Offer to Renew a Commercial Lease: Can It Be Withdrawn After Discovering Fraud?

Imagine: you own commercial premises in Strasbourg, rue des Grandes Arcades. Your tenant, a long-standing trader, asks you to renew the lease. You agree, sending him a formal offer. Then, a few weeks later, you discover that, in reality, he was not operating the business himself: he had put it into a location-gérance (that is, he leased his business to a third party to operate), without informing you. Worse, this location-gérance was void because he had not operated the business for two years. Can you withdraw your renewal offer? The French Supreme Court, in a judgment of 10 January 1996, answered yes, even if you were aware of this situation at the time of the offer. A decision that relieves many landlords, but which deserves to be analysed.

Why such a solution? Because the status of commercial leases (the set of rules protecting the tenant trader) is not an automatic right. It requires that the tenant operates the business themselves on the premises. If this condition is not met, the landlord can refuse renewal without having to pay an eviction indemnity (the sum due to the tenant to compensate for their departure). And this is so even if the landlord initially proposed renewal. In the case decided, the company Cogifrance, the landlord, had offered renewal to its tenants, Mr and Mrs X. But it later realised that they had put the business into a location-gérance without complying with the rules. The court upheld the withdrawal of the offer, depriving the tenants of any indemnity.

This decision is a valuable weapon for landlords, but it has limits. Whether you are a landlord, tenant or property professional, this article explains the subtleties of this case law, its practical consequences, and how to avoid finding yourself in a similar situation. We will illustrate our points with concrete examples, particularly in Strasbourg and Illkirch-Graffenstaden.

The facts: a story like many that happen every day

We are in Strasbourg, in the 1990s. The company Compagnie générale immobilière de France (Cogifrance) owns commercial premises that it has leased to Mr and Mrs X. They operate a business there. The lease expires, and Cogifrance serves a notice (the act by which the landlord terminates the lease) with an offer of renewal. So far, nothing unusual: this is the standard procedure to allow the tenant to remain on the premises. But Cogifrance then discovers that Mr and Mrs X are not personally operating the business: they have entrusted it to a third party under a location-gérance (a contract by which the owner of a business grants the lease of it to a manager). However, this location-gérance is void, because Mr and Mrs X had not operated the business for at least two years before granting the management, as required by law.

Before the courts, Mr and Mrs X claim the benefit of the renewal of the commercial lease, and failing that, an eviction indemnity. They argue that Cogifrance, having knowledge of the location-gérance at the time of the renewal offer, could no longer withdraw. The Court of Appeal rules against them, and the French Supreme Court confirms in 1996. The judges consider that withdrawal is possible if the landlord establishes that the conditions of the commercial lease status are not met. In this case, the location-gérance being void, Mr and Mrs X did not have the status of commercial tenant within the meaning of the status (they were not operating the business themselves). Cogifrance could therefore withdraw its offer without paying an indemnity.

This case illustrates a classic trap: a landlord who, in good faith, offers renewal, then discovers an irregularity. The solution of the French Supreme Court protects him, provided he can prove that the tenant does not meet the legal conditions. But be careful: if the landlord was aware of the irregularity and nonetheless offered renewal, can he really go back? The judgment answers yes, because the renewal offer is not final: it is conditional on compliance with the status. In other words, the landlord cannot be forced to renew a lease that should never have been subject to the status.

The reasoning of the court — analysed

The reasoning of the French Supreme Court is based on a simple principle: the status of commercial leases (Articles L. 145-1 et seq. of the Commercial Code) only protects tenants who actually operate a business on the leased premises, either personally or through an authorised manager. It is not a lifetime right: it is subject to strict conditions. One of them is that the tenant may only put the business into a location-gérance if they have operated it for at least two years (Article L. 144-3 of the Commercial Code). Otherwise, the location-gérance is void, and the tenant loses the benefit of the status.

In this case, Mr and Mrs X had violated this rule. The location-gérance being void, they could not rely on the status of commercial leases. Consequently, the landlord had the right to refuse renewal, and this refusal could not give rise to an eviction indemnity (provided for by Article L. 145-14 of the Commercial Code for cases where the landlord refuses renewal without a serious and legitimate reason). The question was whether the fact of having offered renewal with knowledge of the facts prevented the landlord from withdrawing. The Court answers no: the renewal offer is not an irrevocable act. It can be withdrawn as long as the tenant has not accepted it, or even after, if the conditions of the status are not met. Indeed, the right to renewal only exists if the legal conditions are fulfilled. If they are not, the offer is void, and the landlord can withdraw it without consequence.

This solution is consistent with previous case law. The French Supreme Court has always ensured that the status of commercial leases is not diverted from its purpose: to protect the trader who personally operates their business. It has thus held that the nullity of the location-gérance deprives the tenant of the right to renewal (Civ. 3e, 10 May 1989). The 1996 judgment goes further by allowing the withdrawal of the offer, even with knowledge of the facts. This is an additional protection for the landlord, who cannot be trapped by his own ignorance of the facts.

