Termination of Commercial Lease in Judicial Liquidation: No Prior Notice to Pay Required

Imagine: you own a commercial property in Pau, rue du Maréchal Joffre, let to a caterer for five years. One day, you learn that your tenant has been placed in judicial liquidation (i.e., the company is definitively wound up and its assets sold to pay creditors). Monthly rents of €1,500 cease to be paid. You want to recover your premises quickly to re-let them. But how? Do you need to serve a notice to pay (a bailiff's act summoning the tenant to pay within a certain period) as in a standard lease? The answer is no, according to the French Supreme Court. This judgment of 9 October 2019 clearly distinguishes two procedures: that before the judge-commissioner (the magistrate in charge of the liquidation) for automatic termination of the lease, and that before the commercial court for enforcement of the forfeiture clause (the contractual clause allowing automatic termination in case of non-payment). In short, the landlord can choose the fastest route without prior formality. But beware: this procedure has its own rules, which must be known to avoid rejection.

The facts: a story that happens every day

Mr. Dupont, owner of commercial premises in Saint-Jean-de-Luz (a prime location near the port), had let his property to the limited liability company "Océan & Saveurs" for use as a restaurant. The lease provided for a monthly rent of €2,000. In January 2018, the Commercial Court of Bayonne ordered the judicial liquidation of the company. The liquidator (the professional responsible for managing the liquidation) continued to occupy the premises to sell the business, but stopped paying rent from March 2018. Mr. Dupont, unpaid for six months (i.e., €12,000), applied to the judge-commissioner of the commercial court for automatic termination of the lease under Article L. 641-12 of the French Commercial Code (which provides for automatic termination in case of non-payment of rent after the liquidation judgment). The judge-commissioner rejected his application on the ground that he had not served a prior notice to pay, as required by Article L. 145-41 of the French Commercial Code for commercial leases. Mr. Dupont appealed, but the Pau Court of Appeal upheld the rejection. He appealed to the Supreme Court. The Supreme Court ruled in his favour: the automatic termination procedure before the judge-commissioner is distinct from that based on the forfeiture clause, and does not require a notice to pay. The case was remanded to the Bordeaux Court of Appeal.

The court's reasoning — dissected

The French Supreme Court relies on two texts: Article L. 641-12, 3°, of the French Commercial Code (which provides that the lease is automatically terminated if the liquidator has not paid the rent within three months of the landlord's request) and Article R. 641-21, paragraph 2 (which specifies the application to the judge-commissioner). It explains that this procedure is "distinct" from that of Article L. 145-41 of the French Commercial Code (which allows the landlord to have the forfeiture clause declared enforceable after an unsuccessful notice to pay for one month). In other words, the legislature created a special regime for leases in judicial liquidation, simpler and faster, to allow the landlord to recover his premises without delay. The liquidator, who is obliged to pay current rent (that accruing after the judgment), if he fails to do so, the landlord can directly request termination from the judge-commissioner. What few people know is that the landlord can also choose to rely on the standard forfeiture clause, but then he must comply with the notice to pay. But in practice, the special route is more effective. The Court rejects the liquidator's argument that the notice to pay is necessary to protect the tenant: in liquidation, the tenant no longer carries on business, so the protection of the business (the right to renewal of the lease, compensation for eviction, etc.) no longer applies.

What this means for you — practically

For landlords: if your tenant is in judicial liquidation and no longer pays rent after the judgment, you can apply to the judge-commissioner without delay and without bailiff's costs for a notice to pay. Send a registered letter to the liquidator putting him on notice to pay, then, after a period of three months, apply to the judge-commissioner. In Pau, for example, the commercial court usually rules within a few weeks. For tenants in liquidation: be aware that the liquidator must pay current rent from the liquidation funds. If he does not, the landlord can obtain termination quickly, which may jeopardise the sale of the business. For buyers of a business: check that the rent accruing after the judgment has been paid, otherwise the lease may be terminated before your acquisition. Concrete example in Saint-Jean-de-Luz: a potential buyer of the restaurant "Océan & Saveurs" should have checked this point before signing.

Four tips to avoid this type of dispute

• Include a standard forfeiture clause in your lease: even if you can use the special route, the forfeiture clause remains a safety net. In the event of liquidation, you will have a choice of procedure.
• Monitor rent from the opening of liquidation: as soon as you learn of the judgment, contact the liquidator to find out his intentions. Do not wait six months like Mr. Dupont.
• Put the liquidator on notice in writing: a registered letter with acknowledgement of receipt starts the three-month period under Article L. 641-12. Keep a copy.
• Consult a lawyer specialising in property law: the procedure before the judge-commissioner has its subtleties (time limits, form of the application). A lawyer will help you avoid rejection for procedural defects.

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Further information: related case law and developments

This decision confirms earlier case law (Civ. 3e, 12 May 2016, No. 15-11.256) which had already distinguished the two procedures. However, some courts of appeal continued to require a notice to pay. The 2019 judgment puts an end to these divergences. Since then, the French Supreme Court has also clarified that the landlord can combine both claims (automatic termination and forfeiture clause) but must then comply with the rules of each (Cass. com., 3 Feb. 2021, No. 19-13.876). The trend is therefore towards simplification for the landlord, but beware: if the liquidator pays the rent before the judge-commissioner rules, termination will not be ordered. So you must act quickly.

What you absolutely must remember

FAQ:

Can I terminate the lease without a notice to pay if my tenant is in judicial liquidation? Yes, by applying to the judge-commissioner under Article L. 641-12 of the French Commercial Code, after an unsuccessful three-month notice to pay.

What should I do if the liquidator does not pay the rent? Send him a registered letter putting him on notice, then, after three months, apply to the judge-commissioner by petition (with the assistance of a lawyer).

What time limits must I observe? No fixed time limit, but act quickly: termination is automatic if payment is not made within three months of the landlord's request.

Can I use the forfeiture clause in my lease? Yes, but you must then serve a notice to pay (Article L. 145-41) and observe a one-month period. The special route is faster.

What is the cost of the procedure? Mainly lawyer's fees (between €800 and €1,500 for a simple application) and court fees (about €50). No bailiff's costs for a notice to pay.

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