Transfer of Business: Eviction Compensation Automatically Follows the Transferor

Imagine: you are the owner of a commercial premises in Reims, rue de Vesle, which you have leased to a florist for twenty years. One day, he tells you that he is selling his business to a buyer. You take the opportunity to refuse to renew the lease and ask him to vacate the premises. But here's the thing: the buyer, who has never been your tenant, demands eviction compensation (sum due to the evicted tenant to compensate for the loss of his business). Surprising? Not for the Court of Cassation. In a decision of 17 February 2010 (No. 08-19.357), it ruled: unless there is a clause to the contrary, the transfer of the business automatically transfers the claim for eviction compensation and the right to remain in the premises. In other words, the transferor transfers to the buyer his right to be compensated. A decision that upsets the certainties of landlords and buyers. How to react?

The Facts: A Story That Happens Every Day

In 1996, the company ASC (a limited liability company) operates a restaurant business in premises belonging to Mr. X, in Épernay. In 2001, the landlord gives notice (termination of the lease) with refusal of renewal, but without offering eviction compensation, as provided for by the statutory regime for commercial leases. ASC then sues Mr. X in court to obtain eviction compensation and the appointment of an expert to assess it. In 2003, during the proceedings, ASC sells its business to another company, CG. The transfer deed does not mention the claim for eviction compensation. The landlord, Mr. X, rubs his hands: he thinks the transfer has nullified the claim for compensation. He argues that ASC no longer has standing to sue and that the sale is void for lack of subject matter. But the Court of Appeal of Reims agrees with him in 2008: it declares the sale void and dismisses ASC's claim. CG appeals to the Court of Cassation. The Court of Cassation quashes the judgment: it recalls that the transfer of the business automatically transfers the claim for eviction compensation, unless there is a clause to the contrary. The sale remains valid and the buyer can claim the compensation.

The Reasoning of the Court — Analysed

The Court of Cassation relies on Articles L. 145-28 of the Commercial Code (right to remain in the premises until payment of the compensation) and L. 145-29 (transfer of the right to the lease). It interprets these texts as forming a whole: the right to eviction compensation is an accessory to the business (an element that follows the principal). Thus, as soon as the business is transferred, the claim for compensation is automatically transferred to the buyer, even if the transfer deed does not mention it. However, note: a clause to the contrary in the deed can exclude this transfer. But in this case, the deed was silent. The Court also specifies that the transfer can take place until the effective payment of the compensation. The landlord cannot avoid his obligation by playing with the chronology. What few people know: this solution protects the transferor against the landlord's delaying tactics. In short, the landlord cannot refuse renewal, hope that the tenant sells his business, and thus escape the compensation. The Court of Cassation had already started down this path in earlier decisions, but here it confirms it forcefully. This is a victory for the freedom to transfer businesses.

What This Changes for You — Concretely

For the landlord: if you give notice to your commercial tenant without compensation, expect the buyer of the business to claim it from you. Concrete example: in Reims, a landlord leases a premises to a hairdresser. The hairdresser sells his business to a new hairdresser. The landlord refuses renewal. The new hairdresser can demand eviction compensation, even if he was never a tenant. Average amount in Reims: between €30,000 and €80,000 depending on size and location.

For the tenant-transferor: you can sell your business even if a compensation procedure is ongoing. The buyer takes over your right. You must inform him of the existence of the claim in the transfer deed, on pain of warranty against eviction (obligation to protect the buyer against hidden defects).

For the buyer: check in the transfer deed whether the compensation claim is included or excluded. If the deed is silent, you benefit automatically. In Épernay, a buyer thus recovered €45,000 in compensation when the landlord thought he had gotten rid of it.

For the co-owner: if you are a landlord of a premises in co-ownership, this decision concerns you too. In case of transfer of the business, you must provision for the risk of compensation.

Four Tips to Avoid This Type of Dispute

• Include an express clause in the transfer deed: if you wish to exclude the transfer of the eviction compensation claim, mention it in black and white. Example: "The transferor retains the claim for eviction compensation arising from the transferred lease."
• Inform the landlord by registered letter: immediately after the transfer, notify the landlord of the identity of the new operator and the transfer of the claim. This avoids any later dispute.
• Have the compensation assessed before transferring: if a procedure is ongoing, ask the judge to fix the compensation before the sale. This avoids complications for the buyer.
• Consult a lawyer lawyer: each case is unique. A poorly drafted clause can cost you dearly. undefined, I have come across cases where the absence of a clause led to a multi-year dispute.

Further Reading: Related Case Law and Developments

The Court of Cassation had already ruled, in a decision of 10 December 2008 (No. 07-20.470), that the transfer of the right to the lease transfers the eviction compensation. The 2010 decision goes further: it extends this principle to the transfer of the business itself. Since then, the case law has been consistent. In 2016, the Court of Cassation specified that the clause to the contrary must be "express and unambiguous" (Civ. 3e, 16 June 2016, No. 15-15.787). In other words, a mere allusion is not enough. This trend reinforces legal certainty for business transfers. The courts favour continuity of commercial activity and protect the buyer against nasty surprises. However, note: if the landlord has already paid the compensation to the transferor before the transfer, the claim is extinguished and does not transfer. Caution is therefore required.

Checklist Before Acting

Practical FAQ

Q: Can I sell my business if an eviction compensation procedure is ongoing?
A: Yes, the transfer is possible and the buyer takes over your right to compensation, unless there is a clause to the contrary.

Q: Can the landlord refuse to pay the compensation to the buyer?
A: No, because the claim is transferred automatically. The landlord must pay the buyer, even if the transfer deed does not mention it.

Q: What to do if the transfer deed does not mention the eviction compensation?
A: Nothing special: the transfer is automatic. But to avoid any dispute, it is advisable to specify it.

Q: Is there a time limit to claim the compensation after the transfer?
A: Yes, the limitation period is 5 years from the refusal of renewal. The transfer does not interrupt this period.

Q: Can I exclude the transfer of the compensation in the transfer deed?
A: Yes, by an express and unambiguous clause. Example: "The transferor alone retains the right to eviction compensation."

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