Assignment of Commercial Lease: Security Deposit Must Be Reinstated Even After a Transfer Plan

Picture the scene: in Chalon-sur-Saône, a landlord of commercial premises learns that his tenant, a travel agency, is in judicial reorganisation (redressement judiciaire). The court approves a transfer plan (plan de cession): a buyer takes over the lease. Everything seems settled. But then, the security deposit of €6,000 originally paid by the initial tenant has disappeared in the turmoil. The new tenant refuses to reinstate it. What to do?

This question arises for many landlords and tenants. The law on collective proceedings is complex, and the financial stakes are real. The Court of Cassation ruled decisively in a judgment of 16 September 2008: the assignee of a commercial lease under a transfer plan is required to reinstate the security deposit, even if the judgment approving the plan does not mention it.

This decision, rendered under number 06-17.809, serves as a reminder of a fundamental principle: the buyer cannot pick and choose among the obligations of the lease. He must perform the contract under the conditions in force on the date of commencement of the collective proceedings. A breakdown of a case that concerns every commercial landlord or tenant.

The facts: a story that happens every day

In 1998, the company Rêve Tahitien, which operates a travel agency, was placed in judicial reorganisation. The commercial court approved a partial transfer plan in favour of the EURL Voyagez rêve tahitien. Among the assets transferred was a commercial lease for premises in Chalon-sur-Saône. The lease provided for the payment of a security deposit by the tenant. But the assignor, Rêve Tahitien, had already paid this deposit to the landlord. What happens? The landlord demands that the assignee reinstate the security deposit. The assignee refuses, arguing that the transfer plan does not mention this obligation and that he should not bear a charge that fell on the former tenant.

The dispute came before the Dijon Court of Appeal. The lower court judges ruled in favour of the assignee: in their view, by accepting the plan, the landlord had implicitly accepted the transfer without requiring the deposit. Wrong move. The landlord appealed to the Court of Cassation. The Court of Cassation quashed the appeal judgment. It recalled that the judgment approving the transfer plan results in the transfer of the lease, and the assignee must perform the contract under the conditions in force on the date of commencement of the proceedings. The security deposit is part of those conditions. It does not matter that the plan is silent on this point.

The reasoning of the court — dissected

The Court of Cassation relies on Article L. 621-88, paragraph 3, of the Commercial Code, in its version prior to the 2005 safeguard law (but the principle remains valid under current law). This provision states that "contracts whose transfer is ordered by the judgment approving the plan must be performed under the conditions in force on the date of commencement of the collective proceedings, notwithstanding any clause to the contrary." Translation: when a court approves a transfer plan, the buyer takes over the lease as it existed at the time of the judicial reorganisation. He cannot renegotiate downwards or remove obligations.

In this case, the commercial lease contained a security deposit clause. The assignee therefore had to pay it or reinstate it if the former tenant had not returned it. The Court of Appeal had considered that the landlord had "accepted" the transfer without this obligation. But the Court of Cassation recalls that the transfer plan is approved by the court, and the landlord does not have to "accept" or refuse: the transfer is automatic. No room for implied agreement.

This is not a reversal of precedent, but a confirmation. The Court of Cassation had already ruled similarly in 2005 (decision no. 03-18.567). It thus reinforces the protection of the debtor's contracting parties in collective proceedings. The assignee cannot pick between "good" and "bad" obligations.

What this changes for you — concretely

If you are a landlord: you can require the buyer to pay you a security deposit, even if the former tenant did not return it. Concrete example: in Creusot, a landlord rents a premises for €1,500 per month. The deposit is two months' rent, i.e., €3,000. The tenant goes bankrupt, a transfer plan is approved. The buyer moves in. You can claim €3,000 as a deposit. If he refuses, the law is on your side.

If you are a buyer (assignee): beware. Before accepting a transfer plan, check the terms of the lease. You inherit all obligations: security deposit, service charges, repair obligations, etc. If the lease provides for a triennial rent review clause, you must apply it. If the lease is subject to the Pinel Law (rent caps), you are bound.

If you are a tenant in difficulty (assignor): be aware that if you paid a security deposit, you can reclaim it from the landlord if you leave the premises, but in practice, the collective proceedings may complicate matters. The deposit is often absorbed by debts.

Watch out for time limits: the action for payment of the security deposit is subject to a 5-year limitation period (general law period). Do not delay in acting.

Four tips to avoid this type of dispute

• Check the lease before applying for the takeover: request a copy of the lease and all its amendments. Identify financial clauses (deposit, first-demand guarantee, penalty clause). Assess the hidden cost.
• Explicitly negotiate in the transfer plan: if you want to be exempted from reinstating the deposit, have a clause inserted in the judgment approving the plan. But caution: the Court of Cassation might consider such a clause contrary to Article L. 621-88 and therefore void.
• Demand communication of the initial security deposit: as a buyer, ask the landlord to return the deposit paid by the former tenant. If the landlord refuses, you can claim it in court.
• Consult a lawyer specialised in property law and collective proceedings: before signing a transfer plan, have the lease audited. A lawyer can save you from nasty surprises.

Further exploration: related case law and developments

The Court of Cassation confirmed this solution in a judgment of 10 February 2009 (no. 08-10.928): the assignee must perform the lease in its entirety, including rent review clauses. Similarly, a judgment of 13 December 2011 (no. 10-24.458) held that the assignee is required to respect the commercial tenant's right of pre-emption in the event of sale of the premises. The trend is clear: the transfer plan is not a clean slate. The buyer must assume the entire contract.

Since the safeguard law of 26 July 2005, Article L. 642-7 of the Commercial Code restates the same principle. The case law remains relevant.

In the future, judges may extend this logic to other contracts (insurance contracts, franchise contracts). The message is strong: judicial transfer does not allow contractual obligations to be evaded.

Frequently asked questions

Can the landlord claim a security deposit from the buyer if the transfer plan does not mention it?
Yes. The Court of Cassation affirms: the transfer of the lease carries all obligations, even if the judgment is silent. The landlord can take legal action to obtain payment.

What to do if the buyer refuses to pay the security deposit?
You can sue him before the judicial court (or the commercial court if the lease is commercial). You have 5 years from the transfer to act. A lawyer will help you draft a formal notice and then a claim.

Is the security deposit due if the lease does not contain an express clause?
No. The security deposit is not a legal obligation. It must be provided for in the contract. Check your lease.

Can I recover the security deposit paid by the former tenant?
As a buyer, you are not subrogated to the rights of the former tenant. You must pay a new deposit. But you can ask the landlord to return the former tenant's deposit (if the latter has not recovered it). In practice, this is complex.

What is the usual amount of the security deposit in a commercial lease?
Generally two to three months' rent exclusive of service charges. But the parties are free to set a different amount. Beware, an excessive deposit may be reclassified as a first-demand guarantee.

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 →