Commercial Lease and Assignment Without Business: Good Faith Cannot Allow Everything

Imagine: you are a landlord in Bourbourg, in the Nord. You rent out premises for use as a restaurant to a trader. The lease contains a standard clause: the tenant can only assign his lease to the buyer of his business. One day, he tells you he is leaving the premises and a new tenant will take his place, without your consent. Surprise: no business has ever been operated in these walls. You refuse the assignment. The new claimant sues you, arguing that you are acting in bad faith. Who is right?

This question, which may seem trivial, was decided by the French Supreme Court in a judgment of 9 December 2009 (No. 04-19.923). The answer is clear: good faith does not allow a clause to be stripped of its substance or the mandatory rules of the commercial lease status (French Commercial Code, Article L. 145-1) to be circumvented. In other words, even if a clause seems unfair in its application, you cannot disregard it on the pretext that the other party has been disloyal. The judge can sanction an abuse, but cannot rewrite the contract.

This decision is an essential safeguard for landlords, but also a trap for overconfident tenants. Let's see together what happened in this case, why the Court ruled as it did, and what this means for you, whether you are a landlord in Gravelines or a tenant in Perpignan.

The Facts: A Story That Happens Every Day

We are in Perpignan, in 1999. A landlord, whom we will call Mr. X, grants a nine-year commercial lease to the company La Belle Époque. The premises are intended for use as a restaurant, bar and brasserie. The contract is drafted by a professional and contains a standard assignment clause: the tenant can only assign his lease (i.e., transfer the rental contract) to the buyer of his business (the set of movable assets and clientele attached to the activity). In other words, no sale of the lease without sale of the business. This clause is common: it allows the landlord to ensure that the successor is a genuine trading operator, and not a disguised sub-tenant.

But here's the thing: La Belle Époque never created or operated any business in the premises. No chairs, no tablecloths, no customers. Why? The decision does not say, but one can imagine an aborted project, works that did not materialise, or a mere speculative intention. In any event, a few years later, the company decides to assign its lease to a third party, Mr. Pompei, without the landlord's consent. The landlord objects, relying on the clause in the contract. Mr. Pompei then takes legal action to have the assignment recognised as valid.

Before the Court of Appeal, Mr. Pompei and La Belle Époque plead the landlord's bad faith. Their argument? Since no business ever existed, the clause making the assignment conditional on the acquisition of the business is devoid of purpose. By relying on it, the landlord is acting disloyally. The Court of Appeal agrees: it declares the assignment enforceable (i.e., valid against the landlord) and orders the landlord to accept it. The landlord appeals to the Supreme Court. The case reaches the Supreme Court, which rules in his favour.

The Court's Reasoning — Analysed

The Supreme Court quashes the Court of Appeal's decision. Why? Because, in its view, the Court of Appeal violated two fundamental provisions: Article 1134 of the Civil Code (former, now Article 1103), which provides that agreements must be performed in good faith, and Article L. 145-1 of the Commercial Code, which sets out the mandatory status of commercial leases. In plain language, the Court says: yes, the judge can sanction a disloyal use of a contractual clause (for example, if a landlord systematically refuses any assignment without legitimate reason, that could be abusive). But he cannot, under this pretext, undermine the very substance of the rights and obligations that the parties have freely accepted, nor disregard the mandatory rules (public policy) of the commercial lease status.

What does this mean in practical terms? The disputed clause was not held to be void. It was perfectly valid and applicable. Whether or not the business existed is irrelevant: the clause prohibits the assignment of the lease alone, full stop. The fact that no business was created does not turn this prohibition into an authorisation. The Court of Appeal therefore erred by substituting its own assessment of good faith for the clear intention of the parties. It should have found that the clause was lawful and that the landlord was entitled to rely on it, unless a clear abuse was shown — which was not the case here. Simply opposing an assignment that does not comply with the contract is not an abuse.

This decision is in line with the Supreme Court's consistent case law: contractual good faith (Article 1104 of the Civil Code) is a regulatory tool, not an instrument for revising the contract. It allows disloyal behaviour to be punished (for example, a landlord who refuses an assignment solely to harm the tenant), but not to rewrite clauses. In this case, the Court of Appeal went too far. The Supreme Court sets the record straight.

What This Means for You — Practically

If you are a landlord (in Bourbourg, Gravelines or elsewhere), this decision is reassuring. You can include restrictive assignment clauses in your leases, for example requiring that the assignee be the buyer of the business, or that the assignment be subject to your approval. And you can oppose such assignments without fear of being systematically accused of bad faith. However, beware: a purely vexatious refusal (without legitimate reason) or discriminatory refusal could be sanctioned. For example, refusing an assignment because the candidate is of a different origin would be illegal. But a refusal based on the contract is presumed legitimate.

