Claim for Termination Indemnity in a Lease-Purchase Agreement: The Limitation Period Does Not Run Before Liquidation

Imagine the scene: you are the owner of a commercial premises in Toulon, on Avenue de l'Infanterie de Marine. You let it under a lease-purchase agreement (lease with an option to purchase) to a company that ran a restaurant. The rent is €4,500 per month. And then, bam: the company is placed into liquidation (collective proceedings that terminate the business and sell assets to pay creditors). The contract is terminated. You wait, you make inquiries, and you discover that you had to declare your claim for the termination indemnity within a very short period. But when exactly does this period begin? This question, crucial for hundreds of owners, was decided by the Court of Cassation in a judgment of 5 November 2013. And the answer is more subtle than it appears.

In essence, the lessor must declare its claim for the termination indemnity (amount due by the lessee in the event of early termination of the contract) to the judicial representative (representative of the creditors) within two months following the publication of the judgment opening the collective proceedings. But if the indemnity is not yet due at that time (because the contract has not yet been terminated), the period does not run. This is what the Court of Cassation ruled in this eagerly awaited decision.

But what exactly does this change? For an owner in Draguignan or elsewhere, this means that you will not be time-barred (deprived of the right to declare your claim) if you declare a potential indemnity before the actual termination of the contract. However, beware: this solution has its limits, and you need to understand the judges' reasoning to apply it correctly.

The Facts: A Story as Common as They Come

The case begins with a commercial lease-purchase agreement (lease of a building with a promise of sale at the end of the contract) entered into between a lessor company (the owner) and a lessee company (the tenant-purchaser). The building is located in a commercial area in the Toulon region. The contract provides for a termination indemnity in the event of early termination, equal to the sum of the rents remaining until the original term, less certain charges.

In 2006, the lessee company was placed into judicial reorganisation (collective proceedings aimed at saving the business), then the reorganisation plan was terminated, and it was placed into liquidation in 2008. The lease-purchase contract was terminated automatically by operation of law due to the liquidation. The lessor then declared a claim to the judicial representative for the termination indemnity. But the judicial representative contested: according to him, the declaration was late, because the two-month period for declaring claims had begun to run from the judgment opening the liquidation, and the indemnity was already due at that time. The lessor argued, on the contrary, that the indemnity was only contingent (not yet due) at the time of the opening of the liquidation, and that the period only began to run at the actual termination of the contract, later.

The Commercial Court of Toulon ruled in favour of the judicial representative: the claim was time-barred. The Aix-en-Provence Court of Appeal affirmed. But the Court of Cassation quashed (annulled) the appeal judgment and referred the case to the Nîmes Court of Appeal. For the High Court, the lessor had declared its indemnity before the limitation period had begun to run, because this indemnity was only contingent at the date of the declaration. In short, a creditor cannot be criticised for declaring too early a claim that had not yet arisen.

The Reasoning of the Court — Analysed

To understand this judgment, one must first know the applicable texts. Article L. 622-13 of the Commercial Code (version then in force) provides that the contract in progress on the day of the opening of the collective proceedings continues, but that the co-contractor (here the lessor) must declare its claim arising from the potential termination of the contract, as a contingent claim, within the legal period. Article R. 622-21, paragraph 2, of the same code specifies that the period for declaring claims is two months from the publication of the judgment opening the proceedings in the Bodacc (Official Bulletin of Civil and Commercial Announcements).

But the question is: when does this period begin for a claim for a termination indemnity? The Court of Cassation's answer is clear: as long as the contract is not terminated, the claim is contingent (uncertain as to its existence and amount). However, the limitation period cannot run against a claim that has not yet arisen. In other words, the lessor cannot be penalised for having declared a contingent claim before termination, because the period has not begun to run.

