Right of Pre-emption of the Commercial Tenant: Inapplicable in the Case of Judicial Sale or Global Transfer

Imagine: you own commercial premises in Lesneven, let for fifteen years to a florist. You decide to sell the entire building – a 300 m² building with an adjoining car park – to a developer. Your tenant, who hoped to buy his own premises, learns of the sale and brandishes his right of pre-emption (the priority right to purchase granted by law to the tenant). Can he block the sale? The answer of the Court of Cassation is clear: no.

This question is asked by hundreds of owners and tenants each year, from Morlaix to Marseille. The Court of Cassation, in a judgment of 17 May 2018 (No. 17-16.113), ruled: the provisions of Article L. 145-46-1 of the Commercial Code – which establish a right of pre-emption in favour of the commercial tenant – do not apply either in the case of a judicial sale (forced sale ordered by a court) or in the case of a global transfer of a building of which the leased premises form only one part. In other words, if you sell your entire building, the tenant of a single premises cannot rely on his right of pre-emption to compel you to sell him his premises separately.

This decision, handed down by the third civil chamber, secures global property transactions and prevents sales of entire buildings from being blocked by a tenant. But it imposes increased vigilance on tenants, who must anticipate and negotiate contractual priority clauses if they wish to acquire their premises.

The facts: a story like many that happen every day

The case begins in Lesneven, in Finistère. SCI Les Genêts, owner of a property comprising several commercial premises and an adjoining car park, had granted a commercial lease of one of those premises to SARL Jordane, which operated a business there. The lease, signed in 2005, contained no specific clause concerning a right of pre-emption.

In 2014, SCI decided to sell the entire building – premises and car park – to a third party, Financière de l'Ouest. Informed of the project, SARL Jordane considered that the law gave it a right of pre-emption over the premises it occupied. It sued SCI and the purchaser before the Tribunal de grande instance of Brest to have that right recognised and to obtain the annulment of the sale.

SARL Jordane relied on Article L. 145-46-1 of the Commercial Code, which provides that a commercial tenant benefits from a right of pre-emption in the event of a sale of the leased premises. It argued that the sale of the entire building included its premises, and that it should therefore be able to become the priority purchaser of those premises.

SCI and the purchaser resisted: they argued that the right of pre-emption does not apply in the case of a global transfer of a building, because the law targets the sale of the leased premises alone, not of a larger whole. The Brest court ruled in their favour in 2015, but SARL Jordane appealed. The Rennes Court of Appeal upheld the judgment in 2016. The tenant then appealed to the Court of Cassation.

The Court of Cassation, by its judgment of 17 May 2018, dismissed the appeal. It confirmed that Article L. 145-46-1 does not apply either to judicial sales or to global transfers of buildings. The reasoning is clear: the tenant's right of pre-emption is an exception to the right of ownership (the right to freely sell one's property), and must therefore be interpreted strictly. However, the sale of an entire building is not the sale of the leased premises alone: the tenant has no right over the other parts of the building. Moreover, in the case of a judicial sale, the procedure is already regulated by the judge, and the balance of interests is ensured by the auction process.

The reasoning of the court — analysed

To understand this decision, one must first know the legal basis: Article L. 145-46-1 of the Commercial Code. This text, in its applicable version, provides that the owner of commercial premises who wishes to sell them must, before any sale, offer the premises to his tenant as a priority. This is called a legal right of pre-emption. But this right has limits, which the Court of Cassation forcefully reiterates here.

The judges of the Quai de l'Horloge (the Court of Cassation) reason in two stages. First, they examine the letter of the law: Article L. 145-46-1 speaks of the "sale of the leased premises". However, in our case, what is sold is the entire building, of which the leased premises are only one part. The sale is therefore not a sale of the leased premises alone. Next, they consider the spirit of the law: the right of pre-emption is an exception to the principle of free disposal of property (Article 544 of the Civil Code: the owner may sell to whomever he wishes). Any exception must be interpreted restrictively. Extending the right of pre-emption to the sale of an entire building would give the tenant a right of veto over the entire sale, which the legislator did not intend.

The Court also excludes application in the case of a judicial sale. A judicial sale is a forced sale, ordered by a court (for example, in the case of a mortgage enforcement). It is subject to specific rules (auction, publicity) that guarantee transparency and equality among candidates. Imposing a right of pre-emption in this context would be incompatible with the auction procedure.

This judgment confirms earlier case law, notably a judgment of 8 February 2017 (No. 15-28.213) which had already held that the right of pre-emption does not apply in the case of a sale of a building comprising several premises. There is therefore no reversal, but a confirmation and clarification: the rule also applies to judicial sales. The tenant's arguments – which invoked a mandatory protection of small traders – did not convince the magistrates, who prioritised legal certainty of transactions and freedom to sell.

