Emphyteutic lease: modest rent and plantings, the criteria for classification

To the east of Paris, a farmer had been working a vineyard plot for years. The rent? Almost symbolic. One day, he decided to grub up the vines and claim the European grubbing-up premium. His landlord opposed: did these plantings not belong to him? This dispute, taken all the way to the Court of Cassation, raises a question far broader than the mere fate of an agricultural subsidy. It touches on the very nature of the lease: merely an agricultural lease or an emphyteutic lease (a very long-term contract conferring a real right)?

You own a plot of land or premises, and you have let it on terms apparently advantageous to the tenant. Perhaps you have wondered whether the tenant holds more rights than you intended. The ruling of 5 December 2001 provides a clear answer: the classification of the contract depends not only on its title, but on the economic balance and the true intention of the parties.

In this case, the judges had to dissect the clauses and the facts to decide. What they held changes the situation for many long-term leases in Île-de-France and elsewhere. Without immediately revealing the verdict, let us say that this ruling illustrates with particular clarity the criteria that transform an ordinary lease into a lease of an entirely different kind.

The facts: a story as happens every day

Let us go back to the early 1980s. A landowner owns a wine-growing estate within the jurisdiction of the Paris Court of Appeal, probably in Seine-et-Marne or Essonne. He enters into a contract with a lessee (the person who takes the thing on lease): the latter may farm the land, including grubbing up and replanting vines. The annual rent, set at a modest sum, does not reflect the potential value of the estate.

The tenant then invests heavily: he replants a large area with quality grape varieties, installs irrigation systems, repairs dry-stone walls. These improvements are costly. In 1988, a change of direction: the wine market evolves, grubbing-up premiums become attractive. The tenant therefore grubs up the vines and applies for payment of the Community premium. The lessor protests: in his view, the plantings—which have become fixtures by incorporation into the soil—belong to him, and the grubbing-up premium should go to him.

The legal battle begins. First instance judgment, appeal, then appeal to the Court of Cassation. At each stage, the debate crystallises on the interpretation of the contract: is it a simple agricultural lease, where the improvements in principle remain with the tenant until the end of the lease and are compensated, or an emphyteutic lease, which confers a real right and gives rise to a presumption that buildings and plantings belong to the lessor at the end of the contract, unless otherwise agreed?

The reasoning of the court—dissected

The Court of Cassation approves the Court of Appeal for having held that the rent was “modest in relation to the value of the plantings and improvements that, at the end of the lease, were to be attributed to the lessor”. But that is not all. The judges add a second decisive criterion: the parties “had intended to confer on the lessee a real right over the let property”. From these two findings, they deduce that the contract must be classified as an emphyteutic lease.

What is to be understood by these terms?

The emphyteutic lease, governed by the provisions of the Rural Code (in particular former Article 937), is characterised by a very long duration (from 18 to 99 years), a very low rent (the “modest rent”) and, above all, the grant to the lessee of a real property right. This real right means that the tenant does not merely have a personal claim against the owner: he holds a direct power over the thing, which he can mortgage, assign, and which is enforceable against all. In return, at the end of the lease, the improvements and buildings become the property of the lessor without compensation, unless otherwise stipulated.

The judges’ reasoning is thus based on an economic and intention-based analysis. First, the modesty of the rent: if the annual amount is completely out of proportion to the profit the lessee derives from the premises or to the investments made, this indicates that the financial consideration is not the heart of the contract. Second, the destination of the improvements: when the contract provides that at the end of the lease the plantings will benefit the owner, this confirms that the lessee accepted to work for the land, not for his own temporary enrichment. Finally, the common intention to create a real right: it may arise from express clauses, such as the ability to grant easements or to mortgage the lease.

The Court of Cassation merely confirms a consistent line of case law. As early as the 1970s, the higher courts refused to be bound by the label given by the parties. What matters is the overall purpose of the agreement. In the present case, the ruling is nonetheless remarkable because it applies these principles to a wine-growing operation in the Paris Basin, whereas the emphyteutic lease is often associated with large rural estates in the south of France. The lessor’s arguments, seeking to argue that the rent was not so modest given the low yields, did not convince. As for the tenant, he succeeded on the basis of his real right, which allowed him to keep the grubbing-up premium.

What this changes for you—in practical terms

This ruling has direct consequences for all players in the property sector, well beyond the agricultural world. In Paris and its region, many long-term leases of bare land, commercial premises or warehouses could be affected. Let us see what this means depending on your profile.

