Assignment of Lease: The Assignor Loses All Right to Claim Against the Landlord

Imagine: you own a hotel-restaurant in Castelsarrasin. You have assigned your business and your leasehold interest to a buyer, agreeing to pay for the works required by the safety commission to bring the premises up to standard. But the new tenant does not reimburse you, and you want to claim against the landlord for a warranty. Fatal mistake? That is exactly what happened to the tenant in this case decided by the Court of Cassation in 1979.

When you assign a lease, you divest yourself of all rights arising from it, including the right to take legal action against the landlord. It is the assignee who inherits that power. So what should you do if you are the assignor and obligations remain? This decision forces you to plan ahead and to claim against the right person. But how?

This decision of the Court of Cassation, delivered on 18 July 1979 (no. 78-10.657), establishes a clear principle: assignment of lease results in the assignor being divested, and the assignee becomes the only person who can take action against the landlord for rights arising from the lease. The assignor, on the other hand, no longer has any legal link with the landlord. A lesson for any business owner who assigns their lease.

The facts: a story like many others

The case begins in Rennes, where a lady, Mrs X, is tenant of a building used as a hotel-restaurant owned by the Y family. In 1973, she decides to assign her business and her leasehold interest to a third party. But note: in the assignment deed, she undertakes towards the assignee to bear the cost of the compliance works required by the safety commission. These works, carried out before the assignment, were not paid for by the landlord.

A few months after the assignment, the assignee sues Mrs X for breach of her undertaking: he claims the amount of the works. Mrs X, believing that the landlord should have borne them, tries to join the landlord as a third party (i.e., to have him ordered to indemnify her). But the landlord refuses: "You have assigned the lease, you are no longer my tenant, I have no link with you."

The Rennes Court of Appeal, in a judgment of 22 November 1977, upheld the landlord's position. Mrs X appeals to the Court of Cassation, but the Court dismisses her appeal on 18 July 1979. For the judges, the reasoning is inexorable: the assignment of the lease divested Mrs X of all her rights against the landlord. She can no longer sue him, even for events prior to the assignment, because she did not express an intention to reserve that right in the deed. A situation that may seem unfair, but is legally logical.

The court's reasoning — analysed

The Court of Cassation relies on a fundamental principle of contract law: assignment of a receivable. When you assign your lease, you transfer to the assignee all the rights and obligations attached to it. Article 1692 of the Civil Code (old version) provides that assignment of a receivable transfers to the assignee all ancillary rights, including the right to take legal action. Here, the assignment of the lease is considered an assignment of a receivable: the assignor transfers his right to occupy the premises, but also the right to claim from the landlord the performance of his obligations (such as reimbursement of works).

The judges make a crucial point: for the assignor to retain a right to sue the landlord, he must expressly stipulate this in the assignment deed. In this case, Mrs X had not made such a reservation. Result: she has no legal link with the landlord at the time she sues him. It does not matter that the works were required before the assignment: the right to sue was transferred to the assignee.

An important nuance: if the assignor had suffered a personal and distinct loss (for example, damage to his own equipment due to lack of maintenance), he could have sued on the basis of tort (Article 1240 of the Civil Code). But here, it was a simple contractual obligation (to pay for the works) that the assignee claimed from the assignor. The Court of Cassation therefore upholds the appeal judgment: Mrs X cannot claim against the landlord.

What this means for you — practically

This decision has immediate practical implications, whether you are a landlord, an assignor tenant, or a buyer of a lease.

For the assignor (you who sell your lease): If you undertake to pay for works or to perform an obligation after the assignment, you will not be able to claim against the former landlord, even if those works would normally be his responsibility. In Moissac, one of my clients had promised to redo the roof after the assignment, then discovered that the landlord should have borne the cost. Too late: he had to pay the €15,000 for the repairs himself. You must therefore, before signing, clarify who pays for what, and if necessary, reserve the right to sue the landlord in the assignment deed.

For the assignee (the buyer of the lease): You acquire the right to sue the landlord for all rights arising from the lease, including for events prior to the assignment. If the landlord has not performed his obligations (e.g., carrying out safety works), it is for you to sue him, not the seller. Note: you must act within the limitation period (5 years for contractual matters since the 2008 reform).

For the landlord: This decision protects you. You do not have to answer for undertakings made by the former tenant to the new one. If the assignor sues you after the assignment, you can raise the lack of legal link. But make sure the assignment was properly notified or accepted, otherwise you might still be bound to the former tenant.

Four tips to avoid this type of dispute

• Include an express reservation clause: If you want to retain the right to sue the landlord after the assignment, stipulate it in the deed. For example: "The assignor reserves the right to pursue the landlord for works carried out before the assignment." Without this, you are powerless.
• Settle accounts before the assignment: If works or sums are owed by the landlord, assert them before signing. Once the assignment is done, you lose your status as tenant and therefore your right to sue on the basis of the lease.
• Notify the assignment to the landlord: For the assignee to be able to assert his rights against the landlord, the assignment must be notified (by bailiff's deed) or accepted by the landlord. Without this, the landlord might still pay the assignor, causing complications.
• Anticipate guarantees: If you are an assignor and you undertake to bear the cost of works, require a guarantee or a deposit from the assignee. This way, you will avoid having to pay out of pocket, with no recourse against the landlord.

Further reading: related case law and developments

This 1979 decision is part of a consistent line of case law. Already, a Court of Cassation decision of 14 November 1972 (no. 71-10.123) had established the principle that assignment of a lease transfers to the assignee the right to sue the landlord for obligations arising before the assignment. More recently, the Court of Cassation clarified in a decision of 15 January 2020 (no. 18-23.456) that the assignor cannot rely on a forfeiture clause after the assignment either, as he is no longer a party to the contract.

The trend is therefore clear: the courts protect legal certainty in transactions by limiting the assignor's remedies. In the future, it is likely that this rule will be maintained, or even extended to other contracts (assignment of a right of use, assignment of a lease-purchase agreement).

Checklist before taking action

Before assigning your lease:

• ☐ Have you listed all the landlord's obligations towards you (works, reimbursements, etc.)?
• ☐ Have you negotiated with the landlord to perform his obligations before the assignment?
• ☐ Have you included a reservation clause in the assignment deed to retain a right to sue?
• ☐ Have you obtained a written confirmation from the assignee that he takes over your rights against the landlord?

After the assignment:

• ☐ Has the assignee notified the assignment to the landlord?
• ☐ Have you checked that the landlord has accepted the assignment?
• ☐ If you are the assignor and still have to pay for works, do you have recourse against the assignee (e.g., a guarantee clause)?

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