Delegation of Payment of the Eviction Compensation: The Tenant May Act Directly Against the Purchaser

Imagine for a moment: you are a tenant of commercial premises in Évron, you have been running a bakery there for ten years, and your landlord sells the building. The new landlord gives you notice to vacate in order to sell the property free of occupants. Normally, he owes you eviction compensation (the sum intended to compensate for the loss of your business). But surprise: the sale deed provides that the purchaser will pay this compensation on your behalf. Except that the purchaser does not pay, and the seller, for his part, has disengaged. Whom can you pursue? This question, which hundreds of traders and landlords ask themselves every day, was decided by the Court of Cassation in a judgment of 5 March 2008.

The solution adopted is both subtle and protective for the tenant. The High Court considered that the clause in the sale deed by which the purchaser undertakes to bear the eviction compensation due to the tenant is analysed as an "imperfect delegation of payment" (a legal mechanism by which a person, the delegate, undertakes towards another, the delegatee, to pay a debt owed by the delegator). In practical terms, this means that the tenant (the delegatee) can claim payment directly from the purchaser (the delegate), without having to go through the seller. And above all, the purchaser cannot oppose to him the rule of the relative effect of contracts (the principle that a contract creates obligations only between the signatory parties).

But what exactly does this change? And how should you react if you are concerned? This article dissects the decision, explains concretely what it implies for landlords, tenants and purchasers, and gives you practical advice to avoid pitfalls. The key takeaway: the tenant is not defenceless against a recalcitrant purchaser.

The Facts: A Story Like Many That Happen Every Day

The case that gave rise to this judgment opposes the company The Ritz Hotel Limited (owner of a prestigious building) to the company Banque Sepah (tenant) and to Crédit Foncier de France (CFF, a financial institution). In 1998, Banque Sepah, tenant of commercial premises, receives a notice to quit with refusal to renew the lease from the landlord. Consequently, the landlord owes it eviction compensation (the financial compensation due to the evicted tenant, intended to cover the loss of its business, relocation costs, etc.).

In February 1999, the landlord sells the building to Crédit Foncier de France. The sale deed contains a clause by which the purchaser (CFF) undertakes to bear the payment of the eviction compensation due to Banque Sepah. So far, everything seems clear: the seller frees himself from his debt, and the purchaser promises to pay.

Except that CFF does not pay. Banque Sepah, unpaid, then sues the seller (The Ritz Hotel) for payment of the compensation. The seller, in turn, brings a warranty claim against CFF (i.e., he asks the court to order the purchaser to reimburse him if he himself is ordered to pay). The central question is therefore: can Banque Sepah claim payment directly from CFF, or must it content itself with pursuing the seller?

The Paris Court of Appeal, in a judgment of 31 May 2006, held that the clause constituted an imperfect delegation of payment, allowing the tenant to act directly against CFF. The seller (The Ritz Hotel) appealed to the Court of Cassation, arguing that the tenant was not a party to the sale deed and could therefore not rely on the clause (principle of the relative effect of contracts). The Court of Cassation, in its judgment of 5 March 2008, dismissed the appeal and confirmed the solution of the Court of Appeal. In other words, the tenant can indeed act directly against the purchaser.

The Reasoning of the Court — Analysed

How does the Court of Cassation justify its decision? It relies on the concept of imperfect delegation of payment, defined in Articles 1336 et seq. of the Civil Code (in their wording prior to the 2016 reform of contract law). The delegation is "imperfect" because the delegator (the seller) remains liable towards the delegatee (the tenant) if the delegate (the purchaser) does not pay. In other words, the seller is not released from his debt, but the tenant has the choice to pursue either one.

However, be careful: this mechanism can only operate if the clause clearly expresses the parties' intention to create a delegation. In this case, the clause provided that the purchaser "undertakes to bear the payment of the eviction compensation due to the tenant". For the judges, this wording is sufficiently precise to characterise a delegation: the seller (delegator) asks the purchaser (delegate) to pay the tenant (delegatee) directly.

What few people know is that the principle of the relative effect of contracts (former Article 1165 of the Civil Code) is not an obstacle. Indeed, delegation of payment is a legal exception to this principle: it allows a person (the delegatee) to demand performance of an obligation stipulated in a contract to which he is not a party. The Court of Cassation clearly recalls: "the clause is analysed as an imperfect delegation of payment authorising the lessee to act directly against the delegate and without the rule of the relative effect of contracts being opposable to him".

In clear terms, the judges considered that the intention of the parties was to allow the tenant to turn directly against the purchaser, even if he did not sign the sale deed. This solution is protective for the tenant, because it offers him an additional debtor (the purchaser) in case of default by the seller. undefined, I have encountered cases where tenants found themselves without recourse because the seller was insolvent; this decision gives them a lifeline.

What This Changes for You — Concretely

This decision has major practical implications for all players in commercial real estate. Let's look at them profile by profile.

For the evicted tenant: you are no longer obliged to pursue only your former landlord (the seller). If the sale deed contains a clause by which the purchaser undertakes to pay your eviction compensation, you can act directly against him. For example, if you are a tenant of a shop in Ernée and your landlord sells the building, you can, as soon as the notice is given, check the sale deed and, if the clause exists, sue the purchaser for payment. However, be careful: you must prove that the clause indeed constitutes a delegation. In case of doubt, have the deed analysed by a lawyer.

