Urban Pre-emption Right: the Court of Appeal Cannot Set the Price of a Business

Imagine: you own a commercial premises in Redon, with a lease premium and a business. You sign a promise to sell the whole. But the municipality exercises its urban pre-emption right (the right to buy certain properties in priority) and the judge must set the price. How far can he go? Can he also decide the value of your business? The answer of the Court of Cassation is clear: no, he exceeds his powers. This decision, delivered on 9 June 2004, protects owners against an encroachment by the expropriation judge on the domain of the business, which falls under classical civil law. Let us decipher together what this means for you, whether you are an owner, tenant or professional.

The facts: a story like any other

In Lille, the Urban Community benefits from an urban pre-emption right (DPU, the right for a local authority to buy a property put up for sale in priority). An owner, whom we will call Mr X, decides to sell a package comprising plots of land and a business (that is, the commercial activity, with its clientele, its name, its leasehold right). He signs two inseparable promises to sell: one for the plots, the other for the business. The Urban Community exercises its DPU over the plots, but not over the business (because the DPU only concerns immovable property). The seller and the authority cannot agree on the price. Seised, the expropriation chamber of the Douai Court of Appeal sets the price of the plots... and takes the opportunity to also rule on the composition and value of the business. Mr X challenges this: in his view, the expropriation judge has no jurisdiction to do so. The Court of Cassation agrees with him: by ruling on the business, the Court of Appeal exceeded its powers. The judgment is quashed on this point.

The reasoning of the court — dissected

The Court of Cassation relies on the articles of the Expropriation Code (in particular Article L. 213-1, which defines the scope of the DPU) and on the principle of separation of powers. In short, the expropriation judge (the judge specialised in pre-emption and expropriation matters) can only deal with immovable property subject to the DPU. The business, for its part, is an intangible movable asset (it is a right, not immovable property). Even if the two promises are inseparable, the judge cannot extend his jurisdiction. The Court of Appeal had nevertheless attempted to analyse the business in order to determine a global price, but the High Court reminds that this is an error. However, note: this does not mean that the business escapes all judicial control; simply, this control falls under the classical civil judge (tribunal judiciaire), not the expropriation judge. In other words, if you are an owner in Cesson-Sévigné and your property is pre-empted, the judge cannot decide the value of your business in the context of the DPU. What few people know: this distinction is fundamental because it prevents the expropriation judge, who applies specific rules (particularly on compensation), from interfering in the valuation of a business which falls under commercial law.

What this changes for you — concretely

For an owner landlord: if you sell a commercial premises with its business, and the municipality exercises its DPU over the premises only, the judge cannot set the price of the business. You retain the freedom to negotiate the price of the business with the initial purchaser (subject to the sale of the business becoming void if the premises are pre-empted). Concrete example: in Redon, a 100 m² premises is sold for €200,000, the business for €50,000. The municipality pre-empts the premises. The judge sets the price of the premises, but not that of the business. You can then try to sell the business to another trader, or negotiate compensation for loss of business with the municipality (by another legal route). For a tenant trader: your leasehold right (included in the business) is not directly affected by the DPU, but be careful: if the premises change owner (the municipality), your lease continues. However, the municipality may be less inclined to renew the lease. For a purchaser: you must be vigilant if you buy a package of 'walls + business': the DPU will only apply to the walls. Include a clause in the promise providing that if the DPU is exercised, the sale of the business is conditional on the sale of the walls, or vice versa. undefined, I have seen cases where purchasers ended up with a business without premises, or premises without a business. Better to anticipate.

Four tips to avoid this type of dispute

• Consult a lawyer before signing a promise to sell covering both walls and a business. A professional will help you structure the sale to prevent the DPU from creating an imbalance.
• Draft separate promises to sell linked by a resolutory condition. For example: the sale of the business is void if the sale of the walls does not take place. This protects both parties.
• If you are pre-empted, do not let the expropriation judge value your business. Raise the lack of jurisdiction at the start of the proceedings. You can also apply to the civil judge to have the value of the business fixed.
• In case of disagreement on the price of the walls, request an independent property valuation. The expropriation judge often relies on experts. Preparing your own valuation will give you strong arguments.

Further reading: related case law and developments

This 2004 decision is in line with a consistent approach: the expropriation judge can only deal with immovable property. One can cite an earlier decision (Civ. 3e, 19 March 1997, No. 95-70.126) which had already held that the expropriation judge has no jurisdiction to rule on a business. More recently, the Court of Cassation confirmed this position in a decision of 12 July 2018 (No. 17-70.022): the judge cannot even order an expert report on the business. The trend is therefore clear: a strict separation of powers. For the future, local authorities must be cautious: if they pre-empt an immovable property package including a business, they must negotiate the business separately, or accept that the price of the business is fixed by another judge. This may complicate development operations, but protects owners' rights.

Key points to remember

• The urban pre-emption right only applies to immovable property. A business is not immovable property, therefore not subject to the DPU.
• The expropriation judge cannot set the price of a business, even if the sale is linked to that of the walls. He exceeds his powers.
• If you sell a 'walls + business' package, anticipate with contractual clauses. For example: if the walls are pre-empted, the sale of the business is cancelled, or the price is revised.
• In case of dispute, distinguish the proceedings: the price of the walls is discussed before the expropriation judge, the price of the business before the tribunal judiciaire (civil judge).
• Get assistance from a lawyer lawyer to navigate between these two proceedings and avoid losing your rights.

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