Commercial lease signed before registration: ratification by mandate is valid

Imagine: you own commercial premises in Rethel, in the Marne. A group of shareholders contacts you to rent the premises in the name of a company they are in the process of forming. You sign the lease, but the company is not yet registered. A few months later, a dispute arises: who is liable for the rent? The company? The shareholders? This is exactly the question that arose in this case.

The Court of Cassation, in a judgment of 1 July 2008, ruled: a commercial lease signed on behalf of a SARL in formation can be adopted by the company if the shareholders gave a mandate before registration. But beware: this mandate must be express and clear. What does this mean for you, as a landlord or future shareholder? A great deal.

This decision secures property transactions concluded during the formation period of a company. It also reminds us of the importance of drafting the articles of association. Let's delve into the details.

The facts: a story that happens every day

In March 2001, Mr. Z... and two other shareholders decided to form a fast-food SARL in Paris. Before the company was even registered, on 5 March, Mr. Z... signed a commercial lease in the name of the company in formation with a landlord, Mr. X. On 7 March, the articles of association were signed: they contained a clause giving Mr. Z... a mandate to conclude this lease. The company was registered on 14 March. But quickly, difficulties arose: the rent was not paid. On 22 April 2003, the landlord terminated the lease and sued the company for payment.

Before the court, the company contested its liability, arguing that the lease had been signed before its registration, therefore before it legally existed. The landlord, on the other hand, argued that the company had adopted the lease by ratifying it. The Paris Court of Appeal, in a judgment of 14 September 2006, ruled in favour of the landlord. The company appealed to the Court of Cassation.

But here is the twist: the Court of Cassation, on 1 July 2008, quashed the appeal judgment. Why? Because the Court of Appeal did not verify whether the mandate given in the articles of association was before or after the signing of the lease. However, according to the Court, ratification (subsequent approval) by a mandate given before registration is possible, but only if the mandate predates the act. In this case, the mandate was subsequent (signed on 7 March, lease signed on 5 March). The case was remitted to the Paris Court of Appeal.

The reasoning of the court — analysed

The heart of the dispute rests on Article 1843 of the Civil Code (which governs companies) and the theory of companies in formation. In short, a company only acquires legal personality (the legal capacity to act) upon its registration in the Trade and Companies Register (RCS). Before that, it does not exist as a legal entity. Acts concluded in its name are therefore, in principle, void or engage the personal liability of the person who signed them.

However, the law and case law allow the adoption of commitments by the company after its registration, provided the shareholders gave a mandate to act in its name. This mandate can be given in the articles of association (as was the case here) or by a separate deed. The Court of Cassation specifies that this mandate can also ratify a commitment already made, provided it predates the act. In other words, if the mandate is subsequent, ratification is not possible by this means.

Note, however: the Court does not say that the company can never adopt a lease signed before its registration. It simply says that, in this case, the Court of Appeal did not properly check the chronology. In practice, if the mandate had been given before the signing of the lease, the company would have been validly bound.

What few people know is that this solution is a compromise between legal certainty and commercial flexibility. On the one hand, it protects third parties (such as the landlord) who contract with a company in formation. On the other hand, it allows the company not to adopt commitments it does not wish to.

What this means for you — practically

For landlords: if you sign a lease with a company in formation, ensure the shareholders gave an express mandate before the signing. Otherwise, you risk being left without a solvent debtor. Example: in Vitry-le-François, a landlord leased premises to a company in formation without a prior mandate. The company went bankrupt: the landlord could only recover the unpaid rent from the signing shareholder personally.

For shareholders and managers: if you sign an act on behalf of a company in formation, you must either provide a mandate in the articles of association (before the signing) or have the act ratified after registration by a collective decision. undefined, I have come across cases where shareholders signed a lease without a mandate: they were pursued personally.

For tenants: if you are a tenant of a company in formation, check that the lease has been properly adopted. Otherwise, your lease could be void.

If you are in this situation, you should: 1) check the date of the mandate relative to the act; 2) if the mandate is subsequent, request an express ratification after registration; 3) consult a solicitor to secure the transaction.

Four tips to avoid this type of dispute

• Anticipate the mandate in the articles of association: When drafting the articles of association of a SARL, include a list of acts that shareholders can perform before registration, and give a mandate to one of them to sign them. This avoids any challenge.
• Date each document: Have the mandate signed before the conclusion of the lease or any other contract. Proof of priority is crucial.
• Ratify after registration: If you signed without a prior mandate, hold a general meeting after registration to ratify the act. This constitutes adoption by the company.
• Consult a solicitor before signing: A professional can verify the compliance of the mandate and save you years of litigation.

Further analysis: related case law and developments

This decision is part of a consistent line of the Court of Cassation. Already, in a judgment of 14 December 2004 (No. 02-19.826), the Court held that the adoption of commitments by a company in formation can result from a mandate given in the articles of association. The 2008 decision merely clarifies the condition of the mandate's priority.

On the other hand, a more recent decision of 10 September 2013 (No. 12-20.561) relaxed the rule by admitting tacit ratification (for example, payment of rent by the company after registration). The current trend is therefore favourable to validating commitments, provided there is a clear link between the act and the company's intention.

For the future, the courts will continue to examine each case individually. But one thing is certain: the drafting of the articles of association and the chronology of acts remain essential.

Summary and next steps

FAQ:

1. Can I sign a lease on behalf of a company in formation? Yes, but you must have an express mandate from the shareholders before the signing, or have the act ratified after registration.
2. What if I have already signed without a mandate? Arrange for ratification after registration (general meeting). If the company refuses, you will be personally liable.
3. What are the risks for the landlord? If the company does not adopt the lease, you can only sue the signing shareholder, who may be insolvent.
4. Can ratification be tacit? Yes, according to recent case law, payment of rent by the company after registration constitutes ratification.
5. Do I need a solicitor to draft the mandate? Strongly recommended, especially if the lease is complex or long-term.

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