If you are a tenant, this case is a warning. Do not assume that a clause will be applied flexibly against you. If your lease prohibits the assignment of the lease without the business, you must either create and operate a business, or negotiate a different clause at the time of signing. A concrete example: in Gravelines, a 80 m² premises rented at €1,200/month exclusive of charges. If you want to assign it without a business, you will need the landlord's written consent. Without this consent, the assignment is unenforceable (the landlord can refuse to recognise the new tenant and seek termination of the lease).

For property professionals (agents, notaries, managers), this decision reminds of the importance of drafting precise clauses and verifying their application. If you assist a tenant who wishes to assign their lease, ensure that the contractual conditions are met. If not, advise them to seek written authorisation from the landlord. A failure to inform could result in liability.

Finally, if you are a buyer of a lease (like Mr. Pompei), you must require the assignor to provide proof that the assignment complies with the lease and, if necessary, that the landlord has given consent. A mere promise of assignment without prior verification can expose you to a refusal and legal costs. Prevention is better than cure.

Four Tips to Avoid This Type of Dispute

• Draft clear and precise assignment clauses: In your lease, define exactly the conditions for assignment: must the business be transferred at the same time? Must the landlord give approval? Can the clause be lifted after a certain period? Example: "The tenant may only assign his lease to the buyer of his business, subject to the prior approval of the landlord, which shall not be unreasonably withheld."
• Verify the existence of the business before authorising an assignment: If you are a landlord, ask the assigning tenant to provide proof of actual operation: invoices, Kbis extract (official document attesting to registration in the trade register), photos of the fitted premises. Without a business, the clause applies fully: you can refuse.
• If you are a tenant, negotiate a more flexible clause at the time of signing: For example, a clause authorising the assignment of the lease to any individual or company, subject to the landlord's consent which shall not be unreasonably withheld. This gives you leeway if you do not create a business.
• In the event of a dispute, do not plead good faith indiscriminately: As this decision shows, judges are strict. Good faith does not allow clear clauses to be circumvented. Instead, focus on demonstrating a clear abuse of right, for example by proving that the landlord refused the assignment solely to harm you or to obtain an undue advantage.

Further Reading: Related Case Law and Developments

This 2009 decision is part of a line of cases protecting the binding force of contracts. For example, the Supreme Court held in a judgment of 10 July 2007 (No. 06-14.768) that the judge cannot modify the rent amount on grounds of good faith if the parties have freely agreed to a figure. Similarly, regarding a forfeiture clause (a clause allowing termination of the lease in case of non-payment), the Court has reminded that the judge cannot disapply it on grounds of good faith if the conditions are met (Civ. 3e, 4 May 2016, No. 14-28.611).

However, case law does accept that good faith can play a moderating role in the performance of the contract, for example to sanction a landlord who systematically refuses any assignment without legitimate reason (Civ. 3e, 11 May 2005, No. 04-12.231). But in this case, the Supreme Court drew a red line: good faith cannot be used to nullify a clear clause or circumvent the mandatory rules of the commercial lease status. This distinction is crucial for practitioners.

Looking ahead, the trend is towards reinforcing the binding force of contracts, especially since the 2016 reform of contract law (Ordinance No. 2016-131). Articles 1103 and 1104 of the Civil Code now explicitly state that "legally formed contracts have the force of law for those who have made them" and that "contracts must be negotiated, formed and performed in good faith." The latter provision does not allow the judge to undermine the substance of the contract. The 2009 decision therefore remains fully relevant today.

What You Absolutely Must Remember

FAQ: 5 Practical Questions

1. Can I assign my commercial lease without selling my business if my lease prohibits it? No, unless the landlord consents in writing. Without this consent, the assignment is unenforceable and you risk termination of the lease.
2. What if my landlord refuses the assignment without reason? You can try to demonstrate an abuse of right (vexatious, discriminatory refusal or without legitimate interest). But if he merely relies on a clear clause, his refusal is lawful.
3. Am I protected by good faith if I have never operated a business? No, as this decision shows. Good faith does not allow you to circumvent the clauses of the contract. You must comply with the conditions set out.
4. Does this decision apply to residential leases? No, the status of commercial leases is specific. For residential tenancies, the rules are different (Law of 6 July 1989).
5. How much does it cost to challenge a refusal of assignment? Costs vary: several thousand euros in legal fees, plus court costs. It is better to attempt an amicable negotiation before starting proceedings.

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