Commercial lease: can the landlord refuse renewal even after offering it?

Imagine: you own a commercial property in Beaune. Your tenant, a printer, has occupied the premises for years. The lease is expiring. You serve notice (an act terminating the lease) with an offer of renewal, but at a higher rent, because property prices in the area have risen. Your tenant accepts the renewal... but only in principle, not the new rent. Are you stuck? Not necessarily. The French Supreme Court ruled in 1992: the landlord can still change their mind and refuse renewal, as long as the rent has not been fixed by a judge. A breath of fresh air for landlords, but a real headache for shopkeepers.

Who has never hesitated between maintaining a lease or looking for a more profitable new tenant? This little-known decision gives landlords greater room for manoeuvre. But beware: it also requires a clear strategy, because every step counts. Let's decipher it with concrete examples, from Beaune to Auxonne.

This ruling of the French Supreme Court of 2 December 1992 (No. 90-18.844) answers a practical question: can a landlord withdraw an offer of renewal if the tenant does not accept the new rent, before the judge has ruled? Answer: yes, without waiting. But watch out for pitfalls: the initial notice must be valid, and the refusal of renewal must be clear.

The facts: a story that happens every day

Mr X, owner of a commercial property in Beaune (Côte-d'Or), leased it to the company Arts Litho, specialising in printing. The lease, governed by the French commercial lease regime (Law of 30 September 1953), expired on 15 February 1988. In March 1987, Mr X served notice (served by bailiff) on his tenant, with an offer to renew the lease, but at a revised higher rent reflecting the market rental value in Beaune.

The company Arts Litho replied by registered letter: it accepted the principle of renewal, but disputed the amount of the new rent, which it considered excessive. It proposed to refer the matter to the rent judge to fix the amount. Mr X, seeing that the negotiations were stalling, changed his strategy. In September 1988, he served a second notice, this time without an offer of renewal, purely and simply refusing the continuation of the lease. He required the tenant to leave by 15 November 1988.

The company Arts Litho sued Mr X before the Dijon tribunal de grande instance (High Court), arguing that, having accepted renewal, the landlord could no longer go back. The court ruled in its favour, ordering the landlord to renew the lease at the rent fixed by the expert. Mr X appealed. The Dijon Court of Appeal upheld the judgment in 1990. But the landlord appealed to the Supreme Court, arguing that no law prevented him from exercising his right to refuse renewal as long as the rent had not been judicially fixed.

The French Supreme Court, in its judgment of 2 December 1992, quashed the Dijon judgment and referred the case to the Besançon Court of Appeal. It held that the landlord was entitled to refuse renewal, even after having offered it, because the tenant had only accepted the principle, not the rent. A landmark decision.

The court's reasoning — dissected

The French Supreme Court relied on Article 31, paragraph 2, of the Decree of 30 September 1953 (now Article L145-57 of the French Commercial Code). This provision states that the landlord may refuse renewal of a commercial lease by paying compensation for eviction (a sum compensating the tenant for the loss of its business). But the question was: can the landlord still do so after having offered renewal with a new rent, if the tenant only accepts the principle?

The High Court answered in the affirmative. Its reasoning is simple: no legal provision prevents the landlord from exercising the option to refuse as long as the amount of the rent has not been fixed by the judge. In other words, the offer of renewal is a global proposal (principle + rent). If the tenant accepts only half, the landlord is not bound. He may withdraw his offer and refuse renewal, provided he pays the compensation.

The judges dismissed the argument of Arts Litho that acceptance of the principle created an acquired right to renewal. No, they said, as long as the rent is not agreed or fixed, the contract is not formed. This is an application of the general law of contract: the offer and acceptance must relate to the same essential terms. Here, the rent is an essential term.

This decision confirms previous case law, but usefully clarifies it. It gives landlords a weapon against tenants who delay or challenge rents. But beware: the refusal of renewal must be clear and unequivocal. A second notice without an offer is the correct method, as Mr X did. If the landlord hesitates or delays, he may lose his right.

In practice, the landlord must pay eviction compensation (often several years' rent) to compensate for the loss of the business. That is the price of freedom. But in some cases, it is worth it, especially if the market rent is much higher than the current rent.

What it means for you — practically

For the landlord: you now have an exit door. If you offer renewal with an increased rent, and your tenant delays or does not accept the amount, you can still refuse renewal. But beware: you must act quickly, before the judge fixes the rent. Once the decision is made, you are bound. Concrete example: a landlord in Auxonne owns a property let at €800/month, while the market rent is €1,200. He offers renewal at €1,100. The tenant accepts renewal but disputes the rent. Rather than waiting months of proceedings, the landlord can refuse renewal, pay eviction compensation (e.g. €30,000), and then re-let at the market rent. Over 5 years, he recovers his investment.

For the tenant: beware! Accepting only the principle of renewal does not protect you. You must absolutely accept the proposed rent, or at least engage in written negotiation. If you dispute, the landlord can evict you with compensation. Your business is at stake. If you are in Beaune, get advice before responding to a notice.

For the purchaser of a commercial property: check whether a notice has been served and whether the tenant has accepted. If the rent is not fixed, the seller may still refuse renewal, which affects the value of the property. Require a clear clause in the sale deed.

For the co-owner: if you let a unit in a co-ownership, this decision also concerns you. The management company must be vigilant during renewals of commercial leases.

Four tips to avoid this type of dispute

• Draft a precise notice: the notice must clearly mention the new proposed rent, and indicate that failure to accept will lead to a refusal of renewal. Have it served by a bailiff.
• Set a deadline for reply: in the notice, impose a deadline (e.g. 1 month) for the tenant to accept the rent. After this deadline, you may refuse renewal.
• Do not delay action: if the tenant disputes, do not let things drag on. Quickly send a second notice refusing renewal. Each passing month may be interpreted as tacit acceptance.
• Consult a lawyer before any step: a professional will help you comply with formalities and assess the amount of eviction compensation, which can be high.

Further reading: related case law and developments

This decision is part of a consistent line of French Supreme Court rulings. Already in 1985, a judgment (Civ. 3e, 9 January 1985) held that an offer of renewal lapses if the tenant does not accept the proposed rent within a reasonable time. More recently, in 2018 (Civ. 3e, 7 June 2018, No. 17-16.179), the Court specified that the landlord can refuse renewal even after having agreed to an expert appraisal of the rent, as long as the judge has not ruled.

The trend is therefore favourable to landlords. Commercial courts and courts of appeal (like that of Dijon, initially in favour of the tenant) are sometimes more protective of shopkeepers, but the French Supreme Court regularly reminds them of the law. In future, expect tenants to be more cautious: they will accept the rent subject to negotiation, or ask for a review clause.

This case law is all the more important in cities like Beaune or Auxonne, where commercial rents vary greatly depending on location. A savvy landlord can thus optimise their property, provided they follow the rules.

Key points to remember

FAQ:

• Can I refuse renewal after having offered it? Yes, if the tenant has not accepted the new rent, and before the judge fixes it.
• What does the tenant risk? They must leave the premises, but receive eviction compensation (value of the business).
• What is the deadline to act? As soon as the tenant disputes the rent, send a second notice without an offer. Do not exceed 3 months after the tenant's reply.
• Do I have to pay compensation? Yes, if you refuse renewal. The amount is often high (several years' rent).
• What if the tenant accepts the rent? You are bound: the lease is renewed at the proposed rent.

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