What few people know is that the Court of Cassation innovates here: it admits that a declaration of a contingent claim can be made before the expiry of the declaration period, and even before that period has begun to run. In doing so, it prioritises the principle of legal certainty (the creditor should not be trapped by periods that run before its claim arises) over procedural rigour (periods are in principle mandatory).

undefined, I have come across cases where lessors in Toulon or Draguignan were dismissed because they declared their claim for the termination indemnity after termination, but after the expiry of the two-month period following the publication of the judgment. However, according to this judgment, if the declaration had been made before termination, it would have been valid. This is a reversal of case law compared to certain previous decisions that required the claim to be certain at the time of the declaration.

What This Changes for You — Practically

If you are an owner-lessor of commercial or professional premises let under a lease-purchase agreement, and your lessee is subject to collective proceedings, you must declare your claim for the termination indemnity as soon as possible, including if the contract has not yet been terminated. Do not delay: make a declaration as a contingent claim within two months of the publication of the judgment opening the proceedings. If you wait for the actual termination, you risk being time-barred if the period has already expired.

Example in figures: a lease-purchase agreement in Draguignan, monthly rent of €3,000, remaining term 5 years (60 months). The contractual termination indemnity could amount to €180,000. If you do not declare within the period, you lose this sum. Thanks to this judgment, you can declare as soon as the liquidation is opened, even if the contract is still in progress. However, beware: if you declare before termination, you will have to confirm your declaration after termination to specify the final amount.

If you are a tenant or purchaser under a lease-purchase agreement, this decision concerns you indirectly: it strengthens the lessor's rights, which may reduce room for negotiation in case of difficulties. But it is mainly of interest to real estate professionals and judicial representatives who have to manage these declarations.

In practice, if you are in this situation, you should: 1) Check the date of publication of the judgment opening the proceedings; 2) Declare your claim for the termination indemnity as a contingent claim within two months, even if the contract is not terminated; 3) Once the termination is effective, update your declaration by providing the final calculation. An example: in Toulon, a lessor declared €120,000 as a contingent claim; after termination, it was able to reduce this to €80,000 due to partial re-letting.

Four Tips to Avoid This Type of Dispute

• Declare without delay: As soon as collective proceedings are opened against your lessee, declare all claims, including potential termination indemnities. Do not rely on the date of termination.
• Use the official forms: The declaration of claim must be made on Cerfa form No. 10860, accompanied by supporting documents (contract, statement, etc.). A formal defect may lead to time-barring.
• Consult a specialised lawyer: Collective proceedings are complex. A lawyer specialising in real estate and commercial law will help you meet deadlines and draft a solid declaration.
• Anticipate in the contract: When drafting the lease-purchase agreement, include a clause specifying the calculation of the termination indemnity and the declaration procedures in case of collective proceedings. This will avoid disputes.

Further Reading: Related Case Law and Developments

This 2013 judgment is part of a line of case law favourable to creditors. The Court of Cassation had already ruled (Civ. 3e, 6 May 2009, No. 08-13.025) that the limitation period for declaring a claim for compensation for eviction (due to the commercial tenant in case of refusal of renewal) only runs from the payment of the compensation. More recently, the Commercial Chamber recalled (Com., 10 May 2016, No. 14-27.837) that the declaration of a contingent claim is admissible even if made before the claim arises, provided it is made within the legal period.

The trend is therefore towards flexibility: judges favour substance over form, to prevent legitimate creditors from being deprived of their rights by procedural subtleties. However, beware: this case law does not dispense with the requirement to respect the two-month period from the publication of the judgment. If you declare after the expiry of this period, even for a contingent claim, you will be time-barred.

What You Must Absolutely Remember

FAQ:

1. When should I declare the termination indemnity? As soon as the collective proceedings are opened, even if the contract is not terminated. You have two months from the publication of the judgment.

2. What happens if I declare too early? Nothing: the declaration is valid. You will have to complete it after termination.

3. What if I declare after termination but out of time? You are time-barred and lose your claim. You must absolutely declare within two months.

4. Can I declare a contingent claim without an amount? Yes, but you must estimate it and specify it later. An approximate amount is better than no declaration.

5. What if the judicial representative contests my declaration? Refer the matter to the judge-commissioner (magistrate in charge of the collective proceedings) within one month of the contestation. A lawyer is essential.

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 →