L. 622-14 of the Commercial Code: can the liquidator suspend the forfeiture clause of the lease?

You are the owner of commercial premises in Rethel, and your tenant, a small trader, is accumulating rent arrears. The forfeiture clause (the one providing for automatic termination of the lease in the event of non-payment) is about to be triggered. But the judicial liquidator of the tenant – a company in liquidation – announces that he will request time to pay and suspend the effects of this clause. You ask yourself: is he entitled to do so? Is this not a ploy to gain time and assign the business without really paying? This is precisely the question the Court of Cassation decided in this decision of 6 December 2011.

Article L. 622-14 of the Commercial Code (relating to judicial liquidation) does not prohibit the liquidator from relying on the provisions of Article L. 145-41 of the same Code (which allows the tenant to request time to pay to avoid termination of the lease). The high court ruled that as long as the termination of the lease has not been confirmed by a final judgment (i.e., definitive), the liquidator may seek these measures, even if the objective is to facilitate an assignment of the business rather than to pay the debt.

For landlord owners, this decision is a warning: the forfeiture clause is not an absolute weapon. For tenants in difficulty and their liquidators, it is a lifeline. Let us decipher this case together, which could well take place tomorrow in your building, whether you are in Tinqueux or elsewhere.

The facts: a story that happens every day

Mr. X is the owner of commercial premises in Rethel, leased to a company operating a clothing retail business. Unfortunately, the tenant company faces financial difficulties and stops paying its rent. The lease contains a standard forfeiture clause: in default of payment within one month following a formal notice (a demand for payment), the lease is automatically terminated.

The landlord serves a formal demand for payment, then petitions the court to have the termination declared. Meanwhile, the tenant company is placed into judicial liquidation. The judicial liquidator (responsible for realising assets to pay creditors) intervenes in the proceedings. He asks the summary judge (the one ruling on urgent matters) for time to pay the rent arrears and, consequently, for suspension of the effects of the forfeiture clause. His objective? To obtain a stay to enable the assignment of the business to a buyer, which would allow repayment of some creditors.

The landlord opposes: according to him, the liquidator cannot rely on Article L. 145-41 of the Commercial Code (which allows the tenant to request time to pay) because judicial liquidation aims to pay debts, not to allow an assignment. Moreover, he argues that the forfeiture clause had already been triggered before the liquidation commenced. The Commercial Court of Reims rules in favour of the landlord: it rejects the liquidator's request. The liquidator appeals, then appeals to the Court of Cassation. The case goes up to the Court of Cassation, which will settle the debate.

The reasoning of the court – dissected

The Court of Cassation quashed (annulled) the decision of the Reims Court of Appeal which had followed the landlord. Its reasoning rests on two essential points.

First, it recalls that Article L. 622-14 of the Commercial Code (which lists the powers of the liquidator) does not prohibit the liquidator from relying on Article L. 145-41 of the same Code. This latter text allows the tenant to request from the judge time to pay the rent arrears and, if he obtains such time, the forfeiture clause is suspended for the period granted. The Court specifies that the liquidator may act as long as the termination of the lease has not been confirmed by a final judgment, i.e., definitive and not subject to appeal.

Second, the Court dismisses the landlord's argument that the request for time aimed to optimise an assignment and not to allow the debtor to pay his debt. It considers that the granting of time may perfectly well be for the purpose of facilitating an assignment of the business, because this generates funds to satisfy creditors. In other words: selling the business to pay debts is also a form of payment.

This decision is a confirmation of previous case law: it does not create a new right, but it clarifies that the liquidator does not have to demonstrate that the time will enable direct payment by the tenant; it suffices that it allows a beneficial assignment. The Court of Cassation here uses a teleological interpretation (based on the objective of the law): judicial liquidation aims to maximise repayment of creditors, and the assignment of a going concern is often more profitable than a forced sale.

What this changes for you – concretely

Landlord owner: If you are faced with a tenant in judicial liquidation, know that the forfeiture clause is not an absolute protection. The liquidator may request time to pay and suspend its effects, even if his aim is to assign the business. Concrete example: in Tinqueux, a landlord saw his formal demand for payment of €12,000 in rent arrears circumvented by a liquidator who obtained 6 months of time to assign the business. Result: the landlord had to wait an additional 6 months before being able to recover his premises, but he was ultimately paid from the sale proceeds. If you are in this situation, you must challenge the request quickly before the summary judge if you believe the request for time is abusive (e.g., if the assignment is illusory).

Tenant or liquidator: This decision is a valuable weapon. You can request time even if you do not have the funds to pay immediately, provided you can demonstrate that the assignment is well underway. Caution: the judge will not grant time if the assignment is purely hypothetical or if the amount of the debt is disproportionate to the value of the business. You must provide concrete evidence (letter of intent to purchase, firm offer, etc.).

Potential buyer: If you are considering buying a business in liquidation, know that the lease can be maintained thanks to this procedure. You can benefit from an existing lease, which is an asset. However, check that the rent arrears will be cleared as part of the assignment, otherwise you might inherit them.

Four tips to avoid this type of dispute

• Draft a robust forfeiture clause: provide for a short payment period (15 days) after the formal notice, and stipulate that termination occurs automatically without the need for a court decision. This will not fully protect you (the judge can still suspend), but it strengthens your position.
• Act quickly: at the first missed payment, serve a formal demand for payment. The sooner you act, the less debt the tenant will have accumulated, and the less room the liquidator will have to request time.
• Monitor your tenant's financial situation: regularly request guarantees (surety, security deposit) and do not hesitate to consult official publications (BODACC) to know if a collective proceeding has been opened.
• Negotiate an amicable assignment plan: rather than systematically opposing, you can accept an assignment of the business with the buyer who undertakes to pay the rent arrears. This avoids vacancy of the premises and procedural costs.

Further reading: related case law and developments

This decision is part of a consistent line: the Court of Cassation has always protected the possibility for the tenant (or his liquidator) to request time to save the lease. For example, in a judgment of 13 July 2010 (No. 09-14.119), it had already ruled that the liquidator could rely on Article L. 145-41. The novelty here is the explicit affirmation that assignment is a legitimate ground.

However, some court of appeal decisions had sometimes dismissed requests for time when the assignment appeared to be a mere delaying tactic. The Court of Cassation puts an end to these divergences: the liquidator does not have to prove that assignment is the only solution; it suffices that it is serious. Since 2011, courts have applied this rule quite liberally, which strengthens the rights of liquidators.

For the future, one can expect landlords to try to circumvent this case law by inserting clauses that exclude the possibility of time in the event of liquidation. But the Court of Cassation has already ruled that such clauses would be contrary to public policy (because they would strip the tenant's rights of their substance). The trend is therefore clear: the protection of the commercial lease prevails over the landlord's interests in the event of collective proceedings.

In practice: what to do

FAQ: questions and answers

• Can I evict my tenant immediately after the formal demand for payment? No, as long as the termination has not been confirmed by a final court decision, the liquidator may request time and suspend the eviction.
• Can the liquidator obtain time if the assignment is hypothetical? He must demonstrate that the assignment is serious (purchase offer, advanced negotiations). Otherwise, the judge may refuse.
• What is the maximum time that can be granted? Article L. 145-41 provides that the judge may grant time not exceeding two years, renewable once, i.e., 4 years in total.
• What if the liquidator does not comply with the time? You can petition the judge to have the termination of the lease declared and obtain eviction. The liquidator must pay the current rent during the period of time, otherwise the forfeiture clause resumes its effects.

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