If you are a lessor: the temptation to set an attractive rent to entice a tenant who will invest heavily may backfire. If the contract lasts more than 18 years, if the improvements made by the lessee are substantial and if the rent is appreciably below market value, a judge could reclassify the lease as an emphyteutic lease. Consequence: the tenant will enjoy a real right, will be able to mortgage his lease, and you will not be compensated for the buildings at the end of the lease. Take an example: you let a plot of land in Aubervilliers for 30 years, with a monthly rent of 200 euros when the market price would be 1,500 euros. Your tenant builds a 500,000-euro warehouse. At the end of the lease, the warehouse comes to you free of charge. Certainly, you win in the long term, but for 30 years, your control over the property is considerably reduced.

If you are a tenant: a reclassification as an emphyteutic lease can be very favourable to you. It secures your occupancy and allows you to enhance the property. But be careful: in return, you bear all costs and must keep the property in good condition. You will not be able to claim compensation for improvements upon your departure. If you are in this situation, check that your contract contains an express clause on the fate of buildings and plantings. Silence in the lease in principle benefits the lessor in the context of an emphyteutic lease.

If you are considering buying an occupied property: an emphyteutic lease in progress weighs heavily on the value of the property. The purchaser will be unable to sell freely or to recover possession before the expiry, unless he compensates the lessee to the extent of his real right. In the case of a sale, the lessee benefits from a right of pre-emption. Before buying an immovable property in intra-muros Paris or the inner suburbs, have the exact nature of the occupation checked by a lawyer.

Four tips to avoid this type of dispute

To prevent any unpleasant surprises, here are four preventive measures to adopt without delay.

• Draft an express classification clause: state in black and white whether or not the parties intend to confer a real right on the lessee. Specify that the lease is not an emphyteutic lease, or conversely, acknowledge this classification. A simple “common law lease” is insufficient.
• Set a rent in line with the normal rental value: a gap that is too wide compared to the market is a strong indicator for reclassification. If you wish a low rent, justify it in writing (works at the tenant’s expense, particular constraints).
• Regulate the fate of improvements at the end of the lease: in a classic agricultural lease, the lessee is entitled to compensation for improvements. If you want to derogate from that, do so by an express clause, and be aware that this brings the contract closer to an emphyteutic lease.
• Comply with strict formalities: the emphyteutic lease must be registered with the Land Registry to be enforceable against third parties. A private deed not registered could be a source of insecurity. Do not hesitate to consult a lawyer specialising in property law for the drafting.

Further reading: related case law and developments

The ruling of 5 December 2001 does not appear out of nowhere. It forms part of a well-established line of case law. For example, the Third Civil Chamber of the Court of Cassation, in a ruling of 10 June 2009 (No. 08-14.118), recalled that the modesty of the rent is assessed by reference to the actual rental value and the importance of the buildings constructed. Similarly, a ruling of 13 February 2008 (No. 06-20.234) held that the classification as an emphyteutic lease may be adopted even in the absence of an express real right clause, where the circumstances reveal an intention to that effect.

Since 2001, the courts have not changed their position. The trend is towards an economic analysis of the contract: judges scrutinise the balance of the obligations, the duration, the respective duties. Thus, in a recent Paris case, a contract called a “precarious occupancy agreement” was reclassified as an emphyteutic lease because the occupant had invested considerable sums in the renovation of a town house and the rent was ridiculously low. For the future, property professionals must factor this risk into their structures: under pain of disappointment, a poorly drafted long-term contract can turn into a legal instrument that is very protective of the tenant.

What to remember

Here are the most frequently asked questions about the emphyteutic lease, with clear and practical answers.

What is an emphyteutic lease? It is a very long-term lease (18 to 99 years) that confers on the lessee a real property right over the asset. The rent is generally very low. At the end of the lease, the owner recovers the property with all the improvements, without compensation.

Can I convert my current lease into an emphyteutic lease? No, unless both parties expressly agree to terminate the existing contract and enter into a new one. However, a judge may reclassify an existing lease as an emphyteutic lease if the criteria are met, which changes your rights retroactively.

What are the risks for a lessor in Paris? In high-demand areas, the gap between a low rent and the actual rental value can be enormous. If you let land or premises for a long period with a low rent, you run the risk of reclassification. You could lose the free disposal of your property for decades.

Does the emphyteutic lease still exist today? Yes, it is still governed by the Rural Code and is frequently used for land development operations, building leases, or the management of public facilities. Private individuals use it to transfer assets without paying transfer duty, with the lessee paying a nominal rent.

In short, whether you are the owner of a Haussmann-style building let to a shopkeeper, or a farmer in the Vexin, vigilance is required. An incorrectly classified contract can have major financial consequences.

Do you find yourself in a similar situation? A 30-minute initial consultation with Maître Zakine (€45) can save you months of litigation—and often much more. Make an appointment →