Nullity of a Finance Lease: The 5-Year Limitation Period Runs from Signature

You are the owner of a commercial premises in Le Havre, and you signed a finance lease contract in 2018. Today, in 2024, you realise that the contract did not mention the purchase option price. Can you still seek the nullity of the contract? This question, which troubles every lessee, has found a firm answer from the Court of Cassation in a judgment of 15 May 1996. The judges ruled: the time limit to act is five years, and it runs from signature, not from discovery of the defect.

Imagine the situation: you are a lessee with an option to purchase, you have been paying rent for years, and you discover that the contract is tainted with an irregularity. You want to challenge it, but the lessor raises the limitation defence. Who is right? The decision we analyse provides a clear answer, in favour of the legal certainty of contracts.

In this article, I will tell you the story behind this judgment, dissect the reasoning of the judges, and above all give you concrete keys to avoid or manage this type of dispute, whether you are in Rouen, Limoges or elsewhere. Because, as I often say to my clients: prevention is better than cure – especially when the cure is time-barred.

The facts: a story that happens every day

In 1983 and 1985, the company Natiobail, a finance lease company, granted several real estate finance lease contracts to lessees located in Limoges, Rennes, Saumur, Cholet, Dijon and Blois. These contracts, entered into as private deeds, allowed the lessees to use commercial premises in exchange for rent, with the possibility of exercising a purchase option at the end of the contract.

However, Article 1-2, paragraph 2, of the Law of 2 July 1966 requires that the finance lease contract mention the purchase option price. Failing this, nullity may be incurred. In this case, the contracts did not specify this price. The lessees, considering themselves aggrieved, therefore sued Natiobail for nullity of the contracts. But they acted several years after signature – in 1990 for the 1983 contracts, i.e. seven years later.

The Paris Court of Appeal, in a judgment of 22 March 1994, dismissed their claim. It held that the nullity provided for by law was a relative nullity (i.e. intended to protect one party, here the lessee) and that it was time-barred by five years from the conclusion of the deed, in accordance with Article 1304 of the Civil Code (now Article 2224). The lessees had therefore acted too late. Dissatisfied, they appealed to the Court of Cassation, arguing that the limitation period should have run from the discovery of the defect, or at least from the date on which they became aware of the absence of the mention.

The Court of Cassation, in its decision of 15 May 1996, upheld the Court of Appeal's judgment. It held that the lower courts had correctly held that the nullity was relative and that the starting point of the limitation period could not be set at a date other than that of the conclusion of the deed. For the judges, the wording of Article 1304 was clear: in matters of relative nullity, the period runs from the date of the deed, not from the discovery of the defect. A harsh solution for the lessees, but in line with the legislator's intention to secure transactions.

The reasoning of the court — dissected

To understand this decision, one must first grasp the distinction between absolute nullity and relative nullity. An absolute nullity sanctions the violation of a rule of public policy (for example, a contract concerning a thing outside commerce). It can be invoked by any interested person and is time-barred by thirty years. A relative nullity, on the other hand, protects a particular interest (here, that of the lessee). It can only be invoked by the protected party and is time-barred by five years. Article 1304 of the Civil Code, then in force, provided that 'in all cases where the action for nullity […] is not limited to a shorter time by a special law, this action lasts five years.' And it added that 'this time runs, in case of duress, only from the day it ceased; in case of mistake or fraud, from the day they were discovered.' For relative nullities other than those based on a defect of consent, the starting point is therefore the date of the deed.

The Court of Appeal applied this reasoning: the nullity under Article 1-2, paragraph 2, of the 1966 Law is relative, because it aims to protect the lessee by informing him of the purchase price. The contract being a legal act, the five-year period runs from its conclusion, regardless of whether the lessee discovered the absence of the mention later. The lessees argued that the failure to mention constituted fraud (deception) or mistake, which would have caused the period to run from discovery. But the court held that there were no fraudulent manoeuvres: the absence of mention was apparent in the contract itself. From signature, the lessee had access to the document and could see the absence of the price.

