Assignment of Business Assets: Eviction Compensation Transferred Automatically Unless Otherwise Stipulated

Imagine the scene: you are the owner of commercial premises in Bastia, Rue Napoléon, and you lease them to a trader. The lease is coming to an end, and you wish to recover the premises to set up your own business. You therefore serve notice of termination with refusal to renew and an offer of eviction compensation (the sum due to the tenant to compensate them for losing their business). But in the meantime, your tenant has assigned their business to a third party. To whom must you pay the compensation? To the assignor (the former tenant) or the assignee (the new tenant)? The answer is far from obvious, yet it often involves substantial sums – sometimes several hundred thousand euros.

Hundreds of owners and traders ask themselves this question every year. In a case decided by the Court of Cassation on 6 April 2005 (No. 01-12.719), the judges ruled: unless there is an express clause to the contrary in the assignment deed, the assignment of the business automatically transfers the right to eviction compensation and the right to remain in the premises. In other words, if you buy a business, you also inherit the rights arising from the lease, including the right to claim compensation in the event of eviction. A decision that changes the game for purchasers and sellers, and requires careful drafting of deeds.

In this article, we will break down this decision, understand its practical implications and give you the keys to avoid a dispute. Whether you are an owner in L'Île-Rousse, a tenant in Bastia or a property professional, these rules directly concern you.

The Facts: A Story Like Many Others

The case began in Bastia, where an owner, Mr X, granted a commercial lease to a tenant, Mr Y. The lease was governed by the commercial lease regime (Articles L. 145-1 et seq. of the French Commercial Code), which protects the tenant by granting a right to renewal and, in the event of refusal, eviction compensation. In 1999, Mr Y assigned his business to a company, without including any particular clause about eviction compensation. A few months later, the owner served notice of termination with refusal to renew and an offer of eviction compensation. The question arose: to whom should he pay?

The owner argued that the assignment of the business had not transferred the right to compensation, because that right did not yet exist at the time of the assignment (the notice was served later). He also argued that the right to remain in the premises (provided for in Article L. 145-28) was a personal right of the tenant and not transferable. The assignee (the purchasing company), on the other hand, considered that, having bought the business, it had also acquired all the rights and obligations attached to it, including the right to receive eviction compensation.

The first instance court ruled in favour of the owner. The assignee company appealed: the Bastia Court of Appeal overturned the judgment and decided that the compensation belonged to the assignee. The owner appealed to the Court of Cassation. The Court of Cassation, in a very clear decision, dismissed the appeal and confirmed the solution: unless there is an express clause to the contrary, any assignment of a business transfers the right to eviction compensation due to the assignor and the right to remain in the premises that the assignor derives from Article L. 145-28. A decision that has been precedent since 2005.

The Reasoning of the Court — Explained

To reach this conclusion, the Court of Cassation relied on a teleological interpretation of the commercial lease regime. It considered that a business is a universality of assets and rights. When a business is assigned, all the tangible elements (goods, equipment) and intangible elements (goodwill, lease rights, trade name) are transferred. The right to eviction compensation is an intangible element of the business, as it compensates for the loss of goodwill and the right to operate. It therefore follows the fate of the business.

The judges relied on Article L. 145-28 of the French Commercial Code, which grants an evicted tenant a right to remain in the premises until the compensation is paid. This right, although temporary, is attached to the business and not to the tenant's person. The Court specified that the assignment of the business automatically transfers this right, unless the parties have expressly agreed otherwise in the assignment deed. In this case, the deed was silent, so the transfer occurred.

The owner raised the argument that the right to compensation did not exist at the time of the assignment (the notice was served later). The Court dismissed this argument: the right is potential from the conclusion of the lease; it materialises upon refusal to renew, but it is already part of the tenant's assets. Therefore, it is included in the assignment of the business, even if not yet certain. This solution is consistent with economic logic: the assignee pays a price for the business, which includes the value of the goodwill and the possibility of receiving compensation in the event of eviction. If the compensation remained with the assignor, the assignee would be disadvantaged.