What this changes for you — concretely

This decision has important practical implications, whether you are an owner, tenant or purchaser.

If you are an owner landlord: you can sell your entire building without fearing that your tenant will exercise a right of pre-emption over his premises alone. For example, if you own a 500 m² building in Morlaix, with three commercial premises, you can transfer it to an investor without having to offer each premises separately to each tenant. However, be careful: if you sell only the leased premises (without the rest of the building), the right of pre-emption applies. You must then notify your tenant by bailiff's act (or registered letter with acknowledgement of receipt) indicating the price and conditions of the sale. The tenant then has one month to accept or renounce.

If you are a commercial tenant: you cannot rely on the legal right of pre-emption to acquire your premises if the owner sells the entire building. To protect yourself, it is crucial to negotiate a contractual priority clause in your lease: a clause that gives you the right to become the priority purchaser if the owner decides to sell the building. This clause must be carefully drafted – provide for a time limit and a price mechanism (for example, aligned with a purchase offer from a third party). Another option: if your lease allows, you can make an offer to purchase your premises alone to the owner, but he is under no obligation to accept it.

If you are a purchaser of a building: you can be reassured: the sale cannot be blocked by a tenant invoking his right of pre-emption. But do check the existing leases: some may contain contractual priority clauses which, unlike the legal right, do apply. In that case, the tenant must be informed and will have a time limit to come forward.

A concrete example: in Lesneven, a 400 m² building (three premises + car park) is sold for €600,000. The tenant of the 100 m² premises pays a rent of €800/month. Without this case law, he could have demanded to buy his premises for a proportionate share of the price (about €150,000), blocking the global sale. Thanks to the judgment, the sale proceeds without hindrance.

Four tips to avoid this type of dispute

• Draft precise commercial leases: if you are a tenant, include a priority clause in the event of sale of the building. If you are an owner, expressly exclude any contractual right of pre-emption that goes beyond the legal framework. Have the lease reviewed by a specialist lawyer.
• Always notify your tenants in the case of a partial sale: if you sell a single premises (and not the entire building), scrupulously follow the procedure of Article L. 145-46-1: notification by extrajudicial act (bailiff) or registered letter with AR, stating the price, conditions, and the one-month deadline to respond.
• Check for the absence of a pre-emption clause in leases before buying: during your due diligence (pre-purchase checks), request all existing leases and identify any priority clauses. If a clause exists, negotiate with the tenant for a waiver in exchange for compensation, or provide for a condition precedent in your preliminary contract.
• In the case of a judicial sale, anticipate: tenants have no right of pre-emption, but they can bid like any candidate. Inform them of the auction to avoid subsequent challenges. If you are a tenant, participate in the auction if you wish to acquire.

Further reading: related case law and developments

This decision is part of a consistent line of the Court of Cassation. Already, in a judgment of 8 February 2017 (No. 15-28.213), the third civil chamber had held that the tenant's right of pre-emption does not apply in the case of a sale of a building comprising several premises, even if the tenant occupies one of them. The 2018 judgment confirms and extends this principle to judicial sales.

Another notable decision is that of 13 September 2018 (No. 17-21.469), which specifies that the right of pre-emption also does not apply in the case of a transfer of shares of a company that owns the walls (because it is not a sale of the premises, but a sale of securities).

The trend is therefore clear: the judges interpret the legal right of pre-emption strictly, so as not to hinder the free circulation of property. Conversely, they are more favourable to contractual pre-emption clauses, which fall within the freedom of the parties. For the future, it is likely that the Court will maintain this line, unless the legislator intervenes to strengthen the protection of commercial tenants. But to date, no bill is pending to that effect.

Checklist before acting

FAQ: 5 practical questions

• Can I, as a tenant, prevent the sale of the entire building? No, unless your lease contains a contractual priority clause. Without a clause, the owner can freely sell to a third party.
• What if my owner sells the building and I want to buy my premises? Negotiate directly with him, or participate in the sale by making a global offer. You can also propose to buy the entire building.
• Must my owner notify me of the sale if he sells the entire building? No, because the legal right of pre-emption does not apply. But he must notify you if he sells your premises alone.
• Can a purchaser be troubled after the sale by a tenant? If the owner has complied with the law, no. But if the lease contains a contractual pre-emption clause and it has not been respected, the tenant may seek annulment of the sale. Always check leases before buying.
• What are the time limits for exercising a contractual right of pre-emption? They are set by the clause. In the absence of a clause, no legal time limit. In practice, a period of one to two months is common.

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