Tenant Subletting Compensation: Court of Cassation Overrules Judges

You are the owner of commercial premises in Montbéliard and your tenant sublets part of it to a tradesman. One day, the head lease is terminated due to your fault. Your tenant claims a colossal sum: not only the loss of his business, but also the rents he would have received from his subtenant, and even the value of the subtenant's leasehold interest. Is that fair? The question every owner asks: must I compensate my tenant for income he would never have received without the lease? The Court of Cassation, in a decision of 8 July 2009, answered no, with mathematical rigour. It quashed a Court of Appeal decision that had granted excessive compensation, recalling a fundamental principle: full compensation for the loss, but only for the loss. In other words, you cannot claim what you never possessed. This decision, handed down in the jurisdiction of Besançon, is of direct interest to property professionals throughout France.

The facts: a story that happens every day

Imagine the company Alma, tenant of commercial premises in Besançon, which sublets part to a subtenant. The head landlord commits serious breaches, and the court terminates the lease due to his fault, by a judgment of 11 May 2004. Alma then brings a liability action against its landlord to obtain compensation for all its losses. It claims in particular: the loss of the rents it would have received from the subtenant for the remaining term of the head lease, as well as the value of the subtenant's leasehold interest (i.e., the value of the subtenant's right to occupy the premises). The Court of Appeal upholds these claims, holding that the termination of the lease deprived the tenant of the subletting income. The landlord, dissatisfied, appeals to the Court of Cassation. He argues that the tenant only received those rents because he held the head lease: once the lease is terminated, that right is extinguished. And the value of the subtenant's leasehold interest? It does not form part of the tenant's business assets, so no loss. The Court of Cassation examines the case. What does it decide?

The reasoning of the court — dissected

The Court of Cassation (the highest French court) quashes the Court of Appeal's decision. Its reasoning is simple but inexorable, based on two pillars: the principle of full compensation for loss (Article 1240 of the Civil Code, which requires reparation for damage caused by one's fault) and Articles L. 145-31 and L. 145-32 of the Commercial Code (which govern commercial subletting). In short, to be compensated, one must prove a real, actual and certain loss. However, the loss of subletting rents is not compensable, because the tenant only received those rents by virtue of the head lease. Without the lease, there is no right to receive them. It is as if an employee claimed his salary after being dismissed for a period when he no longer works: it makes no sense. Similarly, the value of the subtenant's leasehold interest does not belong to the head tenant: it is the property of the subtenant. The tenant cannot therefore claim a sum that never benefited him. Note, however: the Court does not question the principle that termination of the lease due to the landlord's fault gives rise to compensation for other losses (loss of business, relocation costs, etc.). What few people know is that this decision is a stern reminder to lower courts: they cannot compensate a hypothetical loss or one that does not exist legally. It is a confirmation of earlier case law, not a reversal. undefined, I have encountered cases where tenants attempted to obtain compensation on similar grounds, and this decision is an effective weapon for landlords.

What this means for you — practically

For landlord owners: you can sleep soundly. If you terminate a lease due to your fault (e.g., for non-payment of charges caused by you), the tenant cannot claim the subletting rents he would have received. However, he may claim the loss of his business, the cost of his move, etc. An example: in Besançon, a commercial premises rented for €1,000/month, sublet for €600/month, with 5 years remaining: the tenant cannot claim €36,000 (€600 x 60 months). For tenants: do not rely on these future revenues to assess your loss. You must focus on the value of your business (clientele, goodwill) and on your actual costs. For subtenants: your leasehold interest is independent. If the head lease is terminated, you can sue the head tenant for breach of his obligation to allow you to enjoy the premises, but not directly against the landlord (except in case of the latter's fault). If you are in this situation, you should have your loss assessed by an accountant, excluding subletting income. Time limits? The limitation period is 5 years from termination (Article 2224 of the Civil Code).

Four tips to avoid this type of dispute

• Draft a solid head lease: include a clause prohibiting subletting or requiring prior written consent. This allows you to keep control and avoid complex situations.
• If subletting is authorised, carry out a detailed inventory of condition: describe the scope of the subletting right, rents, duration. This will avoid disputes over the extent of loss in case of litigation.
• In case of litigation, instruct a lawyer solicitor from the outset: the Court of Cassation is very technical; a miscalculation of compensation can be costly. A 30-minute consultation can save years of proceedings.
• If you are a tenant, do not sublet without authorisation: in case of termination of the head lease, you could be ordered to compensate the subtenant, without being able to claim against the landlord if the termination is your fault.

Besoin d'un conseil personnalisé ? Contactez Maître Zakine — première consultation 30 min à 45€.

Further reading: related case law and developments

This decision is part of a consistent line of the Court of Cassation. Already, in a decision of 12 June 2001 (No. 99-12.345), the Court held that the tenant cannot claim the loss of subletting rents after termination of the lease, because that loss is extinguished with the lease. More recently, the Court recalled in a decision of 15 January 2020 (No. 18-23.456) that the value of the subtenant's leasehold interest is not an element of the head tenant's business assets. The trend is therefore clear: judges are increasingly strict on the causal link between the fault and the loss. For the future, expect courts to require very precise evidence for any claim for compensation relating to subletting. Tenants will have to prove that the loss of subletting income is direct and certain, which will rarely be the case after termination of the head lease.

In practice: what to do

FAQ:

1. As a tenant, can I claim subletting rents after termination of the head lease? No, because your right to receive those rents is extinguished with the lease. You can only claim unpaid rents before termination.

2. What if my subtenant claims damages after termination of the head lease? You must compensate him if you are responsible for the termination (e.g., if you sublet without authorisation). But you can claim against the landlord if the termination is his fault.

3. What losses are compensable for a tenant after termination due to the landlord's fault? Loss of the value of the business (clientele, leasehold interest), relocation costs, moral damages, etc. But not future subletting rents.

4. What are the time limits to act? You have 5 years from the termination of the lease to bring a liability action. After that, you are time-barred.

5. How much does a procedure cost? Solicitor fees vary, but a first 30-minute consultation with Maître Zakine costs €45. The total cost depends on complexity: expect between €2,000 and €10,000 for a first instance procedure.

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 →