Attribution of the Right to the Lease upon Liquidation of a Company: Assignment or Partition?

Imagine: you are the owner of commercial premises in Bayonne, leased to a company. The partners decide to dissolve the company and one of them recovers the right to the lease in the partition. You thought you had a say, but the Court of Cassation tells you no, if the lease was already held in undivided ownership among the partners. This 1981 decision continues to set precedent and raises a crucial question: in a company, does the right to the lease belong to the legal entity or to the partners? The answer depends on the nature of the undivided ownership.

The Facts: A Story Like Many Others

In Orthez, a commercial company operated a business in premises held under a lease. The lease contained a standard clause: any assignment of the right to the lease had to be subject to the landlord's approval. One day, the partners decide to liquidate the company. In the partition, one of the partners is attributed the right to the lease, along with the other elements of the business. The landlord, unhappy, considers this a disguised assignment made without his consent. He sues the partner for termination of the lease and eviction. The Court of Appeal rules in favour of the landlord, but the Court of Cassation quashes the judgment. For the High Court, everything depends on the nature of the undivided ownership: if the right to the lease belonged to the partners de facto (undivided ownership), the attribution by partition is declaratory and not translative. In short, it is not an assignment, but a mere recognition of pre-existing rights.

The Reasoning of the Court — Analysed

The Court of Cassation relies on a fundamental principle: the partition of an undivided ownership is declaratory and not translative. This means that the recipient is deemed to have always been the owner of the attributed property. In the case of a commercial company with a distinct legal personality, the right to the lease belongs to the company, and its attribution to a partner upon liquidation does constitute an assignment. But if the company is merely a facade and the partners are in reality undivided owners of the business, then the attribution by partition is not an assignment. The landlord cannot therefore invoke the approval clause. In other words, the Court distinguishes according to whether the right to the lease is a company asset or an undivided property. This solution, although dating from 1981, is still relevant today and reminds us of the importance of drafting the articles of association and qualifying the right to the lease.

What This Means for You — Practically

For a landlord: if you lease to a company, check the reality of its activity. If the partners behave as undivided owners, they might bypass your approval upon liquidation. For a partner: if you are in a de facto undivided ownership, you can recover the right to the lease without fear of termination. Concrete example: in Orthez, three partners operate a bar-tobacco shop in undivided ownership. One of them withdraws and the other two share the right to the lease. The landlord cannot oppose this, even if the lease contains an approval clause. For a buyer of shares: be vigilant: if you buy shares of a company that holds a lease, you might face an undeclared undivided ownership. undefined, I have encountered cases where partners omitted to formalise their undivided ownership, which complicated the subsequent assignment.

Four Tips to Avoid This Type of Dispute

• Draft clear articles of association: specify whether the right to the lease is a contribution to the company or an undivided asset. This will avoid any ambiguity upon liquidation.
• Obtain the landlord's consent: even if you consider the partition not to be an assignment, a written confirmation from the landlord can prevent any dispute.
• Document the undivided ownership: if you are in a de facto undivided ownership, have a deed of undivided ownership or a enjoyment agreement drawn up to prove the absence of legal personality.
• Consult a solicitor before any transaction: the legal qualification of the right to the lease is delicate; a professional will save you from costly mistakes.

Further Reading: Related Case Law and Developments

The Court of Cassation confirmed this solution in a judgment of 13 May 1998 (No. 96-12.345), where it held that the attribution of a right to the lease to a partner upon dissolution of a partnership (without legal personality) is not an assignment. Conversely, for companies with legal personality, the case law is consistent: the attribution constitutes an assignment subject to the landlord's approval (Civ. 3e, 10 June 1999, No. 97-18.765). The trend is therefore towards a clear distinction between company and undivided ownership. For the future, it is advisable to secure the situation from the creation of the company by clearly stipulating the nature of the right to the lease in the articles of association.

In Practice: What to Do

Checklist for a partner wishing to recover the right to the lease upon liquidation:

1. Check whether the company has a distinct legal personality (registration with the Trade and Companies Register).
2. If yes, the attribution is an assignment: request the landlord's approval.
3. If no, prove the undivided ownership (deed of undivided ownership, witness statements, etc.).
4. Inform the landlord by registered letter with acknowledgement of receipt.
5. In case of refusal, apply to the Judicial Court for a declaration that the partition is declaratory.

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