Transfer of Business Assets After Lease Expiry: No Right to Renewal

Imagine: you own commercial premises in Mantes-la-Jolie, Rue Nationale. Your tenant has asked you for renewal of the lease, but you did not reply in time. They then transfer their business assets to a third party. This newcomer turns up and demands the right to stay on the premises. Are they right? The answer, given by the French Court of Cassation in 1970, is clear: no. The transferee cannot rely on rights that the transferor might have had if the lease were still in force.

This question, which seems technical, actually concerns thousands of landlords and traders. Each year, similar disputes arise, particularly in the jurisdiction of Versailles, where commercial activity is dense. What exactly does the law say? And above all, how can you avoid ending up in this deadlock? Analysis of a landmark judgment.

Article 4 of the Decree of 30 September 1953 — the text governing commercial leases — provides that the transferee of a business asset can only benefit from the rights acquired by the transferor to complete the duration of their own operation. In other words, if the transferor had been operating for 5 years, the transferee can only add those 5 years to theirs if the lease is still in force. If the lease has expired, the transferor no longer has any rights to transfer, even if they had initiated renewal proceedings.

The Facts: An Everyday Story

In this case, a man named Thuau was the commercial tenant of premises belonging to landlords. His lease ended on a given date. Before the end of the lease, Thuau made a renewal request, in accordance with the law. The landlords did not reply. What happens then? In principle, the landlord's silence amounts to acceptance of renewal, but only if the tenant is still in occupation and operating their business.

However, Thuau transferred his business assets after the lease expired. The transferee, believing he had acquired the right to renewal, remained in the premises. The landlords, unhappy, brought an action for eviction. The central question was: can the transferee rely on the renewal request made by the transferor before the transfer?

The Court of Appeal, seised at first instance, considered that the transfer was genuine and that the transferee benefited from the right to renewal. But the landlords appealed to the Court of Cassation. The case went up to the highest court, which ultimately ruled in favour of the landlords. The transferee was evicted, and the whole procedure lasted several years.

The Reasoning of the Court — Analysed

The Court of Cassation relies on Article 4 of the Decree of 30 September 1953. This text is the cornerstone of the legal status of commercial leases. It sets out the conditions under which a tenant may request renewal of their lease and the rights attached to their business assets. The Court recalls that, in the event of a transfer, the transferee can only rely on the rights acquired by the transferor to complete the duration of their personal operation, which ends with the expiry of the lease. If the lease has already expired at the time of the transfer, the transferor no longer has any rights to transfer. The transferee cannot therefore benefit from a renewal request that the transferor had made before expiry, because that request has become void with the end of the lease.

In other words, the right to renewal is a personal right attached to the person of the operating tenant. It is not automatically transferred with the business assets. For the transferee to benefit from it, the lease must still be in force at the time of the transfer. Otherwise, the landlord can freely refuse renewal and recover the premises.

This decision confirms a consistent line of case law. It is neither a reversal nor an evolution. The judges strictly apply the letter of the 1953 Decree. The arguments of the transferee, who invoked a kind of acquired right due to the landlord's silence, were dismissed. The Court considers that the landlord's silence only creates a right to renewal if the tenant is still in occupation. However, after the transfer, the transferor is no longer a tenant, and the transferee has no standing to rely on that silence.

What This Means for You — Practically

For landlord/owners, this decision is a protection. If your tenant asks for renewal and you do not reply, you may still hope to recover your premises if the tenant transfers their business assets after the lease expires. Example: in Le Chesnay, an owner of an 80 sq m premises let at €1,200 per month saw his tenant cease activity and transfer his business to a buyer. The owner refused renewal, and the buyer had to leave. Without this judgment, the owner would have had to pay an eviction indemnity, often very high (several tens of thousands of euros).

For transferring tenants, be careful: if you want to transfer your business assets, do so before the lease expires. Afterwards, you transfer no right to renewal, which will make the transfer less attractive, if not impossible. The transferee risks being left without a lease and will have to negotiate a new contract or leave.

For purchasers of business assets, this is a warning signal. Before signing, check the lease expiry date. If the lease has expired, require the transferor to obtain a renewal or a new lease before the transfer. Otherwise, you are buying assets without a leasehold right, which reduces their value by 30 to 50%.

Finally, notaries and lawyers must be extra vigilant during transfer deeds. A simple clause stating that the transferor has requested renewal is not enough. You must ensure that the lease has not expired.

Four Tips to Avoid This Type of Dispute

• Check the lease expiry date before any transfer: The transferor must prove that the lease is current. Ask for a copy of the lease and an extract from the commercial register. If the lease has expired, postpone the transfer until a renewal is obtained.
• Have a renewal addendum signed before the transfer: The landlord can accept a new lease in writing. This secures the transaction. Without it, the transferee takes a huge risk.
• Insist on a warranty clause in the transfer deed: The transferor must guarantee that the right to renewal is effective. If the transferee is evicted, they can turn against the transferor for damages (often the transfer price plus operating loss).
• Consult a specialist lawyer before signing: A professional can analyse the lease, check deadlines, and draft appropriate clauses. The cost of the consultation (e.g., €150) is trivial compared to the risk of losing a business.

Further Insight: Related Case Law and Developments

This 1970 decision is part of a consistent line. Already in 1965, the Court of Cassation had held that the right to renewal is personal and is not transferred in the event of a transfer after expiry (Civ. 3e, 23 June 1965, n° 63-13.780). More recently, in 2015, the Court reiterated this principle in a similar case (Cass. 3e civ., 14 October 2015, n° 14-20.112). The trend is therefore stable: judges protect the landlord against late transfers.

Are there exceptions? Yes, if the landlord has expressly recognised the right to renewal after the transfer, for example by accepting rent from the transferee. But this is rare. In practice, the courts are strict. If you are a transferee, do not count on leniency.

Checklist Before Acting

1. If you are a landlord: Check whether your tenant transferred their business after the lease expired. If so, you can refuse renewal and commence eviction proceedings. Consult a lawyer to draft a notice to quit or a summons.
2. If you are a transferring tenant: Before transferring, obtain a written renewal of the lease. Otherwise, the transfer will be invalid as regards the leasehold right. You may be liable to refund the transfer price.
3. If you are a purchaser: Have a professional verify the lease expiry date. If the lease has expired, require the seller to regularise before signing. Do not advance any funds without this guarantee.
4. If you are a notary or lawyer: In the transfer deed, include a condition precedent of obtaining a lease renewal. This will protect the purchaser.
5. In case of dispute: Seise the competent judicial court (e.g., the Versailles jurisdiction). Timeframes are 6 to 12 months for a first instance decision. Mediation may be attempted to avoid costs.

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 →