
French case law developments regarding commercial leases
Two important decisions regarding commercial leases were handed by the 3rd civil chamber of the French Cour de cassation during the last months of 2020.
The first decision, dated 19 November 2020 (n°19-20.405), is about the application to the ongoing leases of the “Pinel” law and of the non-applicability of the statute of limitation to what is deemed not to have been written.
In this case, a commercial lease took effect on 1 April 1998 and was renewed on 1 October 2007. The landlord delivered summons to pay to the tenant, then introduced summary proceedings against the tenant to obtain the enforcement of the cancellation clause. The tenant introduced a counter claim, on the ground that the rent review clause was to be deemed not to have been written, which entailed the nullity of the summons to pay.
The law n°2014-626 of 18 June 2014, also known as Pinel law, modified the regime of commercial leases, and notably the article L. 145-15 of the French Commercial Code by replacing the sanction of the clauses aiming to circumvent articles L. 145-37 to L. 145-41 of the Commercial Code, by the new sanction being that the clauses are deemed to be not written rather than voidable.
The appeal of the landlord claimed that the ongoing contracts remained ruled by the former law which was applicable at the date of their conclusion, and that the Pinel law was not applicable in the absence of any specific transitional provision.
The Cour de cassation rejected the appeal of the landlord, specifying that the new sanction of the deemed not written is of immediate applicability to every commercial leases, including the ones concluded prior to its entry into force. This decision finds ground in the legal principle that the new law is of immediate applicability to future effects of ongoing legal situations, as opposed to the future effects of ongoing contractual situations which remain subject to the former law. In the current case, the problem was a legal effect linked to the contract, the rent review, which is independent from the volition of parties.
Considering the immediate applicability of the Pinel law to ongoing contracts, the Cour de cassation also specified that the action on the ground of a clause deemed not to be written was not subject to any statute of limitation, in opposition to the action in the annulment of a voidable clause which is subject to a statute of limitation of two years.
The second decision, dated 10 December 2020 (n°20-40.059), concerns the eviction indemnity owed by the landlord to the tenant in the case of a refusal to reconduct the commercial lease. In this case, the Cour de cassation referred to the French Conseil constitutionnel the question of whether the eviction indemnity constitutes a disproportionate and unacceptable interference to the landlord’s right of property.
The article L. 145-14 of the French Commercial Code states that the eviction indemnity shall be equal to the damage caused by the absence of renewal of the commercial lease and that this indemnity includes the market value of the business, determined according to the practices of the profession.
The Cour de cassation deems that this provision, which does not include a ceiling for the eviction indemnity, could constitute a disproportionate and unacceptable interference to the right of property of the landlord because the amount of the indemnity could be superior to the price of the building (when the business is worth more than the building).
This question referred to the Conseil constitutionnel is of utmost importance as it could result in the re-enactment of Article L. 145-14 of the French Commercial Code to introduce a cap to the eviction indemnity.