Commercial Lease and Divided Ownership: The Bare Owner Must Be Registered with the Trade and Companies Register

Imagine: you own a commercial premises in Cannes, in the heart of the Croisette. You have leased it to a trader. But for some years, you have split the ownership: you have kept the bare ownership (the right to dispose of the property without receiving its fruits), while your spouse has been given the usufruct (the right to receive the rents and enjoy the property). Everything seems to work. Yet, one day, your tenant announces that he is leaving the premises without paying any eviction compensation (sum due by the landlord to the tenant who must leave, as compensation for the loss suffered). He claims that the lease is not commercial, because you, the bare owner, are not registered with the Trade and Companies Register.

This crucial question arises every time a commercial property is divided. The French Supreme Court (the highest French judicial court) ruled on 5 March 2008. Explanations.

What does judgment n°05-20.200 say? In essence: when the ownership of a business is divided (i.e., split between a usufructuary and a bare owner), and only the usufructuary has the status of trader (registered with the Trade and Companies Register), the bare owner must also be registered, but as a "non-operating owner". Without this, the commercial lease regime (legal protection of the trader tenant) does not apply. In other words, the tenant may leave without paying eviction compensation.

The facts: a story that happens every day

Mr and Mrs Y., a couple of owners in Cagnes-sur-Mer, grant a commercial lease (lease of premises intended for the operation of a business) to their son, Jean-Paul Y., for a term of nine years from 1 January 1993. The lease is concluded for premises on the ground floor, intended for a restaurant business. The business (the set of movable assets used for the operation) is then owned by Mr and Mrs Y.

In 1996, Mr and Mrs Y. split the ownership of the business: they transfer the usufruct (right to use the property and receive its income) to their son Jean-Paul, who is already a trader and registered with the Trade and Companies Register. They keep the bare ownership (right to dispose of the property without receiving its fruits). Jean-Paul thus becomes usufructuary of the business and continues to operate the restaurant. Mr and Mrs Y. remain bare owners, but they are not traders and are not registered with the Trade and Companies Register.

A few years later, a disagreement arises. Jean-Paul wishes to leave the premises and claims eviction compensation from his parents, under the commercial lease regime (Articles L. 145-1 et seq. of the Commercial Code). His parents refuse, considering that the lease is not commercial because they, as bare owners, are not traders and are not registered with the Trade and Companies Register. The case is brought before the courts.

The Commercial Court of Grasse rules in favour of the parents: the lease is not commercial, so no eviction compensation. Jean-Paul appeals. The Court of Appeal of Aix-en-Provence overturns the judgment and recognises the commercial nature of the lease, ordering the parents to pay compensation. They appeal to the Supreme Court.

The reasoning of the court — explained

The French Supreme Court, in its judgment of 5 March 2008, quashes the decision of the Court of Appeal. Why? Because the Court of Appeal did not check an essential point: the bare owner must be registered with the Trade and Companies Register as a non-operating owner for the commercial lease regime to apply. However, in this case, the bare owners (Mr and Mrs Y.) were not registered.

The Court recalls the principle: a commercial lease is a contract for the rental of premises in which the tenant carries on a commercial activity. But for the protective regime for the tenant to apply, the landlord (owner) must have the status of trader or, failing that, be registered with the Trade and Companies Register as a non-operating owner. This is a formal condition, provided for by Article L. 145-1 of the Commercial Code.

In other words, the mere fact that the lease was originally a commercial lease "by nature" (because the premises are used for a business) is not sufficient. It is also necessary that the parties have accepted that this regime applies, which requires registration of the non-trader landlord.

The French Supreme Court refers the case to another Court of Appeal (that of Nîmes) to examine whether, from the outset, the lease was commercial and whether the parties agreed to be subject to the regime. But it gives a clear indication: without registration of the bare owner, the lease cannot be commercial.

This decision confirms consistent case law: the division of ownership should not cause the tenant to lose the protection of the regime, but provided that the bare owner regularises his situation with the Trade and Companies Register.

