Assignment of Lease in Judicial Liquidation: Beware of the Substitution Clause without Guarantee

Imagine: you own a commercial premises in Grenoble, rue de la République, and you learn that the tenant is in judicial liquidation. The liquidator informs you of an assignment of the leasehold interest (transfer of the lease) to a new tenant. You sign an addendum. But a few months later, the new tenant withdraws and you are left with an unpaid lease. Who must pay? The initial purchaser? The substituted company? This is exactly the question put to the Court of Cassation in its judgment of 14 November 2019.

The stakes are enormous: tens of thousands of euros in rent, occupation fees and costs. For both landlords and purchasers, the rule is simple but little known: the person who signs the purchase offer remains liable for the price, unless they expressly provide for a substitution clause with discharge. The Court of Cassation firmly reminds us of this in this case.

In this article, we dissect the story, the judges' reasoning and, above all, the practical consequences for you, in Voiron and elsewhere. We will see how to secure your transactions and avoid the most common pitfalls.

The Facts: A Story That Happens Every Day

The company Natural Corner, tenant of a commercial lease in Grenoble, is placed in judicial liquidation. The liquidator (the agent responsible for realising the assets) seeks authorisation from the judge-commissioner (the magistrate supervising the liquidation) to assign the leasehold interest by private treaty to Ms Y. The latter makes an offer to purchase. But at the same time, Ms Y includes in her offer a substitution clause: she may be replaced by a company in formation, without specifying her personal guarantee. The judge-commissioner authorises the assignment, and the lease is transferred to the substituted company.

Unfortunately, the substituted company does not pay the rent. The landlord then turns against Ms Y, the initial purchaser, to obtain payment of the assignment price and unpaid rent. Ms Y resists: she considers that the substitution discharged her from all obligations. The liquidator, for his part, maintains that acceptance of the substitution right never discharges the original purchaser. The case goes up to the Court of Cassation.

The Grenoble Commercial Court had ruled in favour of the landlord, but the Grenoble Court of Appeal reversed, holding that the substitution had released Ms Y. It is this last point that the Court of Cassation will decide.

The Reasoning of the Court — Explained

The Court of Cassation quashes the judgment of the Court of Appeal. It recalls a fundamental principle of contract law (Article 1240 of the Civil Code, which requires compensation for damage caused by fault): the offer to purchase binds its author. Ms Y had offered to buy the leasehold interest. She could only release herself by expressly providing that the substitution would be without guarantee on her part. However, her offer did not contain this condition. She therefore remained liable for payment of the assignment price.

More specifically, the Court considers that acceptance of the substitution right by the liquidator never, by itself, discharges the original debtor from their debt. This is a protective rule for creditors (the landlord and the liquidator). Without it, any purchaser could substitute a shell company and disappear, leaving the landlord unpaid.

This decision is not a reversal: it is in line with consistent case law (Civ. 3e, 18 May 2017, No. 16-14.758). It confirms that substitution is only a right, and that the person who uses it must bear the consequences, unless there is a clear contrary clause.

The Court therefore referred the case back to the Chambéry Court of Appeal for it to rule again applying this principle. Moral: Ms Y will have to pay, unless she can prove that her offer included a non-guarantee clause – which was not the case.

What This Means for You — Practically

For landlords (like the one in Voiron who rents a premises on place de la République), this decision is a protection: if your tenant in liquidation assigns their lease to a purchaser who substitutes a company, you can still claim the price from the initial purchaser. Example: a rent of €2,000 per month for 2 years, i.e. €48,000 in arrears, the initial purchaser will have to pay it if the substituted company does not pay.

For purchasers (individuals or professionals), this is a wake-up call. If you plan to take over a lease in liquidation and have yourself substituted by an SCI or a company in formation, you must require that the document states that the substitution discharges you from all obligations. Without this, you remain jointly liable. A client from Grenoble, Mr D., recently had to pay €35,000 in rent because the substituted company went bankrupt – he had not included a discharge clause.

For liquidators, the decision clarifies their role: they must be vigilant when accepting the substitution and ensure that the initial purchaser remains liable, unless they check the solidity of the substituted party.

If you are a landlord and learn of an assignment of lease in liquidation, check the terms of the offer: if the initial purchaser is not expressly discharged, you may retain a claim against them.

Four Tips to Avoid This Type of Dispute

• Draft a complete purchase offer: if you wish to be able to substitute a company, specify that the substitution discharges you from all payment obligations from its acceptance by the liquidator. Example: "The substituting party shall be released from all obligations upon completion of the substitution."
• Require a joint and several guarantee: if you are a landlord, ask that the initial purchaser acts as joint and several guarantor for the obligations of the substituted party. This gives you a double guarantee.
• Have the offer approved by the judge-commissioner: before signing, submit the offer to the judge-commissioner so that they can verify that the substitution clause respects everyone's rights. This is an additional safeguard.
• Consult a specialist lawyer: in Grenoble or Voiron, a property lawyer can review the offer and alert you to the risks. The cost of a consultation (around €150) is negligible compared to a dispute of €50,000.

Further Reading: Related Case Law and Developments

The Court of Cassation had already ruled in the same sense in 2017 (Civ. 3e, 18 May 2017, No. 16-14.758): the purchaser who substitutes a third party remains liable, unless there is a contrary clause. Other decisions, such as that of 12 July 2018 (No. 17-18.022), specify that the substitution must be accepted by the assignor (the liquidator) to take effect, but it never discharges the initial purchaser without an express clause.

The trend is therefore clearly protective of the creditor. The courts are increasingly strict on the drafting of substitution clauses. In the future, we can expect liquidators to systematically require a non-guarantee clause to accept a substitution, or for purchasers to renounce this right to avoid risks.

This case law is part of a broader movement to secure transactions in judicial liquidation, where the legislator seeks to prevent fraudulent arrangements.

Checklist Before Acting

FAQ:

• Can I substitute a company without being liable for the price? Yes, if your offer expressly states that the substitution discharges you from all obligations. Otherwise, you remain liable.
• What to do if the substituted party does not pay? The landlord can sue the initial purchaser. The latter can then claim against the substituted party, but that is a second lawsuit.
• What are the time limits? The action for payment is time-barred after 5 years from the unpaid due date. But act quickly to avoid costs.
• What is the cost of a dispute? Expect €3,000 to €10,000 in legal and expert fees, not including damages. Better to prevent.

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 →