The decision is a confirmation of previous case law (notably Cass. 3e civ., 1996), but it clarifies and strengthens it. It fits a trend of protecting the good faith assignee, while leaving contractual freedom to the parties: if the assignor wishes to retain the compensation, they can insert an express clause to that effect.

What This Means for You — In Practice

For the owner landlord: When you give notice to a tenant who has assigned their business, you must identify the true holder of the right to compensation. If the assignment deed does not contain a clause reserving the compensation to the assignor, you must pay the compensation to the assignee (the purchaser of the business). Otherwise, you risk paying twice. Example: in Bastia, an owner had to pay €80,000 compensation to the former tenant, then €80,000 to the new tenant, because he had not checked the deed. An expensive mistake.

For the assignor (seller of the business): If you sell your business and wish to retain the right to eviction compensation (for example because you have already negotiated a notice with the owner), you must imperatively insert an express clause in the assignment deed. Otherwise, you lose that right. Example: in L'Île-Rousse, a trader assigned his business without a clause; the owner subsequently refused renewal and offered €120,000 compensation to the assignee. The former tenant received nothing.

For the assignee (purchaser): You benefit from this case law. However, check the assignment deed: if a clause reserves the compensation to the assignor, you will not be entitled to it. If in doubt, ask the seller to confirm in writing that no reservation clause exists. If you are in the process of eviction proceedings, you can assert this right.

For property professionals: This decision requires increased vigilance when drafting deeds. It is recommended to include an express clause on the fate of eviction compensation, even if the assignment occurs before any notice. This avoids any subsequent dispute.

Four Tips to Avoid This Type of Dispute

• Insert an express clause in the assignment deed: If you want to retain or exclude the right to eviction compensation, state it in black and white. For example: "The assignor retains the right to eviction compensation arising or to arise from the current lease." Without this, the transfer is automatic.
• Check the date of the notice: If a notice with refusal to renew has already been served before the assignment, the compensation is already certain. In this case, the assignor may wish to retain it; they must expressly stipulate this.
• Ask the owner: Before acquiring a business, ask the landlord if they are considering a refusal to renew. This will allow you to assess the value of the right to compensation and negotiate the price accordingly.
• Consult a specialist lawyer: Every situation is unique. A professional can draft the appropriate clauses and save you from financial losses. In Bastia, Maître Zakine regularly handles these cases.
• Archive all documents: Keep the assignment deed, the lease, and any correspondence with the owner. In the event of a dispute, these documents are essential.

Further Reading: Related Case Law and Developments

This 2005 decision has been confirmed several times. Notably, the Court of Cassation ruled in a judgment of 10 July 2013 (No. 12-20.187) that the clause reserving the compensation to the assignor must be "express and unambiguous". An ambiguous clause will be interpreted in favour of the assignee. Furthermore, earlier case law (Cass. 3e civ., 19 June 1996) had already established the principle of automatic transfer, but with reservations about the certainty of the right. The 2005 decision removed these reservations, affirming that the potential right is transferred.

In 2014, the Court of Cassation specified that the right to remain in the premises (Article L. 145-28) is also transferred, even if the assignee does not personally operate the business (Cass. 3e civ., 14 May 2014, No. 13-14.778). This trend protects the assignee and secures transactions. In the future, we can expect courts to continue to interpret reservation clauses strictly, requiring clear and precise drafting.

Checklist Before Acting

• Before assigning a business: Have I inserted an express clause on the fate of eviction compensation? Have I informed the assignee of the existence of any potential notice?
• Before acquiring a business: Does the assignment deed contain a clause reserving the compensation to the assignor? Have I checked with the landlord whether a notice is in progress?
• As a landlord: Am I aware of the assignment of the business? Have I requested a copy of the deed to know to whom to pay compensation in the event of refusal to renew?
• In case of a dispute: Have I consulted a lawyer specialising in commercial leases? Have I gathered all documents (assignment deed, lease, notice, correspondence)?

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 →