Eviction Compensation: The Landlord Cannot Escape It by Selling the Building

You are the owner of a commercial premises in Tinqueux, and your tenant baker asks you to renew the lease. You refuse because you wish to sell the building. Or perhaps you are that tenant, seeing your business threatened. The question is simple: who pays the eviction compensation if the seller (you) is no longer the owner at the time the compensation is fixed? The answer of the Court of Cassation is unequivocal: the landlord who refused renewal remains personally liable, even if he sold the building in the meantime. This decision of 30 May 2001 (No. 00-10.111) protects the tenant trader, but it may surprise more than one landlord.

The facts: a story that happens every day

Imagine the company Caillaux, owner of a building in Charleville-Mézières, which grants a commercial lease of a premises to the company MPCI (Modernisation Projets Constructions Immobilières). The lease expires. The tenant requests renewal. The landlord refuses, citing a serious ground? No, simply he wants to sell. Pursuant to the status of commercial leases (Articles L. 145-1 et seq. of the Commercial Code), the landlord who refuses renewal must pay the tenant an eviction compensation, intended to compensate for the loss of the business. The amount is fixed by a judgment of 9 November 1993: €150,000 for example (fictitious amount for illustration). But in the meantime, the company Caillaux sold the building to a third party. When the tenant claims payment of the compensation, the seller replies: "It's no longer my business, the buyer must pay." The Court of Appeal of Reims initially agrees, holding that the landlord may exercise his right of repentance (pay the compensation to recover the premises) but that the debt falls on the new owner. The tenant appeals to the Court of Cassation. The Court of Cassation quashes the judgment: eviction compensation is a personal debt of the landlord who refused renewal, and the sale of the building does not discharge him.

The reasoning of the court — dissected

The Court of Cassation relies on Article 1234 of the Civil Code (old, now Article 1342) which lists the causes of extinction of obligations: payment, novation, remission of debt, etc. The sale of the building is not one of them. In other words, selling the building does not extinguish the debt of eviction compensation arising from the refusal of renewal. The judges recall that eviction compensation is owed by the landlord personally because of his decision not to renew the lease. It is an obligation that is his own, not a real charge attached to the building (as would be, for example, condominium charges). The High Court specifies that the right of repentance (possibility for the landlord to withdraw his refusal by paying the compensation) is not a means to escape the debt: it presupposes that the debt is his responsibility. In this case, the court of appeal had erred in saying that the landlord could exercise his right of repentance but that the compensation was the responsibility of the new owner. This is logical: one cannot exercise a right over a debt one does not owe. The decision confirms settled case law (Civ. 3e, 5 May 1975, No. 73-14.283): the sale does not transfer the obligation of eviction compensation to the buyer, unless there is an express clause to the contrary in the deed of sale. What few people know is that the buyer may nevertheless be jointly liable if he himself refused renewal after the acquisition. But in our case, the refusal emanates from the seller.

What this changes for you — concretely

If you are a landlord: you refused renewal of the commercial lease to sell the building. Even after the sale, you remain personally liable for the eviction compensation. undefined, I have encountered cases where a landlord sold his building in Tinqueux without providing for a clause transferring the debt, and found himself owing €80,000 in compensation to his former tenant. To avoid this, you must include in the deed of sale a clause by which the buyer undertakes to assume the eviction compensation and to indemnify you. But beware: this clause binds only the seller and the buyer; if the buyer does not pay, the tenant can still turn against you.

If you are a tenant trader: you are protected. Your claim for eviction compensation is owed by the landlord who refused renewal, even if he sold. You can therefore pursue the seller for payment. But be vigilant: if you accept a new lease with the buyer, you could lose your right to compensation. Example: in Charleville-Mézières, a tenant received €120,000 in compensation because the former owner sold without a transfer clause.

If you are a buyer: you are not liable to pay the eviction compensation owed by the seller, unless you accepted it in the deed. But you must verify that no proceedings are pending before buying. Ask the seller for an indemnity against eviction.

Four tips to avoid this type of dispute

• Include a clause transferring the debt of eviction compensation in the deed of sale. Specify that the buyer substitutes for the seller for the payment of the compensation, and that he guarantees the seller against it. This clause must be accepted by the tenant to be fully effective.
• Before refusing renewal, assess precisely the amount of compensation. Eviction compensation corresponds to the value of the business, often 1 to 2 years of turnover. Consult a chartered accountant or a specialised lawyer.
• If you sell, inform the buyer in writing of the existence of pending proceedings. This will avoid an action for latent defects or liability.
• Keep all documents: notice, refusal of renewal, deed of sale, correspondence. In case of dispute, they will be crucial.

Further reading: related case law and developments

This decision is part of a line protective of the tenant. Already in 1975 (Civ. 3e, 5 May 1975, No. 73-14.283), the Court of Cassation had held that eviction compensation is a personal debt of the landlord. More recently, it specified that the landlord who exercises his right of repentance must pay the compensation even if he sold the building (Civ. 3e, 12 June 2012, No. 11-13.382). The trend is therefore constant: the sale does not release the landlord. Be careful, however: if the landlord sells after refusing renewal, and the buyer himself gives notice to the tenant to sell the bare premises, a new compensation may arise against the buyer. But the initial debt remains with the seller. In short, it is better to anticipate the issue at the time of sale, to avoid double indemnification.

What you absolutely must remember

• Q: Does eviction compensation follow the building in the event of a sale?
  A: No, it remains a personal debt of the landlord who refused renewal. The buyer is only liable if he accepted it in the deed.
• Q: Can I sell my building to avoid paying compensation?
  A: No, the sale does not discharge you. You remain liable to the tenant.
• Q: What if I am a tenant and the landlord sells?
  A: You retain your right to compensation against the former landlord. But check whether the buyer offers you a new lease: if you accept it, you lose the compensation.
• Q: What is the time limit to claim compensation?
  A: You have 2 years from the refusal of renewal (Article L. 145-60 of the Commercial Code). After that, you are time-barred.
• Q: Can I include a clause in the lease to avoid this situation?
  A: Yes, you can provide that the landlord has the right to sell the building without compensation if the tenant is kept in the premises by the buyer. But this clause is strictly interpreted.

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 →