Assignment of Commercial Lease: When the Sale of the Right to Lease is Not an Assignment of Business Assets

Imagine: you own a commercial premises in Nogent-sur-Seine, let to a craftsman who repairs small agricultural equipment. One day, he informs you that he is assigning his right to lease to a buyer. You wonder: is this transaction an assignment of business assets or a mere assignment of lease? The answer changes everything, particularly regarding publicity formalities and creditors' rights.

In a case decided by the Cour de cassation on 6 December 1982 (No. 81-14.422), the judges ruled: when the commercial activity ceased before the assignment, it is only an assignment of lease, and not an assignment of business assets. Consequently, the publicity obligation provided for by the Law of 17 March 1909 does not apply. A decision that sheds light on a little-known aspect of commercial law.

How did the judges reach this conclusion? What consequences for you, as owner or tenant? Analysis.

The Facts: A Common Story

Mrs. Y... operated, in premises in Nogent-sur-Seine, a business repairing small agricultural and gardening equipment. She was a commercial tenant. In 1978, the lease came up for renewal. On that occasion, the landlord sold her an additional occupancy right (the DICA right) and a "despecialisation" of the lease, i.e., permission to carry on a different activity. Mrs. Y... then found herself unable to continue her original commercial activity.

On 3 October 1979, she assigned her right to lease to one Carcy, for a fixed price. But a third party, one X..., made a higher offer on this price, contending that the assignment was in reality an assignment of business assets, subject to legal publicity. He sought application of Article 3 of the Law of 17 March 1909, which imposes publicity formalities to protect creditors.

The Reims Court of Appeal, in its judgment, refused to validate the higher offer. It noted that the commercial activity had ended at the time of the lease assignment, and that the transaction was therefore only an assignment of the right to lease, not an assignment of business assets. Carcy, dissatisfied, appealed to the Cour de cassation.

The Reasoning of the Court — Analysed

The Cour de cassation, in its judgment of 6 December 1982, dismissed Carcy's appeal. It approved the reasoning of the Court of Appeal. The legal basis? Article 3 of the Law of 17 March 1909, which regulates the publicity of assignments of business assets. This law aims to inform the seller's creditors (tax authorities, suppliers, etc.) so that they can assert their rights over the sale price. But if the activity has ceased, the business assets have disappeared. There is nothing left to assign except the right to lease.

The judges therefore found that Mrs. Y... could no longer carry on her commercial activity due to the sale of the DICA right and the despecialisation. Consequently, the business assets no longer existed at the time of the assignment. What she sold was simply the right to lease, i.e., the right to occupy the premises. This transfer is not subject to the publicity requirements of the 1909 Law.

This decision confirms settled case law: an assignment of business assets presupposes that the assets still exist. If the activity has ceased, there are no assets to assign. This is a question of fact, left to the discretion of the trial judges. Here, they conclusively determined that the activity had ended.

What This Means for You — Practical Implications

For a landlord: if your tenant ceases its activity and sells you its right to lease, you must check whether the business assets still exist. If the activity has genuinely ceased, the assignment is a mere assignment of lease. You do not need to worry about legal publicity. But beware: if the tenant continues even a minimal activity, the assets may be considered to exist. For example, in Troyes, a landlord saw the assignment reclassified as an assignment of business assets because the tenant had retained stock. Result: the assignee had to repay the assignor's debts.

For a purchaser of the right to lease: when you buy a lease, ensure that the commercial activity has genuinely ceased before the assignment. If not, you could be held jointly liable for the assignor's debts (Article L. 141-1 of the Commercial Code). Ask the seller for a sworn statement of cessation of activity, and check with the town hall or the commercial court registry.

For a creditor (supplier, bank): if the debtor assigns its business assets without publicity, you can challenge the assignment within one year. But if the assignment is characterised as an assignment of lease, your remedies are more limited. You cannot oppose the assignment, but you can seize the price if it is still in the hands of the assignor.

Four Tips to Avoid This Type of Dispute

• Check the state of the business assets before any assignment. Have a bailiff's report drawn up to prove that the activity has ceased or, conversely, that it continues. This report will serve as evidence in case of a dispute.
• Draft a precise assignment deed. Clearly distinguish whether you are assigning business assets or a mere right to lease. Use the exact terms: "assignment of right to lease" if the activity has ceased, "assignment of business assets" if it continues.
• Comply with publicity formalities if in doubt. If you are unsure about the characterisation, it is better to publish the assignment in a legal announcement journal and at the registry. This covers the risk of subsequent reclassification.
• Inform your creditors. If you are the assignor, notify your creditors by registered letter. This can limit their right to object and protect you in case of a sale at a price below the true value.

Further Reading: Related Case Law and Developments

This 1982 decision is part of a consistent line of authority. Already, in a judgment of 20 October 1971 (No. 70-10.287), the Cour de cassation had held that the assignment of a lease after cessation of activity is not an assignment of business assets. More recently, in a judgment of 10 July 2019 (No. 17-26.088), it reiterated that the burden of proving the existence of the business assets lies with the person relying on the assignment.

The trend is therefore clear: the courts are strict about the reality of the business assets. If you want to apply the 1909 Law, you must demonstrate that the assets existed at the time of the assignment. In practice, this involves accounting expert reports and bailiff's reports. In the Troyes district, several recent cases have confirmed this approach, particularly in disputes between landlords and tenants in Nogent-sur-Seine.

For the future, the question may arise with the development of online activities. Can business assets exist without a physical premises? The case law has not yet clearly decided, but one can expect that the judges will apply the same criteria: a clientele, goodwill, and actual operation.

Frequently Asked Questions

What is the difference between an assignment of business assets and an assignment of lease?
An assignment of business assets transfers all tangible and intangible elements (clientele, name, stock). An assignment of lease transfers only the right to occupy the premises. The former is subject to publicity, the latter is not.

Can I challenge an assignment of lease if I am a creditor?
Yes, but your rights are more limited. You can seize the assignment price if it is still owed. However, you cannot seek annulment of the assignment for lack of publicity.

What are the time limits for acting in case of lack of publicity?
Creditors have one year from the date of publication to lodge an objection. After this period, they are precluded.

What if the activity has ceased but the seller claims otherwise?
Use a bailiff to record the absence of activity. Check the commercial registers, bank accounts, and invoices. In case of a dispute, a lawyer can advise you on the evidence to provide.

Does this case law apply to professional leases?
No, the 1909 Law only concerns business assets. For professional leases (lawyers, doctors), different rules apply.

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