Commercial lease and hotel sublease: when the landlord does not have to consent

Imagine: you own a building in Mougins, near Grasse. You lease it to an operator who runs a hotel residence there. The rooms are let by the week or month to tourists or business travellers. So far, nothing unusual. But one day, you learn that your tenant has sublet some units for long periods, without informing you, without your authorisation. You believe this changes the use of the premises, or even creates a risk of reclassification as standard residential tenancies, with all the constraints that entails. You decide to seek annulment of these subleases. And then, the French Supreme Court refuses point blank: when the commercial lease concerns a hotel residence activity, subleasing the units is the very object of the tenant's activity. Consequently, the landlord does not have to be called to participate in the sublease deeds. In other words, your tenant may sublet freely, without your consent. This decision of 15 April 2015 (No. 14-15.976) is a turning point for owners and operators of hotel residences. But what exactly does it change for you? We will dissect this case and its practical implications, particularly in the jurisdictions of Grasse and Mont-de-Marsan where I practice.

The facts: a story like any other

The case begins with an owner, whom we will call Mr X, who owns a residence in Mougins. He grants a commercial lease to the company SGH La Coupole, specialising in the operation of accommodation establishments. The contract provides that the premises are intended for a hotel residence activity, consisting of making available to customers, in addition to accommodation, service packages defined by Article 261 D, 4° of the French General Tax Code (hotel-type services such as breakfast, cleaning, etc.). In short, it is a standard commercial lease for a hotel activity.

However, the company SGH La Coupole begins to sublet some units of the residence to individuals for primary residential use, i.e. for long periods, without the owner's consent. Mr X is concerned: in his view, these subleases constitute residential tenancies, which do not fall within the authorised hotel activity. He therefore sues the company to have these subleases declared void, for failure to call him to participate in the sublease deeds, as required by Article L. 145-31 of the French Commercial Code (which requires the landlord to be present or represented at the sublease deed, on pain of nullity). The company defends itself by arguing that, in the context of a hotel residence, subleasing is its very activity: it does not need additional authorisation.

The trial court rules in favour of the owner at first instance. The company appeals, and the Court of Appeal reverses the judgment: it holds that the subleases are valid because they constitute the very object of the tenant's activity. Mr X appeals to the Supreme Court. In its decision of 15 April 2015, the Supreme Court affirms the Court of Appeal's decision. It dismisses the appeal and validates the freedom to sublet for hotel residences. A twist that may surprise owners.

The reasoning of the court — dissected

To understand the decision, we must look at Article L. 145-31 of the French Commercial Code, which provides that any partial or total sublease of commercial premises must be consented to by the landlord, on pain of nullity. This rule protects the owner by allowing him to control the use of the premises and the solvency of the subtenants. However, there is an exception: when subleasing is the very object of the tenant's activity, i.e. when the tenant's main activity is to sublet premises (as in the case of a hotel residence, a furnished hotel or an inn).

The Supreme Court here applies this exception. It considers that the company SGH La Coupole operates an accommodation establishment consisting of subletting units for primary residential use, and that this subletting is the very object of its activity. It does not matter that the subleases are granted to individuals for long periods: as long as the main activity remains temporary accommodation with services, subleasing is free. The landlord does not have to be called to the sublease deeds.

The Court specifies that Article 261 D, 4° of the French General Tax Code (which defines hotel services) is not relevant to distinguish residential tenancies from commercial leases. What matters is the nature of the tenant's activity: if his business consists of subletting units, then subleasing is part of his normal operation.

In other words, the Court distinguishes two situations: on the one hand, the commercial tenant who sublets part of his premises as an ancillary activity (for example, a restaurant subletting a room): in that case, the landlord must consent. On the other hand, the tenant whose very activity is subletting (hotelier, tourist residence): in that case, no authorisation is needed. The boundary is subtle, but the logic is clear: one cannot require a hotelier to seek permission for every room let.

What this changes for you — concretely

For landlord owners: this decision reduces your control over subleases. If you grant a lease for a hotel or residence activity, you cannot require to be informed or to consent to each sublease. Concrete example: in Mandelieu, you lease a building to a tourist residence operator. He sublets studios to retirees for several months. You cannot oppose this, even if these lettings resemble residential tenancies. However, beware: if the operator ceases to provide the service packages (cleaning, linen...), the subleases could be reclassified as residential tenancies, with all the consequences (Law of 1948, etc.).

For tenant operators: this decision gives you valuable freedom. You can organise your subleases without fear of nullity. But be vigilant: you must maintain the hotel services to stay within the scope of the activity. If you neglect the services, you risk reclassification as residential tenancies, which may result in rights of continued occupation for the occupants and regulated rents.

For purchasers or investors: before buying a hotel residence, carefully check the nature of the leases granted. If the operator has granted long-term subleases without services, you could inherit protected residential tenancies. undefined, I have encountered cases where investors lost the rental value of their property because of this.

Four tips to avoid this type of dispute

• Draft the object of the commercial lease precisely: state that the authorised activity is the operation of a hotel residence with service packages, and that subletting the units is an integral part of it. This will avoid any ambiguity.
• Provide for a clause on information about subleases: even if the law does not require it for hotel residences, you can contractually require your tenant to provide you with the list of subtenants and the duration of stays. This allows you to verify that the activity remains compliant.
• Monitor the maintenance of service packages: include a clause obliging the tenant to provide the services defined in Article 261 D, 4° of the French General Tax Code (breakfast, regular cleaning, linen supply...). In case of breach, you can invoke the reclassification of the subleases as residential tenancies.
• Act quickly in case of dispute: if you suspect that your tenant is not complying with his hotel activity, take the matter to court promptly. The limitation periods are short: one year to challenge an unauthorised sublease (Article L. 145-31 of the French Commercial Code).

Further reading: related case law and developments

This decision is part of a consistent line of the Supreme Court. Already, in a decision of 12 March 2002 (No. 99-21.101), it had held that the tenant of a commercial lease for a hotel activity could sublet rooms without the landlord's authorisation, because subletting was the very object of his activity. The 2015 decision confirms and extends this solution to hotel residences with service packages.

However, be aware of a recent trend: some Courts of Appeal are stricter on the notion of service packages. For example, the Aix-en-Provence Court of Appeal has reclassified subleases as residential tenancies when the services were non-existent or insufficient. The boundary is therefore narrow. In the future, the courts may be called upon to clarify what constitutes a sufficient "service package". In any event, this case law provides security for operators, but imposes increased vigilance on owners.

Key points to remember

• Question: Can a hotel residence operator sublet units without my consent?
  Answer: Yes, if subletting is the very object of his activity (i.e. if it is a residence with hotel services). Your consent is not required, but you can monitor the maintenance of the services.
• Question: What if my tenant sublets without service packages?
  Answer: You can seek reclassification of the subleases as residential tenancies, which would allow you to invoke the protective rules of the residential tenancy status (Law of 6 July 1989).
• Question: Can I include a clause prohibiting any sublease?
  Answer: Yes, but such a clause could be deemed unwritten if it contradicts the very object of the lease (hotel activity). It is better to avoid it and opt for an information clause.
• Question: What are the risks if I do not control the subleases?
  Answer: You risk the subtenants acquiring rights to remain in the property if the hotel activity disappears, which can depreciate your asset.
• Question: Does this decision apply to all seasonal lettings?
  Answer: No, only to commercial leases for hotel residences with services. Standard seasonal lettings (furnished tourist accommodation) are subject to a different regime.

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