Property Seizure: Is a Lease Concluded After a Demand for Payment Enforceable Against the Successful Bidder?

Imagine: you are a tenant of a flat in Le Vigan, in the Gard. You have been living there peacefully for several years. One day, you learn that the owner has debts and that his property is seized. Then, the building is sold at auction. The new owner serves you a notice to quit for sale, considering that your lease has no value because it was concluded after the publication of a demand for payment constituting a property seizure. What should you do? This question is asked by hundreds of tenants and owners each year. The Court of Cassation, in a judgment of 27 February 2020 (No. 18-19.174), provides a clear answer: the lease remains enforceable against the successful bidder, even if it was concluded after the demand for payment, provided that the buyer had knowledge of it before the sale. A decision that secures tenants in good faith, but which deserves to be analysed.

The Facts: A Story Like Many Others

Mr X, owner of a building in Uzès, accumulates debts. His creditors obtain a demand for payment constituting a property seizure, published at the land registry office. In the meantime, Mr X rents out a flat in his building to Claridge Ltd, which sets up its business there. The lease is signed after the publication of the demand. A few months later, the building is sold to a bidder, Mr Y. The latter, informed of the existence of the lease, sues Claridge Ltd for eviction, arguing that the lease is unenforceable against him because it was concluded in fraud of his rights. The Nîmes High Court rules in favour of Mr Y: it orders the eviction of Claridge Ltd. The company appeals. The Nîmes Court of Appeal reverses the judgment: it declares the lease enforceable against the successful bidder. Mr Y appeals to the Court of Cassation. The Court of Cassation dismisses his appeal and confirms the Court of Appeal's decision. For the Court, the service of a demand for payment constituting a property seizure does not prohibit the conclusion of a lease, nor its tacit renewal. And the lease, even if concluded after the publication of the demand, is enforceable against the successful bidder who had knowledge of it before the sale.

The Reasoning of the Court — Analysed

To understand this decision, we must go back to the texts. The Court of Cassation relies on Article 1240 of the Civil Code (civil liability: any act of a person which causes damage to another obliges the person by whose fault it occurred to repair it) and on Articles L. 321-1 et seq. of the Code of Civil Enforcement Procedures, which govern property seizure. In short, the Court recalls that the demand for payment constituting a property seizure freezes the property for the benefit of the creditors, but does not paralyse all acts of the debtor. The latter can still conclude leases, provided they are not fraudulent. In other words, the lease is not void as of right; it is only unenforceable against the successful bidder if the latter had no knowledge of it. But if the successful bidder knew (or should have known) that the property was rented, the lease is enforceable against him. In the case decided, Mr Y had been informed of the lease before the sale. He could not therefore claim to be ignorant of it. The Court thus rejects Mr Y's argument that a lease concluded after the demand for payment was necessarily fraudulent. It specifies that fraud is not presumed: it must be proven. In this case, no fraud was established. This reasoning is a confirmation of previous case law: the Civil Chamber of the Court of Cassation had already ruled, in a judgment of 5 July 1995, that 'the lease granted after the publication of the demand for payment is enforceable against the successful bidder if the latter had knowledge of it before the sale.' The 2020 decision therefore merely reaffirms this principle.

What This Changes for You — Concretely

This decision has important practical implications, whether you are an owner, tenant, or buyer.

If you are a tenant: you are protected. Your lease remains valid even if the owner is seized, provided you are in good faith. If the successful bidder knew of your lease before buying, he must respect it. For example, if you have been renting a flat in Uzès since 2018, the demand for payment is published in 2019, and the building is sold in 2020, the new owner cannot evict you without a valid reason (notice to quit for sale with notice period, for example). However, if you concluded a fictitious lease to defeat the seizure, you risk being faced with a claim of fraud and losing your home.

If you are an owner-landlord: you can continue to rent your property, even after the demand for payment. But beware: if you do so solely to harm the creditors or the successful bidder, you commit a fault (Article 1240 of the Civil Code). You could be ordered to pay damages. For example, if you rent at a derisory price to a relative to keep them in the property, the judge could reclassify the lease as fraudulent.

If you are a buyer at auction: before bidding, inform yourself about the occupation of the property. Check the existing leases, even if they were concluded after the demand. If you know about them, they will be enforceable against you. undefined, I have come across cases where successful bidders bought without checking and ended up with tenants protected by the 1948 law. A prior check will save you a lot of trouble.

Four Tips to Avoid This Type of Dispute

• Before bidding, request a visit and require the communication of the leases. The successful bidder cannot simply consult the conditions of sale. He must verify the actual occupation of the property. If in doubt, consult a lawyer or notary.
• For tenants, keep all evidence of your lease and its date. In case of dispute, you will need to prove that the lease was concluded before the sale or that the successful bidder had knowledge of it. Keep your rent receipts, your lease contract, and any correspondence with the owner.
• If you are an owner being seized, do not modify the terms of an existing lease without a legitimate reason. A sudden increase in rent or a change of tenant just before the sale could be considered fraudulent.
• In case of eviction, do not leave without checking the regularity of the procedure. If the new owner has sued you without taking your lease into account, you can challenge the eviction. Apply to the enforcement judge to assert your rights.

Further Reading: Related Case Law and Developments

The decision of 27 February 2020 is part of a consistent line of the Court of Cassation. Already, in a judgment of 5 July 1995 (No. 92-20.486), the Court had ruled that 'the lease granted by the seized debtor after the publication of the demand is enforceable against the successful bidder if the latter had knowledge of it.' More recently, a judgment of 10 May 2018 (No. 17-14.390) specified that fraud is not presumed and must be proved by the person alleging it. The trend is therefore clear: the courts protect tenants in good faith, while sanctioning fraudulent arrangements. However, beware: this solution only applies to leases concluded before the sale. After the sale, the seized debtor no longer has the right to rent the property without the consent of the pursuing creditor or the judge. If you are in this situation, consult a lawyer.

Checklist Before Acting

• Tenant: is your lease prior to the sale? If yes, you are protected, except in case of fraud. If not, you may be evicted.
• Successful bidder: did you have knowledge of the lease before the auction? If yes, the lease is enforceable against you. If no, you can seek eviction (unless the lease predates the demand).
• Seized owner: is your lease fraudulent? If you rented at a normal price and without intent to harm, you are entitled to do so. Otherwise, you risk damages.
• What to do if the new owner sues you for eviction? Do not leave the premises without waiting. Consult a lawyer to check if the lease is enforceable against you. You can request a stay of proceedings.

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