Commercial lease and safeguard: the forfeiture clause blocked by collective proceedings

Imagine: you own a commercial property in La Chapelle-Saint-Luc, leased to a clothing store. For six months, the rent has not been paid. You serve a notice to pay invoking the forfeiture clause (the clause that allows the lease to be terminated automatically if the tenant does not pay within a certain period). The tenant does not rectify, so you take the matter to court to have the forfeiture clause declared effective. But in the meantime, the tenant is placed under safeguard (a collective proceeding that protects a business in difficulty). What happens? Can your action succeed? This is exactly the question the French Supreme Court ruled on 13 April 2022. And the answer may surprise you.

This decision, relatively unnoticed, changes the situation for hundreds of commercial leases each year. It pits two logics against each other: contract law, which protects the landlord, and the law of businesses in difficulty, which favours the restructuring of the company. The French Supreme Court has chosen: once the collective proceeding is opened, the landlord can no longer pursue an action to have the lease terminated for rent arrears before the opening. Even if he had already served the notice and taken the matter to court beforehand.

To understand what is at stake, let us delve into the facts of this case, then into the judges' reasoning. Then, I will tell you concretely what this changes for you, landlord or tenant, and how to avoid finding yourself in this deadlock.

The facts: a story that happens every day

The case begins like many disputes in commercial lease law. A company, SCI du Parc, leases a commercial property to the company Le Mouton à Plumes, to operate a ready-to-wear business in Troyes. The rents are paid irregularly, and on 2 October 2015, the lessor serves a notice to pay (a bailiff's act summoning the tenant to pay under penalty of lease termination) invoking the forfeiture clause. The amount claimed: €8,432 in unpaid rent and charges.

The tenant does not pay within the one-month period set by the clause. Normally, the termination is automatically effective. But Le Mouton à Plumes contests the notice before the Tribunal de Grande Instance of Troyes. While the case is ongoing, a major event occurs: on 1 July 2016, the tenant company is placed under safeguard by the Commercial Court of Troyes. This collective proceeding aims to allow the company to continue its business while paying off its liabilities (i.e., repaying its debts) under the protection of the court.

The lessor does not give up. She asks the Tribunal de Grande Instance to declare the lease terminated as of 2 October 2015, i.e., before the opening of the safeguard. The court rules in her favour. But the tenant and its judicial administrator (the professional responsible for assisting it during the safeguard) appeal. The Court of Appeal of Reims, in a judgment of 2 March 2021, declares the application admissible: according to it, the termination did indeed take place before the safeguard, so the collective proceeding does not prevent it from being declared. The tenant appeals to the Supreme Court. This appeal leads to the judgment of 13 April 2022.

The reasoning of the court — dissected

The French Supreme Court quashes the judgment of the Court of Appeal. It relies on two provisions of the Commercial Code: Article L. 145-41, which governs the forfeiture clause in commercial leases, and Article L. 622-21, which sets out the effects of the opening judgment of a safeguard on legal actions. Article L. 622-21 provides that the opening judgment "interrupts or prohibits any legal action by any creditor […] aimed at terminating a contract" for a debt arising before the judgment. And Article L. 145-41 specifies that, for commercial leases, the forfeiture clause is effective if the tenant does not pay within one month of the notice, unless the interim relief judge grants a grace period.

The question was therefore: can an action to enforce the forfeiture clause, initiated before the placement under safeguard, be continued afterwards? The Court answers no. It considers that, even if the action was brought before, it is "interrupted" by the opening judgment and cannot be resumed. Why? Because the purpose of the safeguard is to freeze individual actions by creditors to allow a restructuring plan. Allowing the landlord to obtain termination of the lease would favour one creditor to the detriment of others and would jeopardise the continuation of the business.

The Court of Appeal erred in holding that the termination is assessed at the time of the notice. The French Supreme Court recalls that the action cannot be pursued after the opening judgment, regardless of whether the clause is already "triggered" in theory. This is a confirmation of previous case law (Cass. com., 10 March 2015, No. 13-28.248), but with reinforced scope: even if the landlord has already obtained a first-instance decision before the safeguard, the appeal cannot succeed if the safeguard is opened in the meantime.

This solution is logical with the spirit of the law on businesses in difficulty: preserving business and employment. But it may seem unfair to the landlord, who has followed the procedure and finds himself deprived of his acquired right. The Court ruled in favour of the collective safeguard.

