Pre-emption pact in a lease: when assignment of the contract does not transfer the right of first refusal

Imagine: you own a commercial premises in Strasbourg, rue du Faubourg National. You lease this premises to a company that operates a riding club. To reassure it, you sign a lease containing a pre-emption pact (a unilateral promise obliging you, if you sell the premises, to first offer the purchase to your tenant). A few years later, the tenant company is in judicial reorganisation (a collective procedure aimed at saving the business in difficulty). The court orders the assignment of its lease contract to a new operator. This operator then considers itself entitled to benefit from the pre-emption pact. But are you obliged to honour it?

This is precisely the question decided by the Court of Cassation in its judgment of 13 February 2007 (No. 05-17.296). The answer is clear: the pre-emption pact is a personal claim (a right attached to the person of the tenant); it is not automatically transferred to the assignee of the lease under a rescue plan. In other words, the new operator cannot rely on this right.

This judgment is fundamental for all landlord owners, tenants and property professionals. It recalls a subtle but crucial distinction between real rights (which follow the property) and personal rights (which follow the person). So, how to avoid nasty surprises? Analysis.

The facts: a story that happens every day

The story begins in Saverne, in the Bas-Rhin. An owner, Mr X, leases (lets) a pasture (a grazing field) to the company Club hippique de L'Oxer de Deauville. The lease contract contains a special clause: a pre-emption pact. The terms are as follows: 'The landlord undertakes, in the event of sale of the pasture, to inform the tenant (the lessee) thereof and to grant him a right of first refusal for the purchase, on the same terms as those offered to any third party.' The clause also specifies that this pact is 'personal to the tenant and non-assignable to third parties'.

The tenant company encounters financial difficulties. It is placed in judicial reorganisation (a collective procedure aimed at allowing the continuation of the business and the settlement of liabilities). The competent court (the commercial court) approves a global rescue plan (transfer of all assets, including the lease, to a new operator). This plan provides for the assignment of the lease contract to Mrs Y, a new operator.

Mrs Y, relying on this assignment, considers that she now benefits from the pre-emption pact. She therefore asks the owner, Mr X, to offer her the purchase of the pasture as a priority. Mr X refuses: according to him, the pact was personal to the original tenant company and was not transferred to Mrs Y by the rescue plan.

The dispute comes before the Colmar Court of Appeal, and then the Court of Cassation. The appeal judges rule in favour of the owner: the clause is clear, the pact is personal. Mrs Y appeals to the Court of Cassation. She argues that the assignment of the lease necessarily entails the transfer of all rights and obligations attached to it, including the pre-emption pact. The Court of Cassation must decide.

The reasoning of the court — dissected

The Court of Cassation dismisses Mrs Y's appeal. Its reasoning is twofold.

Firstly, the legal nature of the pre-emption pact. The Court recalls that the pre-emption pact constitutes a claim of a personal nature (a right belonging to a specific person, not to a property). In law, personal claims do not follow the property, they follow the person. Consequently, the assignment of the lease contract does not, by itself, entail the transfer of the pre-emption pact. For the assignee (the person taking over the lease) to be able to rely on it, an express clause in the contract or in the rescue plan would be necessary. In this case, there is none.

Secondly, the interpretation of the lease clauses. The Court notes that the terms of the clause are clear: the pact is 'personal to the tenant and non-assignable to third parties'. This wording leaves no doubt as to the intention of the parties: the owner only intended to grant this right to the original tenant company, and not to its possible successors. Moreover, the Court specifies that the landlord's undertaking to 'maintain the lease on the same terms to the successor of the tenant' merely complies with Article L. 621-88 of the Commercial Code (old), which requires the landlord to maintain the lease in the event of assignment under a rescue plan. It is not an extension of the pre-emption pact.

The solution is therefore a strict application of the principle of the relative effect of contracts (Article 1199 of the Civil Code): agreements only have effect between the contracting parties, and neither harm nor benefit third parties, unless otherwise provided. Here, the new operator, Mrs Y, is a third party in relation to the pre-emption pact. She cannot therefore rely on it.

This judgment confirms previous case law (see, for example, Cass. com., 18 December 2001, No. 99-10.389). It does not constitute a reversal, but it clarifies and consolidates the rule. The lower court (Court of Appeal) therefore correctly applied the law.

What this changes for you — practically

This decision has very concrete implications for landlord owners, tenants and assignees of commercial leases.

