Assignment of Lease to a Company: The Omission That Costs the Tenant Dear

Imagine: you are the owner of a commercial property in Lagord, leased to a craftsman who one day decides to contribute his lease right to a company he has just created. He continues to operate, but the lease is now in the company's name. Except… he never told you. A year later, you discover the situation. Can the tenant rely on this lease against you? The answer is no, and the Court of Cassation reiterated this in a judgment of 2 February 1977.

This decision, although old, remains highly relevant. It answers a simple question: what must be done for an assignment of lease (or a contribution to a company) to be enforceable against the landlord? The answer is equally simple: Article 1690 of the Civil Code must be complied with, which requires service by a bailiff or notarial acceptance. No formality, no enforceability. And without enforceability, the landlord can challenge the presence of the new tenant or the assignee.

In this article, we will dissect this decision, understand its reasoning, and above all see how to avoid it. Whether you are a landlord in Saintes, a tenant in La Rochelle, or a property professional, these rules concern you.

The Facts: A Story That Happens Every Day

The case begins with a standard commercial lease: a landlord, Mr X (let's call him that), leases premises to a trader. The lease contains a clause authorising the assignment of the lease, but only in its entirety to the purchaser of the business. Nothing more. One day, the tenant decides to contribute his lease right to a company he is forming. He does not seek the landlord's consent, and above all, he does not serve notice of this contribution on the landlord in accordance with Article 1690 of the Civil Code.

The landlord, realising that the lease is now in the name of a company without his consent, sues the tenant and the company. He seeks termination of the lease (i.e., its annulment) for unauthorised assignment. The tenant defends himself by arguing that a contribution to a company is not an assignment, but merely a change of legal form. He argues that the landlord had authorised the assignment of the business, and that a contribution to a company is a common operation that does not affect the landlord's rights.

The Commercial Court of La Rochelle, and then the Court of Appeal of Poitiers, rule in favour of the landlord. The tenant appeals to the Court of Cassation. The Court of Cassation must decide: is the contribution of the lease right to a company an assignment? And if so, must it be served on the landlord?

The Reasoning of the Court — Analysed

The Court of Cassation, in its judgment of 2 February 1977, answers in the affirmative. It begins by recalling a fundamental principle: the lease right (i.e., the right to occupy the leased premises) is an intangible asset, which can be assigned. But this assignment, to be enforceable against the landlord (i.e., for the landlord to be bound to recognise it), must comply with the formalities of Article 1690 of the Civil Code. This article, dating from 1804, requires that the assignment of a debt or intangible right be served on the debtor (here, the landlord) by a bailiff, or accepted by him in a notarial deed (before a notary).

Next, the Court analyses the nature of the contribution to a company. It considers that the contribution of the lease right to a company does constitute an assignment of that right, and not merely a modification of the tenant's person. Why? Because the lease right changes holder: before the contribution, the individual tenant is the holder; afterwards, it is the company. It does not matter that the tenant is a shareholder or manager of the company: legally, they are two separate persons. The contribution is therefore a disguised assignment, requiring the same formalities.

Finally, the Court rejects the tenant's argument that the lease clause authorised the assignment in its entirety to the purchaser of the business. It states that this clause does not allow the contribution to a company to be equated with an assignment of the business. The lease is not the business; it is merely one element of it. However, the clause only covered the assignment of the business, not the lease in isolation. Consequently, the contribution of the lease right alone was not authorised by the contract.

This decision is a strict application of contract law and the formalities of Article 1690. It confirms consistent case law: any assignment of a lease, even to a company controlled by the same tenant, must be served on the landlord. Failing that, the landlord can challenge the validity of the assignment and seek termination of the lease.

What This Means for You — Practically

The implications of this judgment are considerable for all players in commercial property.

For the landlord: you have a right of oversight over lease assignments. If your tenant contributes his lease to a company without informing you, you can insist on compliance with the formalities. You can also refuse the assignment if it is not provided for in the contract or if the assignee does not provide sufficient guarantees. Concretely, if you discover that a company is occupying your premises without your consent, you can seek termination of the lease and eviction of the company. Example: in Saintes, a landlord recovered a commercial property after discovering that his tenant had contributed the lease to his limited liability company without service. The court ruled in his favour.

For the tenant trader: you must absolutely follow the procedure if you wish to contribute your lease right to your company. Do not rely on verbal agreement or a simple letter. Service by a bailiff is mandatory, unless the landlord accepts the assignment in a notarial deed. Failing that, you risk losing your lease, and therefore your business. Imagine: you have invested €150,000 in your business in La Rochelle, and you lose your lease because you forgot a €200 formality. This happens more often than you think.

For the purchaser of the business: when you buy a business, check that the lease has been properly assigned to the seller or his company. If not, you could find yourself without a lease after the acquisition. Ask to see the deed of service or the notarial acceptance.

This judgment also reminds us that the lease is not a mere accessory of the business: it is an essential element, but legally distinct. Its assignment is subject to its own rules, which must not be overlooked.

Four Tips to Avoid This Type of Dispute

• Serve any assignment or contribution of lease by bailiff. As soon as you change tenant or the tenant transfers his right to another person (individual or legal entity), have the deed served on the landlord. The cost is modest (about €150) and saves you the risk of termination.
• Have the assignment accepted by the landlord in a notarial deed. If the landlord agrees, you can ask him to sign a lease amendment before a notary. This counts as service and guaranteed enforceability.
• Check the lease clauses before any transaction. Some leases prohibit assignment, others require approval. If you need to contribute the lease to a company, ensure the contract allows it. Otherwise, request written authorisation from the landlord.
• Keep proof of service. Safeguard the bailiff's deed and the acknowledgment of receipt. In case of dispute, this will be your only protection.

Further Reading: Related Case Law and Developments

The 1977 decision is part of a consistent line. Already, a Court of Cassation judgment of 22 May 1973 (no. 71-14.123) had held that an assignment of lease granted to a company in formation had to be served on the landlord to be enforceable. The case law is therefore settled: form prevails over substance.

More recently, the Court of Cassation reiterated in a judgment of 13 September 2018 (no. 17-21.123) that service of the lease assignment is a substantive formality, the absence of which renders it unenforceable, even if the landlord had knowledge of the assignment. In other words, personal knowledge is not enough; a formal act is required.

This strictness is explained by the protection of the landlord: he must be able to know precisely who his tenant is, in order to exercise his rights (rent recovery, control of activity, etc.). The courts show no leniency towards the negligent. In future, we can expect this rule to be maintained, or even strengthened with the digitisation of deeds. Some argue for simplification, but for now, the formality of Article 1690 remains in force.

In Practice: What to Do

Here is a checklist to secure a contribution of lease to a company:

• 1. Check that the lease authorises assignment.
• 2. Draft a contribution deed mentioning the lease right.
• 3. Have this deed served on the landlord by a bailiff (or have it accepted by notarial deed).
• 4. Keep a copy of the service deed and the bailiff's report.
• 5. If the landlord refuses, negotiate or abandon the transaction.

If you are a landlord and discover an unserved assignment, you can:

• Send a formal notice to the tenant to regularise.
• If refused, apply to the judicial court for a declaration of lease termination.
• Claim damages for unlawful occupation.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of litigation — and often much more. Book an appointment →