Assignment of Right to Commercial Lease and Change of Use: Landlord Can Decontrol Rent on Renewal

Imagine for a moment: you are the owner of a commercial property in Sophia-Antipolis, let to a caterer for years. One day, your tenant informs you that it is assigning its right to the lease (the right to occupy the premises) to an IT services company, with a request for change of use. You accept, without objection. The lease expires and you wish to renew, but with a rent increase as the market has soared. Can you demand a higher rent, or are you blocked because you allowed the assignment? This question, crucial for thousands of landlord owners, has just been decided by the Court of Cassation in a decision of 15 February 2023 (No. 21-25.849).

This decision clarifies a often obscure point: does the assignment of the right to the lease with change of use, provided for in Article L. 145-51 of the Commercial Code (which allows the tenant to assign its lease with a change of activity under certain conditions), have the effect of freezing the rent until the end of the lease? Yes, because the rent remains that stipulated in the initial contract. But does it deprive the landlord of the possibility of requesting decontrol (increase in rent beyond the index) upon renewal? No, answers the High Court. In plain terms, the landlord can, at the time of renewal, invoke the change of use (the different activity) to justify a higher rent, even if it did not contest the change of use or exercise its priority right of redemption.

This decision is a breath of fresh air for landlords who feared being forced to accept a low rent for a renewed lease on outdated bases. But beware, all is not won: the landlord must still prove that the change of use actually altered the rental value. So, how should you react if you are in this situation? Full analysis below.

The Facts: A Story That Happens Every Day

Mr. X is the owner of a commercial property located in Sophia-Antipolis, let to a catering company since 2005. The lease provides for an annual rent of €12,000. In 2015, the tenant wishes to assign its right to the lease to an IT consulting company, an activity very different from catering. It therefore requests a partial change of use under Article L. 145-51 of the Commercial Code (which authorises a change of activity subject to the landlord's agreement or, failing that, a court order). Mr. X, after reflection, does not object and does not respond to the request. The assignment takes place, and the IT company operates the premises for five years.

In 2020, the lease expires. Mr. X proposes a renewal, but wishes for a rent revalued to €18,000 per year, considering that the change of activity increased the rental value (the market price for this type of property). The tenant company refuses, arguing that the assignment of the right to the lease with change of use froze the rent in accordance with Article L. 145-51, and that Mr. X, by not opposing the assignment, waived any right to contest the rent later. The dispute is brought before the tribunal judiciaire of Grasse, then the cour d'appel of Aix-en-Provence, which rules in favour of the tenant. Mr. X appeals to the Court of Cassation.

On 15 February 2023, the Court of Cassation quashes the appeal judgment. It recalls that Article L. 145-51 provides that the assignment of the right to the lease with change of use maintains the rent in force until the end of the lease. But this does not mean that the landlord waives the right to invoke the change of use to request decontrol upon renewal. In other words, the landlord's silence at the time of the assignment does not constitute acceptance of a capped rent for the future. The case is remitted to the cour d'appel of Nîmes for rehearing.

The Court's Reasoning — Explained

The Court of Cassation relies on Article L. 145-51 of the Commercial Code, which governs the assignment of the right to the lease with change of use. This text provides that, in the event of assignment, the rent remains fixed at the conditions of the current lease until its term. But it says nothing about the effects upon renewal. This is where the Court intervenes: it interprets the text as meaning that the maintenance of the rent is temporary (until the end of the lease) and does not prevent the landlord, upon renewal, from relying on changes that have occurred, in particular the change of use. In short, the law protects the tenant for the remaining duration of the lease, but not beyond.

The Court also dismisses the tenant's argument that the landlord, by not opposing the assignment, waived its rights. It recalls that waiver is not presumed: it requires a clear and unequivocal act. However, the mere fact of not exercising its priority right of redemption (provided for in Article L. 145-51, which allows the landlord to buy back the lease under certain conditions) or not contesting the change of use in court does not constitute a waiver. What few people know is that the landlord has a choice: either accept the assignment and retain all rights for the future, or oppose it and risk losing the tenant. The decision therefore confirms that inaction is not a loss of rights.

Finally, the Court specifies that the change of use (from catering to IT consulting) is a new fact that may justify rent decontrol upon renewal, in accordance with Article L. 145-34 of the Commercial Code (which provides that the rent of the renewed lease is capped except in certain cases, including a notable modification of the characteristics of the premises, the use, or the obligations of the parties). The landlord must simply prove that this change actually modified the rental value. undefined, I have encountered cases where landlords had not thought to have a rental valuation carried out by an expert, thus losing an opportunity for an increase. This decision therefore confirms previous case law, but provides a welcome clarification on the specific point of assignment with change of use.

