease came into force, French leaseback companies are statutorily entitled to keep the keys and continue managing owners' properties until such time a settlement is reached on what the eviction fee is and such fee gets paid, or until when a judge rules over the issue. The principle derives from Article L145-28 of the French Commerce code.
Where the French leaseback operator has repeatedly been in breach of contract, by failing to pay rents on time for example, this can allow owners to obtain a cancellation through French Courts. Whether the breaches in question are or not serious enough to justify cancellation remains at the judge's discretion however. To stand a good chance of getting the lease cancelled on a compensation-free basis, owners are expected to previously have had several payment notices called 'Commandement de Payer' (CDP) served, without success, on the leaseback company.
In my experience, except where numerous blatant breaches of contract occur, or where the leaseback company is no longer entitled to invoke those protective rules set out in the French commerce Code, it can be worth trying to agree the terms of a settled cancellation. It is best to consider this well ahead of the time-limit set out in the contract, or by statute, for serving a non-renewal notice.
Some leaseback companies apply a dissuasive policy, by expecting owners to pay up to nearly 4 times a pro-rated share of the net annual turnover the resort generates as a whole, as opposed to how much income the company is losing in respect to the relevant leaseback apartment/property. Such a high ratio is unlikely to stand before French Courts. There are instances where, in an out-of-Court settlement context, the 4X ratio can be lowered down to about 2, which is more consistent with French case-law on the subject. Part of the rent due up to cancellation can sometimes be offset from the eviction fee, by allowing the leaseback company to rent owners' properties over the remainder of the season. Where cancellation can be mutually agreed, the settlement should be recorded in a formal Settlement Agreement duly signed by both parties. Owners then safely pay the balance on the agreed date and are being given back their keys. Beware of the VAT clawback however: Unless other qualifying management arrangements are being put in place, a pro-rated share of the initial VAT-exemption, which applied to the purchase price, may be claimed by French Tax Authorities.
The above reflects how urgent it becomes for the French Government to help those investors, mainly from the UK and Ireland, who became trapped in these contracts.
My initial posting in this forum's thread refers to the need, for leaseback owners wishing to end the contract, to carefully check the lease and ascertain what the exact notice period is, as well as when exactly is the lease coming up to its contractual term or for renewal.
Besides the 'indemnité d'éviction' (compensation) issue, one common pitfall here lies with the fact that people are often left in the dark as to what minimum advance notice is required and how to calculate it.
Leaseback owners are commonly being advised that, at the end of the lease, any termination notice has to be served with a 6-month prior notice.
- Such a statement is, strictly-speaking correct: Article L. 145-9 of the Commerce Code sets the principle that the statutory minimum advance notice is 6 months.
French leaseback owners' attention should however be drawn to the fact that their lease can set a longer notice period and, if that's the case, such longer advance notice applies, not the minimum 6 months period set out by French law.
- Moreover, in the event a commercial lease has run over its initial term, or where there is not enough time left to notify cancellation to the leaseback company, special rules apply as to when the contractual advance notice begins.
If, say one's lease end date is 30 February 2019 and the lease agreement states that cancellations are to be notified within 9 months, the said 9 months period will not begin until the last day of the quarter during which the break notice has been served.
In other words, using the example above, if one serves a break notice in October 2018, then the 9 months period will only begin as from 31 December 2018 and termination will take effect on 30 September 2019.
I hope this helps!
Hi Fabien/anyone else,
On this topic do you have any thoughts on the following? If I am to consider a non renewal of the lease I must give 12 months notice as of December 2018 with the lease due to expire December 2019. To date I have had no response from the operator as to the amount, if any, of eviction indemnity will be payable. As with most leaseback owners I was unaware of this indemnity payment and the lease makes no mention of any compensation payment.
1. If I decide to continue with the lease can the operator argue for a lower rental and can the lease terms be amended? Or does the lease continue on the same terms?
2. Assuming I do not receive any response from the operator and decide to issue notice of non renewal how does the process work from there? If the operator responds with a indemnity payment which I cannot afford can the lease still continue and does the same process as a lease renewal then take place?
Many thanks,
Scott
Hi Scott,
I would of course need to check your lease to be in a position to advise.
As a general rule, if you decide to continue with the lease the operator could still serve its own break and renewal Notice called 'Congé avec Offre de Renouvellement' and ask for a lower rent for example. Such a break and renewal notice by Lessee should never be left unanswered. Pursuant to Article L. 145-10 of the Commerce Code, Lessor (the leaseback Owner) has up to 3 months to respond and state whether or not he/she accepts the suggested new terms. In the event the leaseback company's break and renewal notice remains unanswered within that time-frame, those new terms suggested by the operator come into force and owners cannot legally challenge them.
Leaseback owners are under no legal obligation to accept a rent cut of course. In the event you would reject the operator's revised terms within the above-mentioned 3 months period, yet are unable to reach an agreement with the leaseback company, the rent could be set by the judge. Either side only has up to 2 years, from the date the break notice was served, to refer the issue to a judge, failing-which the matter gets time-barred and the operator (Lessee) must continue paying the same level of rent, and apply the same service charges, as set in the initial lease contract.
If neither side serves any notice, the lease continues under the current terms, albeit for an undetermined time period.
Assuming you decide to issue notice of non renewal and the operator responds with a indemnity payment which you cannot afford, the original lease still continues to run until the indemnity is set by a judge, or by consent, and gets paid. Lessors can however withdraw their break notice - something called 'droit de repentir' (Article L. 145-12 of the Commerce Code) and thus avoid having to compensate the leaseback company. The latest such withdrawal can be effected is just before a judge rules over the issue of how much compensation should be.
French Commercial leases renewal is, as you can see, rather technical. These issues are complex ones, hence the disclaimer below.
Disclaimer: The above does not amount to legal advice and does not create a solicitor - client relationship. No action should be taken on the basis of the information published in this thread without prior review of your personal situation by a qualified French solicitor.
Can I check my understanding that an indemnity eviction fee applies irrespective of whether
the bail commercial is mute on the subject?
Yes unfortunately. It doesn't matter what the contract/ bail commercial says (or doesn't say) about an eviction indemnity, or what you may have been told verbally or otherwise by any sales people. The bail commercials are based on French commercial law which means an indemnity must be paid if the owner wants to evict the lessee. There is no time limit on this either, so you could be liable for this even after 20 years when you've cleared your TVA obligations.