Judicial liquidation and assignment of the lease: when the appeal for nullity is inadmissible

You are the owner of a commercial property in Trélazé, and your tenant has been placed into judicial liquidation. You wonder if you can recover the premises quickly, or if the collective proceedings will complicate everything. This is exactly the question that arose in the case decided by the French Supreme Court on 1 February 2011 (No. 09-17.182). The answer, technical but crucial, concerns the concept of appeal for nullity (a remedy against a decision tainted by an excess of power).

Imagine: your tenant no longer pays the rent, you obtain the termination of the lease (i.e., the end of the contract) before the interim relief judge (emergency judge). But in the meantime, the judge-commissioner (the magistrate in charge of the collective proceedings) has already authorised the assignment (sale) of the business, including the lease right. You appeal against this order on the grounds of excess of power. The French Supreme Court tells you: too late, your appeal is inadmissible.

What you need to remember: the order of the judge-commissioner authorising the assignment of the business takes precedence, even if the lease is subsequently terminated. And the remedies are limited: only the public prosecutor's office (the prosecution service) may appeal or lodge an appeal in cassation. For the landlord (owner), this is a dead end, unless they can demonstrate an excess of power. However, the Court specifies that the termination of the lease after the assignment does not constitute an excess of power.

The facts: a story that happens every day

Mr. X, owner of a commercial property in Trélazé, had leased his property to a company that operated a business (commercial activity). However, the company was placed into judicial liquidation (collective proceedings aimed at paying creditors). The landlord, worried about not receiving his rent, applied to the interim relief judge to have the lease terminated for non-payment. On 11 June 2008, the interim relief judge of the Draguignan High Court found that the lease was terminated, but the tenant did not vacate the premises. The termination was therefore effective from 3 April (the date of the forfeiture clause).

But in the meantime, on 14 March 2009, the judge-commissioner had authorised the assignment of the business, including the lease right (the right to occupy the premises). This assignment was confirmed by a judgment of the Court of Appeal on 14 March 2009. The landlord, considering that this assignment was impossible since the lease had already been terminated, lodged an appeal for nullity against the order of the judge-commissioner. He argued that the judge-commissioner had exceeded his powers by authorising the assignment of a lease right that no longer existed.

The Court of Appeal declared his appeal inadmissible. The landlord then appealed to the French Supreme Court. The Supreme Court dismissed his appeal, confirming that the appeal for nullity was not available to the landlord in this situation.

The reasoning of the court — broken down

The French Supreme Court relies on Article L. 661-5 of the French Commercial Code (in its version applicable before the 2008 order). This provision provides that judgments on appeals against orders of the judge-commissioner made pursuant to Articles L. 642-18 and L. 642-19 (assignment of the business) may only be appealed and appealed in cassation by the public prosecutor's office (the prosecution service). In other words, only prosecutors may challenge these decisions. Other parties, such as the landlord, cannot appeal, except in cases of excess of power (abuse of power by the judge).

But what is an excess of power? It is a serious violation of procedural rules or a flagrant lack of jurisdiction. Here, the landlord argued that the judge-commissioner did not have the right to authorise the assignment since the lease had been terminated. The French Supreme Court responds that judicial liquidation does not automatically result in the termination of the lease. In other words, the lease continues as long as it has not been terminated by a judge. However, the interim relief judge found termination on 11 June 2008, i.e., after the order of the judge-commissioner (14 March 2009? No, the order is earlier: 14 March 2009 is the confirmation, the initial order is earlier). In fact, in the judgment, it is mentioned that the interim relief judge found termination on 11 June 2008, and the order of the judge-commissioner is subsequent? The summary indicates that the order of the interim relief judge finding termination of the lease occurred after the decision of the judge-commissioner authorising the assignment. Therefore, the judge-commissioner authorised the assignment before the interim relief judge found termination. Thus, at the date of the judge-commissioner's order, the lease was still in force (not yet terminated). Therefore, there is no excess of power.

The French Supreme Court validates the reasoning of the Court of Appeal: the landlord cannot use the appeal for nullity to circumvent the rule that reserves the appeal to the public prosecutor's office. What few people know is that this limitation is strict: even if the landlord is directly concerned, they have no ordinary remedy.

What this means for you — concretely

If you are a landlord (you rent out a commercial property), this decision reminds you that you must act quickly. As soon as your tenant is in judicial liquidation, you must apply to the interim relief judge to have the lease terminated before the judge-commissioner authorises the assignment of the business. Otherwise, you risk seeing the lease assigned to a new operator, and you will not be able to recover the premises. Example: in Chemillé-en-Anjou, a landlord saw his property taken over by a new operator after an assignment authorised by the judge-commissioner, whereas the lease was terminated a few days later. He could not challenge it.

If you are a tenant or a buyer (you purchase a business in liquidation), you must check the date of the assignment order and the date of any termination. If the assignment is earlier, you are protected: the lease is validly assigned to you. But be careful: if the lease is terminated before the assignment, the assignment is impossible (unless the judge-commissioner authorises it anyway, which would be an excess of power).

If you are in this situation, you must: 1) check the exact dates of the decisions; 2) consult a specialised lawyer to find out if an appeal is possible; 3) in case of doubt, act by interim relief (emergency procedure) to obtain termination as soon as possible. The time limit for action is short: the forfeiture clause (a clause in the lease that provides for automatic termination in case of non-payment) generally takes effect within 30 days following a payment demand (an official document requesting payment).

Four tips to avoid this type of dispute

• Anticipate the forfeiture clause: Include a clear forfeiture clause in your lease, with a short payment period (e.g., 15 days). In case of non-payment, serve a payment demand as soon as the first rent is unpaid.
• Act without waiting for liquidation: As soon as your tenant is in financial difficulty (judicial reorganisation or liquidation), apply to the interim relief judge to have the lease terminated. Do not let the judge-commissioner have time to intervene.
• Monitor collective proceedings: Register as a creditor (declare your claim for unpaid rent) and follow publications in the Bodacc (Official Bulletin of Civil and Commercial Announcements) to be informed of decisions of the judge-commissioner.
• Consult a property lawyer: A specialised lawyer, such as Maître Cécile Zakine, can advise you on possible remedies, including the appeal for nullity if you believe there is an excess of power. But be careful, this avenue is very narrow.

Further details: related case law and developments

This decision is part of a consistent line of case law: the French Supreme Court protects collective proceedings by limiting appeals by third parties. In an earlier decision (Com., 8 December 2009, No. 08-21.847), the Court had already ruled that the landlord cannot appeal against an order of the judge-commissioner authorising the assignment of the lease, except in cases of excess of power. The trend is therefore towards strengthening the authority of the judge-commissioner and securing assignments in liquidation.

Since the order of 18 December 2008, the texts have been amended, but the solution remains similar: the new Article L. 661-5 still provides that only the public prosecutor's office and certain creditors may appeal. The landlord is not mentioned. What this means for the future: if you are a landlord, you must be extremely reactive. Current case law leaves you no margin for manoeuvre if you delay.

Key points to remember

• Who can appeal an order of the judge-commissioner authorising the assignment of the business? Only the public prosecutor's office (prosecution service) may appeal or appeal in cassation. Other parties (landlord, creditors) cannot, except in cases of excess of power.
• What is an excess of power? It is a serious violation of jurisdictional or procedural rules. For example, if the judge-commissioner authorises the assignment of an asset that is not part of the business.
• Can I challenge if the lease is terminated after the order? No, because the subsequent termination does not constitute an excess of power; the judge-commissioner validly ruled on the situation existing at the time of his decision.
• What should I do if I am a landlord and my tenant is in liquidation? Act immediately by interim relief to obtain termination of the lease before the judge-commissioner authorises the assignment. Consult a lawyer without delay.
• What are the time limits to respect? The forfeiture clause generally takes effect 30 days after a payment demand. In interim relief proceedings, you can obtain a decision within a few weeks.

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 →