What This Changes for You — Practically

For the landlord owner: you can now, upon renewal of a lease that has been the subject of an assignment with change of use, request a decontrolled rent if the change of activity increased the rental value. However, beware: this is not automatic. You must prove that the new use (for example, a consulting office rather than a restaurant) had an impact on the market price. Concrete example in Mougins: a 100 m² property let at €15,000/year to a restaurant, assigned to an estate agency, may be worth €22,000/year after renovation and change of use. If you are a landlord, do not hesitate to have a rental valuation carried out as soon as renewal approaches. Deadline: the request for decontrol must be made in the notice to quit or the renewal request, or at the latest within two years following the renewal. Cost: expert fees (€1,500 to €3,000) are often recouped by the rent increase.

For the tenant: the decision reminds you that the assignment of the right to the lease with change of use does not protect you from a rent increase upon renewal. If you have just acquired a commercial lease in the jurisdiction of Grasse, anticipate: during negotiations with the assignor, check the end date of the lease and negotiate a guarantee on future rent. Furthermore, if you change activity, know that the landlord may use this to request a higher rent in a few years. Prepare financially.

For the purchaser of a commercial lease: before buying a right to a lease with a change of use in progress, inquire about the renewal date and the landlord's intentions. If the lease expires within less than three years, the risk of decontrol is high. Factor this into your acquisition price.

Four Tips to Avoid This Type of Dispute

• Have a rental valuation carried out before renewal: for the landlord, this is the way to quantify the impact of the change of activity. For the tenant, it allows verification of whether the landlord's request is justified. In the jurisdictions of Grasse and Mont-de-Marsan, rental values vary greatly depending on the activity (food trade vs office). A neutral valuation (cost: €1,500-€3,000) avoids years of litigation.
• Draft a clear addendum at the time of assignment: when you accept an assignment with change of use, have a document signed that specifies that this acceptance does not constitute a waiver of future decontrol. This avoids any ambiguity. Example clause: "This authorisation of assignment and change of use is granted without prejudice to the landlord's right to request, upon renewal of the lease, a decontrolled rent pursuant to Article L. 145-34 of the Commercial Code."
• Exercise your priority right of redemption if necessary: Article L. 145-51 allows the landlord to buy back the lease within two months of notification of the assignment. If you consider that the change of activity will devalue your property (for example, a high-end property transformed into a noisy activity), buy back the lease at a price set by the rent judge. But beware: this right is subsidiary and its non-exercise does not deprive you of the right to decontrol.
• Consult a specialised lawyer as soon as the assignment is notified: each case is unique. A lawyer will help you choose the best strategy: accept the assignment with reservations, oppose it, or buy back the lease. undefined, I have seen landlords lose thousands of euros because they did not respond within the deadlines. A simple registered letter can make all the difference.

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Further Reading: Related Case Law and Developments

This decision is part of a consistent line of the Court of Cassation. Already, in a decision of 13 January 2016 (No. 14-24.560), the Court had ruled that the landlord could rely on the change of use occurring during the lease to decontrol the rent, even if it had accepted this change. More recently, a decision of 9 June 2022 (No. 21-13.825) confirmed that the failure to oppose a change of use did not constitute a waiver of the right to rely on the modification of use. The decision of 15 February 2023 therefore only clarifies the articulation with Article L. 145-51. The trend is clear: judges protect the landlord's right to benefit from the rental value increase resulting from a change of activity, provided it is effective and proven. For the future, one can expect tenants to be more cautious in their request for change of use, and for commercial leases to include specific clauses on this point. The courts in the jurisdiction of Grasse, like those of Mont-de-Marsan, follow this case law, so it is essential to comply.

Frequently Asked Questions

1. Can I refuse the assignment of the right to the lease with change of use?
Yes, you can refuse, but the tenant may apply to the court for authorisation if the change of use is compatible with the purpose of the building (Article L. 145-51, paragraph 2). In practice, the court often grants it unless there is a serious reason. Refusing exposes you to the risk of losing the tenant.

2. Does the maintenance of the rent until the end of the lease mean that the rent can never increase during this period?
No, the rent remains that of the current lease, but it can be indexed each year according to the commercial rent index (ILC) if the lease so provides. The assignment does not prevent the application of indexation clauses.

3. How do I prove that the change of use increased the rental value?
By a comparative rental valuation: compare the rent of the property with that of similar properties in the same area (Sophia-Antipolis, Mougins) with the same use. For example, an office property rents on average at €200/m²/year in the area, compared to €150/m²/year for a restaurant. The difference justifies decontrol.

4. What is the deadline for requesting decontrol after renewal?
The request can be made in the notice to quit with an offer of renewal, or within two years following the renewal if the landlord accepted the renewal without reservation. After this period, the rent is definitively fixed at the cap (variation of the ILC).

5. What if the tenant refuses to pay the new rent?
Apply to the commercial rent judge of the competent tribunal judiciaire (Grasse for Sophia-Antipolis, Mont-de-Marsan for the Landes). In the meantime, the tenant must pay the rent it considers due (often the old rent). The judge will set the rent retrospectively from the renewal date.

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