What this changes for you — concretely

If you are the owner of a commercial property (landlord), this decision requires increased vigilance. As soon as your tenant falls behind on payments, act quickly. If you wait too long, and the tenant places itself under safeguard (or judicial reorganisation, or even liquidation), you risk losing all power to terminate the lease for arrears prior to the proceeding. Concretely, if your tenant owes you €15,000 in rent and the Commercial Court of Troyes places it under safeguard on 1 June, your action for termination, even if brought in May, will be blocked. You will only be able to claim those rents within the collective proceeding, as a creditor, often with payment spread over several years and a discount.

For the tenant, on the other hand, it is a shield. If you are in difficulty and you anticipate by filing for safeguard, you can freeze the landlord's actions. However, note: the forfeiture clause can still apply to rents due after the opening judgment (those after the safeguard). If you do not pay after the safeguard, the landlord can terminate the lease without problem.

For the purchaser of a property already leased, be attentive: if the tenant is in collective proceedings, the prior arrears cannot justify a quick termination. You will have to file a proof of debt and wait for the plan.

A concrete example: take a commercial property in La Chapelle-Saint-Luc, monthly rent of €2,500. The tenant accumulates 6 months of arrears (€15,000). You serve a notice on 1 March. On 15 March, before the expiry of the one-month period, the tenant is placed under safeguard. Your notice becomes void: you cannot have the termination declared. You must file your claim for €15,000 with the judicial representative and wait for the restructuring plan. If the plan provides for payment over 5 years with a 30% write-off, you will only recover €10,500 spread over 5 years, without interest.

Four tips to avoid this type of dispute

• Monitor your tenant's payments: at the first default, contact them in writing. A simple call can solve the problem. If the delay exceeds 15 days, do not wait to serve a notice to pay. Every day lost is a risk that the tenant will file for safeguard.
• Serve the notice as early as possible: as soon as the unpaid amount reaches one month's rent, act. The notice must refer to the forfeiture clause and reproduce the applicable legal provisions. Have it served by a bailiff; this is mandatory.
• If the tenant is in difficulty, negotiate an amicable plan: rather than rushing into litigation, propose a payment schedule. This can avoid the collective proceeding, and you will retain a tenant in business. A written agreement, even simple, is better than a long and uncertain procedure.
• Consult a specialised lawyer at the first signs of difficulty: a professional in commercial lease law and collective proceedings can advise you on the strategy to adopt. Sometimes, a well-drafted formal notice is enough to make the tenant react without going to court.

Further reading: related case law and developments

This decision follows a consistent line of the Commercial Chamber of the French Supreme Court. Already, in a judgment of 10 March 2015 (No. 13-28.248), the Court had held that an action for termination of a lease for non-payment prior to the opening judgment cannot be pursued after that judgment. The 2022 decision merely confirms and clarifies this principle, applying it to safeguard (and not only judicial reorganisation).

One question remains open: what happens if the landlord has already obtained a judgment declaring the termination before the opening of the safeguard, but that judgment is not final (for example, it is under appeal)? The French Supreme Court, in a judgment of 12 February 2020 (No. 18-18.069), answered that the suspensive effect of the safeguard also applies to the appeal: the appeal proceedings are interrupted, and the landlord cannot obtain confirmation of the termination. The trend is therefore clear: the protection of the business in difficulty prevails over the individual rights of the landlord, even if the latter has already obtained a favourable first-instance decision.

For the future, landlords must incorporate this risk into their property management. The increase in collective proceedings (particularly accelerated safeguards) makes this case law particularly relevant. Commercial real estate professionals must advise their clients to react very quickly at the first signs of arrears, otherwise they risk being blocked.

Checklist before acting

FAQ: practical questions

• My tenant is in safeguard, can I terminate the lease for prior arrears? No, you cannot. You must file your claim in the liabilities and wait for the plan. Termination can only be sought for rents due after the opening judgment.
• I served a notice before the safeguard, what should I do? The action is interrupted. You cannot pursue it. You must file your claim. The notice remains valid for subsequent rents if you serve a new one after the safeguard.
• Can I request termination on grounds other than non-payment (e.g., failure to operate)? Yes, if the ground arises after the opening judgment or involves an obligation not linked to a prior debt. The safeguard only interrupts actions based on prior debts.
• What is the deadline to file my claim? Two months from the publication of the opening judgment in the Bodacc. After this deadline, you are time-barred (you lose your right).
• What if the tenant does not pay after the safeguard? You can serve a new notice to pay for post-safeguard rents. The forfeiture clause will apply normally, as the safeguard only protects prior debts.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →