Emphyteutic Lease and Resolutive Condition: Beware of a Building Permit Obtained in Bad Faith

Imagine: you own a plot of land in Aubigny-sur-Nère. A developer offers you an emphyteutic lease (a very long-term lease, generally 18 to 99 years, which grants the lessee a real right over the land) to build a commercial unit. You sign, but with a special clause: the lease will be terminated if the lessee does not obtain the building permit within a certain period. The developer applies for a permit… for a nightclub, a project that the configuration of the land makes impossible. The permit is refused. The lease is terminated. But you, the owner, have lost time and opportunities. Can you obtain damages? The Court of Cassation answers: yes, if the lessee acted in bad faith by applying for an unrealistic permit. This is what we will examine.

This decision, handed down on 12 November 1975, is still relevant today. It reminds us that bad faith in the performance of a contractual obligation (such as applying for a building permit) can be sanctioned, even if the resolutive condition (a clause that cancels the contract if an event does not occur) takes effect. For both owners and lessees, this is a strong signal: one cannot hide behind a condition to escape liability.

The Facts: A Story That Happens Every Day

In 1970, Mr Della, owner of a plot of land in Aubigny-sur-Nère, signed an emphyteutic lease with company X. The contract provided that the lessee must obtain a building permit for a 300 m² commercial unit within 18 months. If the permit was not obtained, the lease would be automatically terminated (resolutive condition).

The lessee first applied for a permit for a commercial unit, which was refused. He then applied for a second permit, this time for a 'nightclub'. This application was also refused on 18 August 1971, because the configuration of the land (slope, access) did not allow such construction. The owner noted that the lessee had never really sought to build a commercial premises but had applied for a nightclub in bad faith, solely to trigger the condition and free himself from his obligations (notably, paying the rent).

Mr Della sued the lessee for termination of the lease and damages. The Tribunal de Grande Instance of Bourges ruled in favour of the owner: it ordered termination of the lease, but also ordered the lessee to pay 50,000 francs (approximately €7,600) in damages for breach of his obligation to apply for the permit in good faith. The lessee appealed, arguing that once the lease was terminated, he could no longer be condemned for contractual non-performance. The Bourges Court of Appeal upheld the judgment. The lessee appealed to the Court of Cassation.

The Reasoning of the Court — Analysed

The Court of Cassation, in its judgment of 12 November 1975, dismissed the appeal. It held that the lower courts had not contradicted themselves by ordering both termination of the lease and an award of damages. Why? Because the two sanctions address different matters: termination is the consequence of the resolutive condition (absence of a permit), while damages compensate for the harm caused by the lessee's bad faith in performing his obligation to apply for the permit.

The legal basis is Article 1147 of the Civil Code (former, now Article 1231-1 since the 2016 reform), which obliges the debtor to compensate for damage caused by non-performance of his obligation, unless there is force majeure. Here, the lessee had the obligation to apply for a permit for a realistic construction. By applying for an impossible nightclub, he breached this obligation of good faith (former Article 1134(3), now Article 1104). The Court added that the resolutive condition does not prevent sanctioning the fault committed before its fulfilment.

The judges recalled an essential principle: good faith must govern the performance of all agreements. Here, the lessee deliberately chose a project doomed to failure in order to extricate himself from his commitments. This is an abuse of right. The decision confirms previous case law on bad faith, but it is interesting because it clarifies the relationship between a resolutive condition and contractual liability.

What This Changes for You — Practically

If you are an owner-landlord (in Saint-Amand-Montrond or elsewhere): You can now be compensated if your lessee acts in bad faith in fulfilling the suspensive or resolutive condition. For example, if you lease a building plot subject to obtaining a permit, and the tenant submits an absurd or incomplete application, you can obtain damages in addition to termination of the lease. Caution: you must prove bad faith, for instance by demonstrating that the project was unfeasible or that the lessee did not take the necessary steps.

If you are a lessee (emphyteutic tenant): You must act in good faith. Do not try to circumvent your obligations by invoking a resolutive condition that you yourself triggered. The Court of Cassation will catch up with you. For example, if you undertake to build a 500 m² building, but apply for a permit for a garden shed, you risk being ordered to pay damages equivalent to the owner's loss of earnings (e.g., rent not received during the wasted time).

Numerical example: Take a plot of land in Saint-Amand-Montrond leased at €5,000 per year under a 50-year emphyteutic lease. If the lessee causes the condition to fail through his fault, the owner can claim the lost rent during the proceedings (often 2-3 years, i.e., €10,000 to €15,000), in addition to termination. Without this decision, he would have obtained nothing.

Four Tips to Avoid This Type of Dispute

• Draft the object of the condition precisely: Do not just state 'building permit'. Specify the type of construction (surface area, height, use) and the deadline for submitting the application. For example: 'the lessee undertakes to apply for a building permit for a 300 m² commercial unit within 6 months of signing.'
• Provide for reporting obligations: Require the lessee to provide you with a copy of each permit application and the administration's responses. This way, you can quickly detect a bad-faith application.
• Include a penalty clause: Add a fixed penalty (e.g., €10,000) in case the permit is not obtained due to the lessee's fault. This makes it easier to obtain damages without having to prove the exact loss.
• Keep all correspondence: Retain letters, emails, and especially feasibility studies. In the event of a dispute, they will serve to demonstrate the good or bad faith of the lessee.

Further Reading: Related Case Law and Developments

This 1975 decision is part of a consistent line of authority. As early as 1969, the Court of Cassation (Civ. 3e, 15 May 1969) held that bad faith in the performance of a suspensive condition could give rise to damages, even if the condition was not fulfilled. More recently, in 2018 (Civ. 3e, 22 March 2018, No. 17-14.565), the Court applied the same principle to a property sale: the buyer who did not apply for his loan in good faith was ordered to pay damages, despite the suspensive condition of obtaining the loan.

The trend is therefore clear: the courts sanction disloyal behaviour, even when a resolutive or suspensive condition applies. For the future, with the reform of contract law (Ordinance of 10 February 2016), good faith is further reinforced (Article 1104). We can expect judges to be even more demanding.

Summary and Next Steps

FAQ:

• Can I terminate an emphyteutic lease if the building permit is not obtained? Yes, if a resolutive condition is provided for. But you can also claim damages if the non-obtention is due to the lessee's bad faith.
• What should I do if I suspect my lessee of bad faith? Gather evidence (inappropriate permit application, lack of diligence) and consult a lawyer. You can take legal action to have the termination declared and claim damages.
• What is the time limit for taking action? The limitation period is 5 years from the day the owner becomes aware of the bad faith (Article 2224 of the Civil Code). Do not delay.

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 →