Precarious Occupation Agreement: Beware the Objective Cause of Precariousness

Imagine: you are the owner of a commercial property in Caen, in the port district. A trader offers to occupy the premises while he finds a buyer for his business. You sign a "precarious occupation agreement" for twenty-three months. Everything seems simple. But what happens if, at the end of the term, the trader refuses to leave? And if the judge reclassifies your agreement as a commercial lease, with all the rights that entails for the occupant?

This is exactly the question put to the French Supreme Court in its decision of 12 December 2019. A question that every owner or tenant should know: under what conditions can a precarious occupation agreement be used? The answer is clear: there must be an objective cause of precariousness, i.e. a real obstacle to the conclusion of a commercial lease. Not mere convenience.

This decision is a wake-up call for overconfident landlords and a lifeline for occupants. Let's dive into the details.

The facts: a story that happens every day

Mr. X, owner of a commercial property in Vire (Calvados), leased it to a company, SARL Les Arcades, which operated a business. In 2007, the SARL wished to sell its business. To facilitate the sale, the owner and the tenant agreed to terminate the existing commercial lease and sign a "precarious occupation agreement" for a term of twenty-three months, starting on 1 January 2008. The idea: to allow the tenant to remain in the premises while it found a buyer, without granting it the protection of the commercial lease status (law of 30 June 1926 which gives the tenant a right to renewal and an eviction indemnity).

But the sale did not occur within the expected period. The tenant remained in the premises beyond the twenty-three months. The owner asked it to leave. The SARL refused, claiming it had a commercial lease. The owner sued for eviction before the Tribunal de Grande Instance of Caen.

The lower courts ruled in favour of the tenant: they reclassified the agreement as a commercial lease, finding that the precariousness was not justified. The Caen Court of Appeal confirmed this in 2018. The owner appealed to the Supreme Court. The Supreme Court dismissed his appeal and upheld the reasoning of the lower courts.

The Court's reasoning — explained

The Supreme Court relied on a fundamental principle: the precarious occupation agreement is an exception to the commercial lease regime. To be valid, it must be based on an objective cause of precariousness. What does that mean? There must be an external event, independent of the parties' will, that prevents the conclusion of a commercial lease. For example, an ongoing expropriation procedure, an administrative authorisation not yet obtained, or the expectation of an imminent but certain sale.

In this case, the courts found that the sole reason was to "facilitate the sale" of the business. However, the sale was merely a project, not a certainty. There was no obstacle to concluding a commercial lease. In reality, the parties sought to circumvent the tenant's protective status by using precariousness as a flexibility tool. The Supreme Court recalled that this is not permitted.

The reasoning is subtle: the precarious occupation agreement is not prohibited in the event of a sale, but the sale must be imminent and the occupation genuinely temporary by nature. Here, the twenty-three month term was too long for a mere wait for a sale, and the sale did not take place. Therefore, the precariousness was not objective.

This decision confirms consistent case law (Civ. 3e, 15 June 2017, no. 16-18.357): precariousness is not presumed, it must be proven. The burden of proof lies with the landlord who relies on the precarious agreement.

What this means for you — practically

For the landlord: you can no longer sign a precarious occupation agreement to "see how things go" or "buy time". If you do so without an objective cause, you risk reclassification as a commercial lease. Consequence? The tenant acquires a right to renewal, and if you refuse to renew, you must pay them an eviction indemnity (often equal to the value of the leasehold right, i.e. several years' rent). Concrete example: for a property in Caen rented at €1,500/month, the eviction indemnity can reach €50,000 to €100,000. In Vire, a rent of €800/month could generate an indemnity of €30,000 to €60,000.

For the occupant tenant: if you are under a precarious agreement, check whether the precariousness is genuinely justified. If not, you can ask the court to reclassify it as a commercial lease. This gives you a right to remain in the premises and protection against eviction without compensation.

For the buyer of a business or lease: be vigilant when signing. If the seller occupies under a precarious agreement, inquire about the cause. A risk of reclassification may affect the transaction.

For the co-owner: in a condominium, the letting of a commercial property under a precarious agreement may have consequences for charges and voting rights. Ensure that the condominium rules do not prohibit this type of occupation.

Four tips to avoid this type of dispute

• Draft a written document specifying the objective cause. In the agreement, expressly mention the event justifying the precariousness (e.g., "pending the obtaining of a building permit"). Do not merely state "with a view to a sale".
• Set a short and realistic term. The duration must be proportionate to the cause. If the cause ceases, the agreement must end. Avoid excessively long terms (more than 12 months) without justification.
• Do not collect rent. A precarious occupation agreement must be free of charge or with a modest occupation fee (below market rent). If you collect normal rent, the court may see it as a disguised lease.
• Consult a specialist lawyer. Before signing, have the validity of the agreement checked. Advice in Caen or Vire can save you years of litigation. The cost of a consultation (around €150) is negligible compared to an eviction indemnity.

Further reading: related case law and developments

The Supreme Court has reaffirmed this principle in several recent decisions. For example, in its decision of 15 June 2017 (no. 16-18.357), it held that "the precariousness of the occupation must result from an objective cause, external to the parties' will, and not from the mere intention of the parties not to give the contract the character of a commercial lease".

In a decision of 4 July 2019 (no. 18-14.736), it clarified that the imminent sale of a business can constitute an objective cause, provided it is certain and not hypothetical. In that case, the sale was already underway with an identified buyer, which was deemed sufficient.

The trend is therefore towards strict control: the lower courts examine the reality of the precariousness on a case-by-case basis. Precarious occupation agreements used to circumvent the commercial lease regime are systematically reclassified. In future, we can expect the Supreme Court to further tighten its position, particularly for long durations (more than 24 months).

Summary and next steps

FAQ:

• Can I use a precarious occupation agreement to rent a property to my cousin while he finds another property? No, because there is no objective cause of precariousness. You must enter into a standard commercial lease or a short-term lease (less than 3 years).
• What if my landlord refuses to renew my precarious agreement without reason? Apply to the judicial court to request reclassification as a commercial lease. You have up to 2 years after the end of the agreement.
• What is the time limit to act? In case of reclassification, the action is time-barred after 5 years from the signing of the agreement. But it is advisable to act as soon as the precariousness ceases.
• How much does a reclassification procedure cost? Expect €2,000 to €5,000 in legal fees, plus court costs (stamp duty, service). The financial stakes often justify this investment.
• Can I terminate a precarious agreement at any time? Yes, if the cause has ceased. Otherwise, you must respect the agreed term.

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 →