Commercial lease in judicial reorganisation: when can the administrator terminate the lease?

Imagine: you are the owner of a commercial premises in Douarnenez, leased to a trader. One day, you learn that your tenant is in judicial reorganisation. The administrator (the person appointed by the court to manage the company) informs you that he no longer wants the lease, but specifying that the termination will only take place in three months. You wonder: from when is the lease really ended? Can I re-let the premises immediately?

This question, crucial for any landlord, was decided by the Court of Cassation in a judgment of 24 January 2018. The high court ruled that the termination of the lease occurs on the day the landlord is informed of the administrator's decision, even if the latter has indicated a later date. A decision that secures landlords, but requires increased vigilance.

In this article, I decode this decision for you, with concrete examples, and give you the keys to react if you are faced with a similar situation. Whether you are an owner in Châteaulin, a tenant in Quimper, or a real estate professional, you will leave with clear reference points.

The facts: a story like everyday occurrences

Mr. X, owner of a commercial premises in Douarnenez, had entered into a lease with a company operating a clothing store. In 2016, the company was placed in judicial reorganisation (a collective procedure allowing a company in difficulty to continue its activity under judicial supervision). An administrator is appointed to manage the company and decide the fate of existing contracts.

The administrator initially decides to continue the lease – meaning the contract continues normally, rents are due. But a few months later, he changes his mind: he informs the landlord by registered letter that he is terminating the lease, but specifying that this termination will take effect on a later date, for example 30 June. The owner, thinking he still has time, does not immediately look for a new tenant.

Meanwhile, the tenant ceases its activity and leaves the premises. The owner finds himself with an empty premises, but without being able to re-let it immediately, because he considers that the lease runs until the date indicated by the administrator. When he tries to re-let, the potential new tenant withdraws, and the owner suffers a loss of several months' rent.

The owner then sues the administrator in court for damages, arguing that the termination was not regular or that the later date should have been respected. The Court of Appeal rules against him, and he appeals to the Court of Cassation. The question put to the Court of Cassation was clear: at what point does the termination of the lease become effective?

The reasoning of the court — deciphered

The Court of Cassation dismissed the owner's appeal, upholding the appeal judgment. To understand, we must delve into Article L. 622-14, 1°, of the Commercial Code (in its version applicable at the time). This provision states that the termination of the lease of buildings used for the company's activity occurs on the day the landlord is informed of the administrator's decision not to continue the lease. In other words, it is the notification that matters, not the date that the administrator may eventually mention.

But attention: the administrator can make this decision at any time, even if the rents are paid on the due date. This seems to contradict another article, Article L. 622-13, II, which obliges the administrator to terminate a contract for successive performance (like a lease) if he does not have enough funds to pay the next term. The Court of Cassation clarifies that these two articles are not incompatible: the administrator can terminate even if funds are sufficient, as soon as he considers that continuing the lease is not useful to the activity.

In this case, the administrator had informed the landlord of his decision to terminate, but setting a later date. The Court rules that this is not a conditional or deferred termination: the termination is immediate upon notification. The mention of a later date has no effect on the legal date of termination. In short, the owner could re-let his premises as soon as he received the administrator's letter, without waiting for the indicated date.

What few people know is that this decision is part of a logic of protecting the landlord: it prevents the administrator from indefinitely blocking the premises by announcing a future termination, which would prevent the owner from finding a new tenant. But it also imposes vigilance: the landlord must react immediately.

What this changes for you — concretely

If you are the owner of a commercial premises (landlord), this decision is good news. As soon as you receive a termination notification from the administrator, the lease is terminated, and you can freely re-let the premises. However, be careful: if the administrator does not specify a date, the termination is immediate. If he specifies one, it is without effect. undefined, I have come across cases where owners waited several months, believing the lease continued, and lost rent. Do not make this mistake.

For tenants (companies in judicial reorganisation), know that the administrator can terminate the lease at any time, even if you pay your rent. This can be brutal, but it is legal. If you are a tenant in Châteaulin and your company is in difficulty, anticipate: the administrator may decide to terminate the lease to reduce costs, leaving you without premises.

For real estate professionals (agents, notaries), this decision reminds us of the importance of checking the legal situation of the tenant before signing a lease. If the tenant is in collective proceedings, the lease can be terminated overnight. Practical advice: in a lease, include a clause providing that the tenant must inform the landlord of any collective proceedings within eight days, subject to termination as of right.

Four tips to avoid this type of dispute

• Do not delay in reacting: as soon as you receive a termination notification from the administrator, consider the lease terminated. Do not rely on a later date mentioned. Re-let quickly to limit your loss.
• Require written notification: termination must be notified by registered letter with acknowledgment of receipt. Keep this document carefully. If the administrator contacts you orally, ask for written confirmation.
• Anticipate non-payment: if you are a landlord, take out rent guarantee insurance or require a substantial security deposit. In judicial reorganisation, rents after the judgment are privileged, but it is better to prevent.
• Consult a lawyer lawyer: each case is unique. A lawyer will help you verify the regularity of the notification and take necessary actions (recovery, termination as of right).

Besoin d'un conseil personnalisé ? Contactez Maître Zakine — première consultation 30 min à 45€.

Further reading: related case law and developments

This 2018 decision confirms earlier case law of the Court of Cassation, notably a judgment of 13 September 2011 (No. 10-23.906) which had already ruled that termination of the lease by the administrator takes effect upon notification. However, there was some confusion when the administrator set a later date. The 2018 judgment definitively clarifies this point: the date mentioned is inoperative.

Since then, the trend of the courts is consistent: the lower courts strictly apply Article L. 622-14. No reversal is to be expected. However, be careful: if the administrator does not notify his decision but lets the lease continue, termination only occurs if the landlord requests termination for non-payment of rent after the judgment. In that case, it is the judge-commissioner who authorises the termination.

For the future, this legal certainty is beneficial for landlords, but it requires reactivity. In practice, if you are a landlord and you receive a notification, you have every interest in re-letting quickly to avoid vacancy.

In practice: what to do

Checklist for the landlord faced with termination by the administrator:

1. Check the date of receipt: termination is effective on the day of receipt of the registered letter. Keep the envelope and the acknowledgment of receipt.
2. Re-let immediately: you do not have to wait for a later date. Offer the premises for rent as early as the next day.
3. Retrieve the keys: if the tenant does not vacate the premises, start eviction proceedings. Termination of the lease gives you the right to immediate return of the premises.
4. Declare your claim: if rents are unpaid, declare your claim to the judicial representative within two months of the opening judgment.
5. Consult a lawyer: if the tenant challenges the termination or if you suffer loss, a lawyer will help you obtain damages.

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