The Court of Cassation approved this reasoning. It specified that relative nullity was the only applicable one, and that the starting point of the limitation period could not be shifted. This is a constant solution in case law: for relative nullities not linked to a defect of consent, the five-year limitation period runs from the conclusion of the deed. This decision is neither a reversal nor an evolution, but a confirmation of a well-established rule. It reminds lessees that they must be vigilant from signature and not wait years to challenge a contract.

What this changes for you — concretely

If you are a lessee (the beneficiary of the finance lease), this decision requires you to check your contract as soon as it is signed. The five-year period to act for nullity runs immediately. Once this period has expired, you will no longer be able to challenge the contract, even if you discover a defect later. For example, if you signed a finance lease in Rouen in 2019, you have until 2024 to challenge the absence of mention of the purchase option price. In 2025, it will be too late.

If you are a lessor (the finance lease company), this decision protects you. After five years, you are safe from an action for nullity based on this defect. So you can sleep soundly if your contracts are old. But beware: if the contract is tainted with proven fraud (active deception), the period might run from discovery. The line is sometimes thin.

A concrete example: take a lessee in Limoges who signed a contract in 2018. In 2023, he discovers that the purchase option price is not mentioned. He consults a lawyer, but the lawyer tells him that the limitation period has already expired in 2023 (five years after 2018). The lessee will not be able to obtain nullity. He will have to continue paying his rent and, if he wants to acquire the property, negotiate with the lessor or accept the price that the lessor sets unilaterally. Moral: do not delay having your contracts reviewed by a professional.

Four tips to avoid this type of dispute

• Check your contract from signature: read every clause carefully, especially the one setting the purchase option price. If it is missing, act immediately. Do not wait until the end of the contract.
• Keep all documents: keep a copy of the contract, correspondence with the lessor, and proof of payment. In case of a dispute, you will be able to prove the date of signature and the content of the deed.
• Consult a specialist lawyer: as soon as you have a doubt, seek advice. A quick consultation can save you from losing your rights. For example, a client in Rouen contacted me four years after signature: it was still time to act, but only just.
• Negotiate an addendum: if you discover a missing mention after a few years, propose to the lessor to regularise by an addendum. This can avoid litigation and secure your situation.

Further reading: related case law and developments

This decision is part of a consistent line of the Court of Cassation. In a judgment of 13 February 1996 (n° 93-21.817), the same chamber had held that the nullity for failure to mention the purchase option price was relative and time-barred by five years from signature. The decision of 15 May 1996 merely confirms this approach. No reversal has occurred since.

However, there is a possible divergence if the failure to mention is accompanied by fraud. In that case, the limitation period could run from the discovery of the fraud, in accordance with Article 1304 of the Civil Code. But the Court of Cassation is demanding: fraud must be proved (manoeuvres, lies), which is rare in practice. The current trend of the courts is therefore to protect the legal certainty of contracts by maintaining a fixed starting point. For the future, there is no indication of change. Lessees must therefore be extra vigilant.

Frequently asked questions

Q: Can I still act if my finance lease contract is more than five years old?
R: No, unless you prove fraud (deception) by the lessor. The limitation period is five years from signature. After this period, the action for nullity is inadmissible.

Q: What should I do if I have just discovered the absence of a purchase option price in my contract signed three years ago?
R: You are within the five-year period. Consult a lawyer quickly to bring an action for nullity or negotiate an addendum with the lessor.

Q: What is the cost of an action for nullity?
R: Costs vary depending on complexity. Expect between €2,000 and €5,000 in lawyer's fees, plus court costs. A less expensive alternative is amicable negotiation.

Q: Does nullity of the contract entail restitution of the rents paid?
R: Yes, in principle, each party must restore what it has received: the lessee gets back the rents, the lessor gets back the property. But offsets may be applied (e.g., for use of the property).

Q: Does this rule apply to finance leases entered into after 2016?
R: Yes, the ordinary five-year limitation period (Article 2224 of the Civil Code) has applied since the 2008 reform. The starting point remains the conclusion of the contract for relative nullities.

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 →