If you are a landlord owner: you can sleep soundly, to a certain extent. As long as you clearly draft the pre-emption pact as being personal to the current tenant, you are not obliged to transfer it to a new operator in the event of a rescue plan. However, if you wish the pact to benefit all successive occupants, you must expressly stipulate this. For example, a clause such as 'this pre-emption pact is granted for the benefit of any successive tenant, even in the event of assignment of the lease' would be transferred. But be careful: if you do not want it to be transferred, use the terms 'personal and non-assignable'.

If you are a tenant: be aware that the pre-emption pact you negotiated will not automatically benefit your assignee if you assign your lease in the context of a collective procedure. If you wish this right to survive the assignment, you must provide for it in the lease contract or in the assignment deed. For example, if you are in Strasbourg and you are considering taking over a business, check the lease clauses: is the pre-emption pact 'personal' or 'attached to the lease'?

If you are an assignee: you must be vigilant. Before acquiring a lease under a rescue plan, carefully examine the clauses of the contract. A pre-emption pact is not necessarily transferred. If you are counting on this right to buy the premises in the future, you risk disappointment. For example, take a concrete case in Saverne: an owner leases premises to a florist. The lease contains a pre-emption pact 'personal to the tenant'. The florist goes bankrupt and his lease is assigned to a bookseller. The bookseller will not be able to claim the right of first refusal if the owner sells the premises. He should have negotiated a new pact as part of the assignment.

Time limits and amounts: the pre-emption pact itself has no time limit, but it is exercised at the time of sale. In the event of a dispute, legal proceedings can last from 12 to 24 months at first instance, and legal fees can range from €2,000 to €5,000 depending on complexity. Prevention is better than cure.

Four tips to avoid this type of dispute

• Draft clear and precise clauses: in your lease contract, expressly state whether the pre-emption pact is 'personal to the tenant' or 'attached to the lease and assignable to successors'. Avoid ambiguous wording such as 'will benefit the tenant and his successors in title' which can lead to confusion.
• Check the clauses before any assignment: whether you are the assignor or assignee, read the lease carefully. If the pact is personal, the assignee must negotiate a new pact with the landlord before signing the assignment deed.
• Seek legal advice when drafting the lease: a lawyer specialising in property law can help you draft clauses that suit your interests. A 30-minute consultation can save you years of litigation.
• Anticipate in the context of a collective procedure: if you are a tenant in judicial reorganisation, inform your judicial representative of the existence of a pre-emption pact. The rescue plan can provide for its transfer if the landlord agrees. Do not wait until the judgment.

Further reading: related case law and developments

This decision is part of a consistent line of the Court of Cassation. Already, in a judgment of 18 December 2001 (No. 99-10.389), the Commercial Chamber had held that the right of first refusal stipulated in a commercial lease is a personal right, not transferable to the assignee in the event of a rescue plan. More recently, the Court confirmed this position in a judgment of 28 January 2014 (No. 12-29.117), specifying that even if the rescue plan mentions the assignment of the lease 'with all its rights and obligations', that is not sufficient to transfer a personal pre-emption pact.

The courts are therefore very strict on the interpretation of clauses. The trend is to protect the landlord against unwanted extensions of his obligations. However, if the pact is drafted as 'attached to the lease' or 'assignable', the judges take this into account. It is therefore essential to pay attention to the drafting.

For the future, this case law is likely to remain, unless the legislature intervenes. The law on collective procedures has evolved with the safeguard law of 26 July 2005, but Article L. 642-7 of the current Commercial Code repeats the obligation to maintain the lease, without extending personal rights. The rule therefore remains current.

What you absolutely must remember

FAQ:

1. Is a pre-emption pact always personal?
No, it all depends on the wording of the clause. If it says 'personal to the tenant', it is not transferred. If it says 'attached to the lease' or 'assignable', it may be transferred.

2. Can I assign my lease with the pre-emption pact if I am a tenant?
Yes, if the lease allows it and if the pact is not personal. But in the event of a rescue plan in a collective procedure, the assignee does not benefit from the pact unless there is an express clause.

3. What should I do if the assignee claims the benefit of the pact?
You can refuse based on this case law. He will have to prove that the pact was transferred to him. Consult a lawyer promptly.

4. What is the time limit for legal action?
An action to assert a right of first refusal is subject to a 5-year limitation period (Article 2224 of the Civil Code). But it is better to act as soon as the dispute arises.

5. What are the risks if I do not respect the pact?
You could be ordered to pay damages (compensation for the loss suffered by the tenant who was unable to buy the property). The amount can be high, for example the difference between the price offered to a third party and the actual value of the property.

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