Commercial Lease and Renewal: The Right Balance between Landlord and Tenant Confirmed

Imagine: you are the owner of commercial premises in Téteghem, leased for years to a supermarket chain. The lease reaches its term, you give notice to renew, but the tenant refuses the new rent. Who is right? This situation, experienced by hundreds of landlords, conceals a fundamental question: is the right to renew a commercial lease compatible with human rights?

The answer is yes, since a historic decision of the Constitutional Council on 27 February 1991. The judges ruled that the rules of the decree of 30 September 1953 (which governs the status of commercial leases) strike a fair balance between the general interest – protecting the business – and the rights of owners. An assertion that reassures, but deserves to be analysed.

Because behind this validation lie precise rules: the landlord cannot refuse renewal without paying a compensation for eviction; the tenant, for his part, must accept certain conditions. Want to know how this applies in Grande-Synthe or at your place? Follow the guide.

The Facts: A Story That Happens Every Day

The case begins in Dijon, but it could have happened in Téteghem. Mr Victor, owner of a commercial building, leases premises to the company Établissements économiques du Casino Guichard-Perrachon et compagnie (a supermarket group). The lease is signed for 9 years, as is customary.

On 10 May 1973, Mr Victor gives notice to the tenant for 11 November 1973, but proposing renewal of the lease – a common practice to revise the rent. Problem: the tenant accepts the renewal but disputes the proposed rent. The conflict concerns the application of the rules of the 1953 decree: can the landlord impose a freely set rent?

The Dijon Court of Appeal is seized. It must decide: in the context of a notice with offer of renewal, should the rent be set by legal rules (capping) or freely? The question is so sensitive that the dispute goes up to the Constitutional Council, via a priority preliminary ruling on constitutionality (QPC) – a mechanism that allows checking whether a law complies with the Constitution.

The Council renders its decision on 27 February 1991. It upholds the provisions of the 1953 decree, finding that they strike a fair balance between the general interest (protecting trade) and the fundamental rights of owners (notably the right to property guaranteed by Article 1 of Protocol 1 to the European Convention on Human Rights).

The Reasoning of the Court – Analysed

The Constitutional Council was asked to verify whether the rules on renewal of commercial leases were compatible with the Constitution. In particular, it was alleged that they violated the right to property because they oblige the landlord to renew the lease or pay compensation for eviction, thereby limiting his freedom to dispose of his property.

But the judges followed a two-stage reasoning. First, they recalled that the right to property is not absolute: it can be limited by requirements of general interest. Second, they considered that the renewal mechanism – which allows the tenant to keep his business, a source of jobs and activity – constitutes such a requirement. And above all, this mechanism is balanced: if the owner is deprived of the freedom not to renew, he receives in compensation an eviction indemnity corresponding to the value of the business.

The judges also examined the question from the angle of Article 1 of Protocol 1 to the European Convention on Human Rights (which protects property). Their conclusion: the provisions of the 1953 decree are not contrary to this text, because they pursue a legitimate aim and maintain a reasonable relationship of proportionality between the means employed and the aim pursued. In short, the law cannot be accused of being unfair.

This decision is a confirmation of prior law, not a reversal. But it has the merit of cutting short any challenge based on human rights. Since then, owners know that the status of commercial leases is constitutionally valid.

What This Changes for You – Practically

If you are the owner of commercial premises in Grande-Synthe, this decision directly concerns you. It confirms that you cannot refuse renewal of the lease without paying compensation for eviction, except for legal exceptions (serious fault of the tenant, repossession for dwelling, etc.). Concretely, if you want to recover your premises to set up your own activity, you must either wait for the expiry of the lease and justify a serious reason, or compensate the tenant.

For tenants, this is a security: your right to renewal is constitutionally protected. You can therefore invest in your business without fear of an abusive refusal of renewal. Example: if you have a lease in Téteghem with an annual rent of €12,000, and the owner refuses renewal, the eviction indemnity can reach €50,000 or more, depending on the value of the business.

For buyers of a business, check that the lease is current and that the right to renewal has not been contested. A pending dispute can reduce the value of the business. Finally, co-owners of a mixed building (shops + housing) should know that commercial leases benefit from enhanced stability, which can limit major renovation projects.

Four Tips to Avoid This Type of Dispute

• Draft a precise notice: If you are a landlord, your notice must clearly indicate whether you are offering renewal or refusing. In the latter case, give reasons for your refusal based on one of the legal exceptions. A poorly drafted notice may be annulled.
• Use a lawyer for rent setting: The renewal rent is often capped, unless works have changed the premises. A specialised lawyer can negotiate the right price, avoiding costly litigation.
• Anticipate the value of the eviction indemnity: If you plan to refuse renewal, have the indemnity estimated by an expert. In Grande-Synthe, a neighbourhood bakery may be worth €80,000 as a business, so the indemnity will be high.
• Check the lease term: A commercial lease is a minimum of 9 years. If you sign a 6-year lease, the tenant can demand renewal at the end of 9 years. Respect the legal duration to avoid surprises.

Further Insight: Related Case Law and Developments

Before 1991, the Court of Cassation had already validated the mechanism of forced renewal in a judgment of 15 June 1982 (case Société des magasins Prisunic). It held that the eviction indemnity was fair compensation. The 1991 decision of the Constitutional Council confirms this position at the constitutional level.

Since then, the courts apply this rule without fail. For example, the Paris Court of Appeal recently recalled that refusal of renewal without indemnity is only possible in case of serious fault of the tenant (judgment of 12 September 2019). The trend is therefore towards protection of the tenant, but with a balance maintained through the indemnity.

For the future, the question could arise again if the legislator were to amend the 1953 decree. But as it stands, the right to renewal is firmly anchored.

In Practice: What to Do

FAQ

1. Can I refuse renewal of my commercial lease? Yes, but you must pay an eviction indemnity, unless exceptions apply (serious fault, repossession for dwelling, etc.).
2. What is the deadline for giving notice? Notice must be given at least 6 months before the end of the lease, by bailiff's act.
3. How is the eviction indemnity calculated? It corresponds to the value of the business (goodwill, leasehold rights, equipment). Use an expert.
4. What if the tenant accepts renewal but disputes the rent? Seize the judicial court (formerly the high court) within 2 years of acceptance.
5. Does this decision apply to my lease signed before 1991? Yes, it confirms prior law. All commercial leases are concerned.

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 →