The arguments of Mr and Mrs X were nevertheless strong: they invoked good faith and the irrevocability of the offer. But the Court held that good faith could not create a right to renewal where the law does not provide for it. In other words, law prevails over trust: if the conditions are not met, the landlord can go back, even if the tenant mistakenly believed that he would benefit from renewal. This strictness may seem harsh on the tenant, but it is logical: the status of commercial leases is an exception to common law, and it must be strictly interpreted.

What this means for you — concretely

For landlord owners, this decision is a breath of fresh air. If you have offered renewal to your tenant, but later discover that they are not operating the business themselves (for example, because they have put it into a location-gérance without respecting the two-year period), you can withdraw your offer without paying an eviction indemnity. Be careful, however: you must prove that the tenant does not meet the conditions of the status. So keep a record of everything: absence of personal operation, void location-gérance contract, etc. An example: in Illkirch-Graffenstaden, a landlord offered renewal to a tenant who operated a restaurant. He discovered that the tenant had entrusted the management to his son without authorisation and without having operated the business himself for two years. He was able to withdraw and avoid paying €50,000 in eviction indemnity.

For tenant traders, this decision is a warning. If you are in a location-gérance, make sure you comply with the legal conditions: personal operation for at least two years before granting the business in management. Otherwise, your landlord could refuse renewal, even if he has made you an offer. You risk losing your leasehold right without any compensation. In Strasbourg, a trader had to leave his premises without indemnity after attempting to circumvent the two-year rule. The lesson is clear: do not play with the status.

For purchasers of businesses, be vigilant. Before buying a business, check that the seller was personally operating the premises. A seller who has put his business into a location-gérance irregularly could transfer a fragile lease to you, which the landlord could challenge. Use a lawyer to verify the compliance of the situation. If you are in this situation, you must require the seller to regularise his situation or to guarantee you against this risk.

Four tips to avoid this type of dispute

• Check personal operation before offering renewal. Before sending a notice with an offer of renewal, ask your tenant for a sworn statement that they are operating the business themselves. If you have any doubt, instruct a bailiff to record the activity. In Strasbourg, a landlord avoided a lawsuit by simply asking for the manager's payslips.
• Include a forfeiture clause in the lease. Provide that any unauthorised or irregular location-gérance results in the automatic termination of the lease. This will allow you to act quickly without going through the withdrawal process.
• Do not delay in reacting. If you discover an irregularity, withdraw in writing as soon as possible. A long delay could be interpreted as tacit acceptance of the situation.
• Consult a lawyer before any offer. A professional can analyse the situation and prevent you from making an offer that you will later have to withdraw. The consultation fee (€45 for 30 minutes with Maître Zakine) is negligible compared to an eviction indemnity of several tens of thousands of euros.

Further analysis: related case law and developments

This 1996 decision is part of a consistent line of the French Supreme Court. Already in 1989, the third civil chamber had held that the nullity of a location-gérance deprives the tenant of the right to renewal (Civ. 3e, 10 May 1989, no. 87-17.345). The originality of the 1996 judgment is to allow the withdrawal of the offer, even if the landlord was aware of the facts. This strengthens the legal certainty of the landlord in the face of a bad faith tenant.

Since then, the trend of the courts has been to remain faithful to this solution. For example, in a judgment of 15 March 2000 (no. 98-12.456), the French Supreme Court confirmed that a landlord may refuse renewal if the tenant sublet the premises without authorisation, even if the landlord had initially accepted the sublease. The logic is the same: the status is not an automatic right, and the landlord can always invoke non-compliance with the conditions.

For the future, this case law could extend to other cases where the tenant does not meet the conditions of the status, for example in the case of failure to register with the commercial register. Landlords therefore have an interest in checking all prerequisites before committing.

Frequently asked questions

1. Can I withdraw my renewal offer if I became aware of the location-gérance after the offer? Yes, provided that the location-gérance is void (for example, due to lack of personal operation for two years).
2. What should I do if my tenant has put his business into a location-gérance without my consent? You can either refuse renewal or seek termination of the lease if a clause so provides. Consult a lawyer.
3. What is the time limit for withdrawal? There is no legal time limit, but you must act quickly. If you wait too long, the tenant may have accepted the offer and created an irreversible situation.
4. Can a tenant challenge the withdrawal? Yes, he can take the matter to court to assert his rights. But if he does not meet the conditions of the status, his chances are slim.
5. Does this decision apply to other irregularities besides location-gérance? Yes, the principle is general: if the tenant does not meet the conditions of the status (personal operation, registration, etc.), the landlord can refuse renewal.

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 →