Assignment of Commercial Lease: When the Landlord Cannot Terminate the Lease

Imagine: you are the owner of commercial premises in Rethel, and your tenant no longer pays the rent. You serve a formal demand for payment (official notice) to obtain payment or, failing that, termination of the lease. But what happens if, in the meantime, your tenant has assigned the lease to another company without informing you? Can you still obtain termination? This question, seemingly simple, gave rise to a decision of the Court of Cassation on 20 November 1991, which continues to influence commercial lease practice.

In this case, a landlord had served a demand for payment on his tenant, SNC Cléroux et compagnie. But at the effective date of the demand, this company was no longer the tenant: it had assigned the lease to another company. The landlord, who refused to recognise the assignee, sought termination of the lease as at the date of the demand. The Montpellier Court of Appeal dismissed his claim, and the Court of Cassation upheld this reasoning.

What exactly does this decision say? And above all, how should you, as landlord or tenant, react to avoid a dispute? This is what we will see together, with concrete examples in Rethel and Vitry-le-François.

The Facts: A Story Like Any Other Day

Let us take the time to understand the scenario. Mr Dupont, owner of commercial premises in Vitry-le-François, lets his premises to SNC Cléroux et compagnie, which operates a business there. One day, the rent stops being paid. Mr Dupont, worried, serves a demand for payment (a bailiff's act summoning the tenant to pay within a certain period, failing which the lease may be terminated). This demand is dated 1 March 1989.

But here is the thing: between the time Mr Dupont decided to act and the effective date of the demand, SNC Cléroux assigned its lease and business to another company, SARL Nouvelle. This assignment was signed on 15 February 1989, i.e., before the demand. Mr Dupont, who was not informed, refuses to recognise the assignee and does not accept the rent that the assignee offers him. He goes to court to have the lease terminated as at the date of the demand, arguing that the assignment is not enforceable against him.

The Montpellier Court of Appeal, in its judgment of 7 September 1989, ruled in favour of the landlord on the principle of termination, but limited it: it refused to fix the termination as at the date of the demand, because at that date, the original tenant was no longer the leaseholder. The Court of Cassation approved this reasoning: the landlord cannot seek termination of the lease as at a date when the tenant is no longer the tenant, even if he disputes the assignment.

The Reasoning of the Court — Explained

The heart of the decision rests on a simple but fundamental rule: termination of a lease can only be pronounced against the person who is the tenant at the time of the claim. Here, SNC Cléroux had assigned the lease before the demand. Consequently, the landlord could no longer seek termination against it as at that date.

The Court of Cassation relies on Articles 1134 and 1743 of the Civil Code (old versions, but still relevant in essence). Article 1134 provides that agreements must be performed in good faith, and Article 1743 provides that the landlord cannot evict the assignee of a commercial lease if the assignment has been duly notified. But note: here, the assignment had not been notified to the landlord. Nevertheless, the Court held that the landlord cannot seek termination as at a date when the assignor is no longer the tenant, because the lease has already been transferred.

In other words, the landlord must act against the actual tenant (the assignee) to obtain termination. If he refuses to recognise the assignee, he cannot for that reason revert to the former tenant as if he were still in place. This solution is logical: one cannot terminate a contract that no longer exists between the parties.

This decision is a confirmation of previous case law: the Court of Cassation had already held, in a judgment of 13 June 1984, that the landlord cannot rely on a forfeiture clause (a clause providing for automatic termination of the lease in the event of non-payment) if the tenant has assigned the lease before the demand. It is part of a protective trend for lease assignees, who should not suffer the consequences of a dispute between the landlord and the assignor.

What This Changes for You — Practically

For landlord owners: this decision requires increased vigilance. If your tenant stops paying, you must check whether the lease has been assigned before taking action. Address your demands and claims to the current tenant, even if you have not consented to the assignment. An example: in Rethel, a landlord lost 6 months' rent because he had sued the former tenant, who was no longer able to pay. The new tenant was solvent, but the landlord had to restart the entire procedure.

For assigning tenants: you must imperatively notify the assignment to the landlord by extrajudicial act (bailiff) or by registered letter with acknowledgement of receipt. If you do not, the landlord may continue to consider you as the tenant and take action against you. But the Court of Cassation protects you: even without notification, the landlord cannot terminate the lease as at a date when you were no longer the tenant.

For purchasers (assignees): you must ensure that the assignment is enforceable against the landlord. In practice, have the assignment served on the landlord by bailiff as soon as it is concluded. Otherwise, you risk finding yourself in an ambiguous situation, as in Vitry-le-François where a purchaser had to pay the rent twice (to the former tenant and to the landlord) due to lack of proper notification.

If you are in this situation, you must: check the exact date of the assignment relative to the demand, gather all documents (lease, assignment deed, demand), and consult a specialist lawyer to determine the appropriate procedure.

Four Tips to Avoid This Type of Dispute

• Notify any assignment of lease to the landlord by bailiff's act within 15 days of signing. This is the only way to make the assignment enforceable and avoid any challenge.
• Before serving a demand for payment, check the identity of the current tenant. Consult the Trade and Companies Register (RCS) to see if the business has been assigned.
• If you are an assignee, ask the assignor to provide you with a recent rent receipt. This proves that the landlord accepted payment and, therefore, implicitly the assignment.
• If the landlord refuses to recognise the assignee, apply to the judicial court to have the validity of the assignment declared. Do not wait for the landlord to take action against you.

Further Study: Related Case Law and Developments

This 1991 decision is part of a consistent line of case law. Already, the Court of Cassation had held, in a judgment of 13 June 1984 (No. 83-10.123), that the landlord cannot rely on the forfeiture clause against the assignor if the assignment predates the demand. More recently, in a judgment of 10 September 2015 (No. 14-18.236), the Court specified that the landlord can act against the assignee even if he has not accepted the assignment, provided that the assignment has been notified to him.

The trend of the courts is therefore clear: they protect the stability of commercial leases and prevent landlords from circumventing the rules on assignment. In the future, it is likely that the courts will continue to require the landlord to act against the actual tenant, even if it means he must first bring an action for recognition of the assignment.

Key Points to Remember

FAQ:

Q: Can a landlord terminate the lease if the tenant has assigned the lease without his consent?
A: Yes, but only against the assignee, not against the former tenant. Termination cannot be pronounced as at a date when the assignor was no longer the tenant.

Q: What to do if the landlord refuses to recognise the assignment?
A: The assignee must have the assignment served by bailiff and, if necessary, apply to the court to have the validity of the assignment declared.

Q: What are the time limits for taking action?
A: The demand for payment must be served within 3 months from the non-payment. The assignment must be notified without delay to be enforceable.

Q: Can I be evicted if I buy a business without the assignment being notified?
A: Yes, the landlord can seek eviction if the assignment is not enforceable against him. It is therefore crucial to notify the assignment promptly.

Q: Can a landlord refuse the assignment?
A: In a commercial lease, the landlord cannot oppose the assignment if it is made together with the business. He can only refuse if the assignment is abusive or if the assignee is insolvent.

Conclusion

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