For the seller (landlord): you are not automatically released from your debt. Since the delegation is imperfect, the tenant can still claim payment from you if the purchaser does not pay. You therefore have an interest in ensuring that the purchaser performs his obligation, or in providing a guarantee (surety, sequestration of the sale price). For example, if you sell a building in Évron and the tenant is in the process of being evicted, negotiate with the purchaser the deposit of an amount equivalent to the compensation with a notary, to be released only upon proof of payment to the tenant.

For the purchaser: you must be aware that your undertaking to pay the eviction compensation exposes you to a direct action by the tenant. Do not think you can hide behind the fact that you did not sign a contract with him. If you do not pay, the tenant can sue you, and you risk being ordered to pay the compensation, plus interest and procedural costs. Example with figures: if the compensation is €100,000, with interest at 5% per year, after two years of proceedings, you will owe nearly €110,000, plus legal fees (€3,000 to €5,000).

Four Tips to Avoid This Type of Dispute

• Draft the clause clearly in the sale deed: If you are a seller and wish to delegate the payment of the eviction compensation to the purchaser, have an explicit clause drafted, mentioning that the purchaser undertakes to pay the tenant directly, and that the seller remains subsidiarily liable (imperfect delegation). Avoid ambiguous wording such as "the purchaser will bear the cost" without further precision.
• Require a guarantee from the purchaser: As a seller, do not settle for a promise. Ask the purchaser to deposit the amount of the compensation with a notary or to provide a bank guarantee. Thus, even if the purchaser defaults, the funds are available.
• Check the sale deed before leaving the premises: If you are a tenant, as soon as you receive a notice to quit, ask your lawyer to review the sale deed (you have the right to obtain a copy from the notary). Identify whether a delegation clause exists. If so, you will know who to sue.
• Put the purchaser on notice as soon as the first non-payment occurs: If the compensation is not paid on the due date, send a formal notice to the purchaser by registered letter with acknowledgement of receipt. This interrupts the limitation period (the time limit to bring legal action, which is 5 years for eviction compensation claims) and constitutes proof of your steps.

Further Analysis: Related Case Law and Developments

The judgment of 5 March 2008 is part of a line of decisions favourable to the tenant. Already, the Court of Cassation had held, in a judgment of 13 November 2002 (no. 00-17.687), that the clause by which the purchaser undertakes to perform the landlord's obligations towards the tenant constitutes a delegation of payment. The 2008 decision confirms and clarifies this solution, applying it specifically to eviction compensation.

However, be careful: not all clauses are automatically characterised as a delegation. For example, a clause that merely states that "the purchaser will reimburse the seller for sums paid by the latter to the tenant" does not constitute a delegation, but a simple reimbursement guarantee. In that case, the tenant cannot act directly against the purchaser. The tendency of the courts is therefore to interpret strictly the intention of the parties: for there to be a delegation, the clause must clearly express that the purchaser must pay the tenant directly.

Since the 2016 reform of contract law (Ordinance of 10 February 2016), Articles 1336 to 1338 of the Civil Code codify the delegation of payment. Article 1336 provides that "the delegation by which the debtor gives the creditor another debtor who obliges himself towards the creditor does not effect novation if the original debtor remains bound". This is exactly the situation of imperfect delegation. The earlier case law therefore remains relevant. For the future, one can expect that judges will continue to protect the tenant, provided the clause is unambiguous.

Frequently Asked Questions

Can I act directly against the purchaser if the clause in the sale deed does not explicitly mention a delegation? No. The Court of Cassation requires that the clause clearly express the purchaser's intention to bind himself towards the tenant. If it is vague (example: "the purchaser will bear the compensation"), a judge could interpret it as a simple promise of reimbursement to the seller, and not as a delegation. It is better to have the clause drafted by a notary or a lawyer.

What if the purchaser is insolvent? In an imperfect delegation, the seller remains liable. You can therefore turn against him. If the seller is also insolvent, you can try to attach the sale price (if it has not yet been paid) or check if a guarantee has been provided. In any case, act quickly: the limitation period for an action for payment of eviction compensation is 5 years from the date it falls due.

What are the time limits to act? The eviction compensation is due on the date of expiry of the lease (or on the date of the notice, depending on the case). You have 5 years to claim payment. If you wait too long, the limitation period may be raised against you. It is better to initiate proceedings within 2 years of leaving the premises.

Do I have to go through a lawyer? For legal proceedings, yes, representation by a lawyer is mandatory before the judicial court (competent for commercial disputes). The cost of proceedings varies between €2,000 and €5,000 depending on complexity. A preliminary consultation (€45 with Maître Zakine) can help you assess your chances and avoid unnecessary costs.

Can the purchaser contest the amount of the compensation? Yes, the purchaser can contest the amount, especially if the compensation has not been fixed by agreement or by judgment. He may request a judicial expert appraisal to assess the loss. But this does not dispense him from paying if the debt is certain, liquidated and due.

Are you in a similar situation? A 30-minute initial consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →