Location-Gérance and Absolute Nullity: When the Right to Renew the Commercial Lease is Lost

Imagine: you are the owner of commercial premises in Pessac, which you lease to a trader. One day, you learn that your tenant has entrusted his business to a third party without telling you, and that this third party is no longer paying the rent. Worse: the tenant had never really operated the business himself. You wonder: do I have the right to refuse renewal of the lease? Can I recover my premises?

This question was answered by the Court of Cassation on 22 March 2018 (decision no. 17-15.830). It ruled: where the tenant grants a location-gérance without having operated the business for at least two years, the location-gérance contract is void with absolute nullity. And this nullity results in the forfeiture of the right to renew the commercial lease. In clear terms, the landlord can reject the renewal request and recover the premises without an eviction indemnity.

Whether you are a landlord, tenant or property professional, this decision changes things. Let us delve into the details.

The Facts: a Story like Many Others

In La Teste-de-Buch, the company Vengeance owns commercial premises leased to a tenant since 1 April 2004. The lease contains a standard clause: any assignment or subletting must be notified to the landlord by extrajudicial deed or registered letter. On 6 April 2005, the tenant grants a location-gérance of his business to a third party. Problem: he had not personally operated the business for two years before this location-gérance. Worse, he did not comply with the information clause in the lease.

A few years later, the landlord refuses renewal of the lease and brings the matter to court. He argues that the location-gérance is void because the tenant did not comply with the legal obligation of prior personal operation for two years (Article L. 144-1 of the Commercial Code). The tenant, for his part, maintains that the location-gérance is neither an assignment nor a subletting, and that the nullity does not affect his right to renewal.

The Bordeaux Court of Appeal rules in favour of the landlord: the location-gérance is void with absolute nullity, and the tenant loses his right to renewal. The tenant appeals to the Court of Cassation. The Court of Cassation confirms: the absolute nullity of the location-gérance contract results in the forfeiture of the right to renewal, because the tenant never personally operated the business.

The Reasoning of the Court — Analysed

The Court of Cassation relies on Article L. 144-1 of the Commercial Code, which provides that "the owner of a business may only grant a location-gérance if he has personally operated it for at least two years". This condition is of public policy: its violation results in the absolute nullity of the contract.

Why absolute? Because the rule protects the general interest (to avoid fraudulent schemes) and not merely the interest of one party. Absolute nullity means that anyone (landlord, tenant, third party) can invoke it, and it is imprescriptible (subject to the ordinary limitation period).

The judges recall that the location-gérance is neither an assignment of the lease nor a subletting. It is a contract by which the owner of the business (the grantor) entrusts its operation to a third party (the manager). But here, the tenant was not the owner of the business within the meaning of Article L. 144-1, since he had not operated it. The Court therefore dismisses the tenant's argument that the location-gérance falls outside the lease clauses on assignments and sublettings. It considers that the nullity of the location-gérance contract deprives the tenant of the status of operating tenant, an essential condition for benefiting from the right to renewal (Article L. 145-8 of the Commercial Code).

This decision confirms a consistent line of case law: a location-gérance granted in violation of Article L. 144-1 is void, and the tenant cannot claim a renewed lease. This is a logical application: one cannot transfer a right that one does not have.

What This Changes for You — Practically

For the landlord (owner): if your tenant has granted a location-gérance of his business without having operated it for two years, you can refuse renewal of the lease and recover your premises without paying an eviction indemnity. Example: in Pessac, a landlord leases premises to a caterer. The caterer, without ever cooking himself, entrusts the business to a third party. After 9 years, the landlord refuses renewal. Thanks to this decision, he can obtain the nullity of the location-gérance and the release of the premises.

For the tenant (lessee): be careful! If you wish to grant a location-gérance of your business, you must first personally operate it for two years. Otherwise, not only is the location-gérance void, but you also lose your right to renewal. Your investment can collapse. A client in La Teste-de-Buch had bought a lease, leased the business without prior operation, and was refused renewal. Result: he had to leave the premises without indemnity, losing his business and his trade.

For the manager (the operator): you are vulnerable. If the location-gérance is void, your contract is void. You can be evicted. Always check that the grantor has indeed operated the business for two years before signing. Ask for supporting documents (accounts, tax returns).

For the purchaser of a business: if you buy a business that is the subject of a location-gérance, ensure that the seller (the tenant) has complied with the two-year operation requirement. Otherwise, you could inherit a contested right to renewal.

Four Tips to Avoid This Type of Dispute

• Check the grantor's personal operation. Before signing a location-gérance, require the financial statements for the last two years and a statement on oath. The grantor must prove that he personally operated the business.
• Comply with the lease clauses. Even if the location-gérance is not an assignment, the lease may require prior information. Always inform the landlord by registered letter with acknowledgement of receipt, as provided for in the clause, to avoid a challenge.
• Include a resolutory condition in the location-gérance contract. Provide that if nullity is declared, the contract automatically terminates, and the manager must return the business without indemnity.
• Consult a lawyer before any transaction. A 30-minute legal audit can save you years of proceedings. Maître Zakine receives you at his office in Bordeaux or by videoconference.

Further Details: Related Case Law and Developments

This decision is part of a consistent line. Already, the Court of Cassation (Commercial Chamber, 14 October 2008, no. 07-18.641) had ruled that a location-gérance granted in violation of Article L. 144-1 is void, and that the tenant cannot rely on the status of commercial leases. More recently, a decision of 12 January 2022 (no. 20-22.365) clarified that the absolute nullity can be invoked by any interested party, even after the end of the contract.

The trend is clear: judges protect the landlord against schemes aimed at circumventing the obligation of personal operation. For the future, expect courts to be increasingly strict on proof of operation. A simple filing for bankruptcy or partial operation may not suffice. Effective, continuous and personal operation is required.

Summary and Next Steps

FAQ: Practical Questions

1. Can I grant a location-gérance if I have operated the business for less than two years? No, it is prohibited. The contract is void with absolute nullity, and you lose your right to renewal.
2. What should I do if my tenant has granted a location-gérance of his business without my consent? You can apply to the court to have the location-gérance declared void and refuse renewal of the lease. Consult a lawyer promptly.
3. Can the manager claim damages if the location-gérance is void? Yes, if he has suffered loss (e.g., lost investments). He can sue the grantor on the basis of contractual liability (Article 1231-1 of the Civil Code).
4. What is the time limit for bringing a nullity action? Absolute nullity is imprescriptible, but it is prudent to act within 5 years of discovering the defect, to avoid any debate.

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