What this changes for you — practically

For landlord owners: if you are the bare owner of a business (for example, you have given the usufruct to a family member), you must absolutely register with the Trade and Companies Register as a non-operating owner. Otherwise, your tenant may leave overnight without paying you a penny of eviction compensation. In Cannes, a 50 m² commercial premises on the Croisette can be worth eviction compensation of €50,000 to €200,000. Not being registered exposes you to losing this sum.

For tenants: if you rent premises from an unregistered bare owner, you are not protected by the commercial lease regime. This means you can be evicted without compensation, but you can also leave without paying eviction compensation. However, be careful: if you want to be protected, you must check that the landlord is properly registered. Concrete example in Cagnes-sur-Mer: a restaurateur who has been renting for 10 years without the owner being registered with the Trade and Companies Register may be refused renewal of his lease without compensation.

For purchasers: before buying a business, check that the seller (or the bare owner in case of divided ownership) is registered with the Trade and Companies Register. Otherwise, the lease could be challenged. undefined, I have come across cases where the purchaser had to renegotiate the price after discovering this lack of registration.

For co-owners: if the co-ownership grants a commercial lease over common premises (car park, commercial premises), the managing agent must ensure that the co-ownership is registered with the Trade and Companies Register as a non-operating owner. Otherwise, the tenant may not be subject to the regime.

In summary: registration with the Trade and Companies Register is a simple and inexpensive formality (a few tens of euros), but its absence can be very costly.

Four tips to avoid this type of dispute

• Tip 1: Check your registration with the Trade and Companies Register. If you are the bare owner of a business, even if you do not operate it, apply for registration as a "non-operating owner" with the competent commercial court registry (for example, that of Antibes for Cannes and Cagnes-sur-Mer).
• Tip 2: In case of divided ownership, anticipate. When you create a usufruct over a business, remember to register the bare owner with the Trade and Companies Register. Do not neglect this formality.
• Tip 3: Include a clause in the lease. In the lease contract, specify that the landlord undertakes to be registered with the Trade and Companies Register for the entire duration of the lease. This allows the tenant to demand proof of this registration.
• Tip 4: Consult a lawyer lawyer. Before signing a commercial lease, especially in case of divided ownership, have the situation checked by a professional. The cost of a consultation (€45 for 30 minutes with Maître Zakine) is negligible compared to the stakes.

Further reading: related case law and developments

The French Supreme Court had already addressed this issue in a judgment of 12 December 2006 (n°05-17.345), where it held that the non-trader bare owner must be registered for the lease to be commercial. The 2008 decision confirms this position and specifies that the lack of registration can be invoked even years after the conclusion of the lease.

Conversely, some Courts of Appeal had considered that the commercial nature of the lease could result from the use of the premises, regardless of registration. But the French Supreme Court put an end to this divergence: registration is a necessary condition, even if not sufficient.

This case law is now settled. The Commercial Courts of Grasse and Antibes apply it rigorously. In the future, it is likely that the French Supreme Court will extend this requirement to other forms of divided ownership (for example, in the presence of a right of use or habitation).

Key points to remember

• 1. Can I be evicted without compensation if my landlord is not registered with the Trade and Companies Register? Yes, if the landlord is an unregistered bare owner, the lease is not commercial and you do not benefit from the protective regime. You can be evicted without compensation, but you can also leave without paying eviction compensation.
• 2. How can I check if my landlord is registered with the Trade and Companies Register? Ask him for a K extract (for an individual) or Kbis extract (for a legal entity) dated less than 3 months. You can also consult the website infogreffe.fr.
• 3. What should I do if I am a bare owner and not registered? Go to the commercial court registry of your area (Grasse for Cannes and Cagnes-sur-Mer) and apply for registration as a non-operating owner. The procedure is quick (a few days).
• 4. Can I regularise after a dispute? Yes, you can register even after the start of the dispute. But the judge will assess whether this regularisation is in good faith. It is better to do it before any problem.
• 5. Does this rule apply to existing leases? Yes, it applies to all leases, even those concluded before 2008. If you are in this situation, regularise as soon as possible.

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