Eviction indemnity: the valuation date that changes everything for the commercial tenant

Imagine: you are a tenant of a shop in Saint-Genis-Laval, rue du Général-de-Gaulle, for twenty years. Your bakery is doing well, you have loyal customers. One day, your landlord notifies you that he is not renewing the lease. Unlucky: he wants to recover the premises to set up his daughter. You are entitled to an eviction indemnity (a sum of money to compensate for the loss of your business). But at what date should it be valued? On the day of the refusal to renew? On the day you leave? The answer has enormous financial consequences. The Court of Cassation, in a judgment of 2 June 1993, laid down a clear rule: the value of the elements of the business used as the basis for calculating the eviction indemnity must be assessed, when the eviction has not yet taken place, on the date on which the judges make their decision, without any need for revaluation. In other words, it is the day of the judgment that counts. But what exactly does this change? And how should you react if you are affected? I will explain everything, with concrete examples from the Lyon region.

The facts: a story that happens every day

Mr X, owner of commercial premises in Saint-Genis-Laval, leases premises for use as a restaurant to Mr and Mrs Y. The lease expires. The landlord refuses to renew the lease, invoking a serious ground: the tenant allegedly sublet without authorisation. He offers an eviction indemnity (financial compensation for the loss suffered by the evicted tenant). Mr and Mrs Y contest the very principle of the indemnity, arguing that they committed no fault. The first instance court rules in their favour: they are entitled to an indemnity. But the landlord appeals, and the Lyon Court of Appeal fixes the indemnity at a certain amount, valued as of the date of its judgment. The landlord appeals to the Court of Cassation: according to him, the indemnity should have been valued as of the date of the refusal to renew, not as of the date of the appeal judgment. He argues that the value of the business increased in the meantime, which penalises him. The Court of Cassation dismisses his appeal and confirms the decision of the Court of Appeal. It recalls that the tenant cannot be forced to leave the premises before receiving the indemnity, and that as long as the eviction (actual departure of the tenant) has not taken place, the value of the business is assessed on the day the judge makes the decision. What few people know is that this rule protects the tenant against inflation and the increase in the value of his business during the proceedings, which can last for years.

The reasoning of the court — analysed

The Court of Cassation relies on Article 1240 of the Civil Code (formerly 1382), which requires reparation for damage caused by one's fault. But here, there is no fault: the landlord has the right to refuse renewal, but must compensate the tenant. The indemnity must cover the actual loss suffered on the date it is due. However, the tenant cannot be evicted before being paid. If the indemnity were valued at an earlier date, the tenant would suffer a loss if the value of his business increases in the meantime. The judges therefore considered that the value of the elements of the business (goodwill, leasehold rights, equipment, etc.) must be assessed on the date of their decision, not on the date of the refusal to renew. Note, however: this rule only applies if the eviction has not yet taken place. If the tenant has already left the premises, the valuation date is the actual date of departure. In the case, the Court of Appeal fixed the indemnity based on the value as of the date of its judgment, and the Court of Cassation validated this choice. In short, the judges favoured an updated valuation to guarantee full compensation for the loss.

What this means for you — practically

For a commercial tenant: if your landlord refuses to renew your lease and you contest the amount of the indemnity, the value of your business will be assessed on the day of the judgment, not on the day of the refusal. This is an advantage if your business is thriving and the value of your business increases during the proceedings. Example: in Saint-Priest, a tenant running a pharmacy sees his business increase from €200,000 to €250,000 over two years of proceedings. With this case law, he will receive the indemnity based on €250,000.

For a landlord: this rule can cost you dearly if the value of the business increases during the dispute. To limit risks, negotiate amicably or offer an indemnity immediately upon refusal, based on a recent valuation. If you contest the right to an indemnity, be aware that the tenant may remain in the premises until payment, which delays recovery of the premises.

For a purchaser of a business: when buying, check whether a refusal to renew is pending. If so, the seller may receive an eviction indemnity valued on the day of the judgment, which may affect the sale price.

undefined, I have come across cases where landlords, thinking they would save money, dragged out litigation and ended up paying much higher indemnities than expected. An example in Lyon: a landlord contested the indemnity for 3 years, the business increased in value by 30%, and he had to pay €80,000 more.

Four tips to avoid this type of dispute

• Have your business valued as soon as the refusal to renew is received: obtain a valuation by an accountant or a lawyer in business valuations. This will serve as a basis for negotiation and as evidence in case of proceedings.
• Negotiate the indemnity amicably: rather than going to court, propose an amount based on the valuation. You will save legal costs and avoid the increase in value due to time.
• If you are a landlord, include a clause in the lease: provide that the indemnity will be valued on the date of the refusal to renew, if the law allows. Be careful, this clause may be considered unfair if it disadvantages the tenant too much.
• Keep all evidence of your activity: financial statements, turnover, inventory of equipment. The stronger your evidence, the more favourable the valuation will be.

Further details: related case law and developments

The Court of Cassation has confirmed this position in several subsequent judgments, notably in a judgment of 10 July 1996 (No. 94-17.345) where it specifies that the eviction indemnity must be fixed at the date closest to payment. Courts now systematically apply this rule. One exception: if the tenant has already left the premises before the judgment (for example, by agreement), the valuation date is the date of departure. The trend is therefore protective of the tenant, but it encourages landlords to settle quickly to avoid an increase in the indemnity. What this means for the future: landlords will be more inclined to negotiate quickly, and tenants should be aware that dragging things out may be advantageous if their business increases in value.

Checklist before acting

FAQ:

• Q: When must I leave the premises? A: Not until you have received the indemnity. You can stay until payment, even if the lease has ended.
• Q: Can I contest the amount proposed by the landlord? A: Yes, in court. But be aware, the proceedings can last 2 to 3 years, and the indemnity will be valued on the day of the judgment.
• Q: What if the landlord refuses to pay? A: Apply to the tribunal judiciaire. You can request an interim payment to avoid losing your business.
• Q: Is the indemnity taxable? A: Yes, in part. Consult an accountant to optimise.
• Q: Can I sell my business during the proceedings? A: Yes, but the price will be affected by the uncertainty. Better to wait for the judgment.

If you are in a similar situation, do not wait. A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →