Company housing and guarantee: the employee remains liable for rent after dismissal

Imagine: you are a tenant in Sotteville-lès-Rouen, your employer offers you housing and promises to pay part of the rent. You sign a lease with a private landlord, and the director of your company acts as guarantor. Then you are dismissed. You leave the premises, but the landlord refuses to terminate the lease. The director pays the rent on your behalf, then asks you for reimbursement. Must you pay? The question every landlord or tenant asks is: when the employer promises to pay the rent, is the tenant released from all obligations after the employment contract is terminated? The Court of Cassation, in a judgment of 4 July 1973, answered no, firmly. This judgment, although old, remains an absolute reference for distinguishing between the employment contract and the lease, and it is regularly cited in current disputes, particularly in Le Havre or Rouen.

The facts: a story like any other

Mr Martin, employed from 1 April 1967 as a technical sales assistant by a limited liability company (SARL), benefited from a promise from his employer: to cover part of his housing costs. To realise this benefit, Mr Martin signed, on 1 January 1968, a residential lease with a private landlord for a flat in Sotteville-lès-Rouen. The director of the SARL intervened in the deed as a joint guarantor, undertaking to pay the rent if Mr Martin did not. The employment contract, of indefinite duration, provided that the company would assume part of the housing costs for the duration of the employment.

Alas, on 1 January 1969, Mr Martin was dismissed. He left the premises immediately, believing that his rent obligation ceased with the termination of his employment contract. But the landlord, unable to relet quickly, kept the lease in force. The director-guarantor, forced to pay the rent for the period from Mr Martin's departure until the termination of the lease (accepted by the landlord only several months later), then turned against Mr Martin to obtain reimbursement. Mr Martin refused, arguing that the letting was a company flat ancillary to his employment, and that in the absence of gross misconduct, he could not be held liable for rent after termination.

The case came before the Court of Appeal, which ruled in favour of Mr Martin. But the director-guarantor appealed in cassation. The Court of Cassation, in its judgment of 4 July 1973, quashed the decision of the appeal judges and referred the case to the Rennes Court of Appeal.

The reasoning of the court — dissected

The Court of Cassation made a fundamental distinction: the indefinite-term employment contract and the lease are two separate agreements. In other words, the employer's undertaking to cover part of the housing costs does not turn the lease into a company flat. The employee, Mr Martin, is the sole tenant: he personally signed the lease, he has the right to occupy the premises, and he is the sole debtor of the rent to the landlord. The presence of the director as guarantor does not change this relationship.

The Court recalled a key principle of the law of obligations (Article 1240 of the Civil Code, formerly Article 1382): the guarantor who pays the tenant's debt is subrogated to the landlord's rights. Thus, after paying the unpaid rent, the director-guarantor can claim reimbursement from Mr Martin, and this regardless of the circumstances in which the employment contract was performed or terminated. The Court of Appeal had erred in considering that the letting had the character of a company flat because of the employer's undertakings. For the Court of Cassation, the mere fact that the employer promised to assume part of the housing costs does not suffice to make the lease an accessory of the employment contract. The lease retains its autonomy.

This is therefore not a reversal, but a confirmation of the rule of independence of contracts. The trial judges must examine each contract separately, without confusing them, even if they are economically linked.

What this means for you — practically

If you are a landlord: you can let to an employee whose employer promises to pay the rent, but know that your only contact for payment remains the tenant. If the employer stops paying, you can take action against the tenant and his guarantor. Here, in Le Havre, a landlord who has signed a lease with an employee of a local company may find himself unpaid if the employee is dismissed and the employer stops payments. You should therefore always require a solid guarantor (individual or body) and check the tenant's solvency, not just that of the employer.

If you are an employee-tenant: be wary of your employer's promises. Even if he undertakes to pay part of the rent, you remain solely responsible for the full payment to the landlord. If you are dismissed, you must continue to pay the rent until the actual termination of the lease, even if you have left the premises. Do not rely on the termination of your employment contract to release you from your rental obligations. A concrete example: monthly rent of €600, departure in January, termination in June: 6 months' rent = €3,600 which the guarantor will pay and claim from you.

If you are an employer or director: if you act as guarantor for an employee, you take a real risk. If the employee leaves, you will have to pay the rent until the end of the lease, and you can claim from the employee, but only after having paid. It is better to provide for a guarantee limited in time or linked to the duration of the employment contract, by a clear written document.

Four tips to avoid this type of dispute

• Draw up a written lease and keep the contracts separate. Do not mention the employment contract in the lease, except to specify that the employer undertakes to pay a housing allowance directly to the tenant. Avoid any clause that would link the duration of the lease to that of the employment contract.
• If you are an employer and wish to guarantee your employee's housing, sign a separate guarantee undertaking, with a limited duration (for example, until the end of the employment contract) and a cap. Specify that your undertaking ceases in the event of dismissal, unless you waive this.
• If the employee leaves, the tenant must terminate the lease in the legally required form (3 months' notice, or 1 month in a tight area). Do not leave without giving notice by registered letter. The landlord may refuse early termination, but the tenant remains liable until the end of the notice period.
• Keep all documents: lease, amendments, letters from the employer promising the housing allowance, rent receipts. In the event of a dispute, these documents will help prove the independence of the contracts and avoid any confusion.

Further reading: related case law and developments

This 1973 judgment has been confirmed by consistent case law. For example, the Court of Cassation ruled, in a judgment of 12 December 2002 (appeal no. 00-21.847), that housing provided by the employer under an employment contract may be an accessory of the contract, but only if the lease is concluded between the employer and the employee, and not between a third party and the employee. If the lease is signed directly with the landlord, the housing is not a company flat, even if the employer pays the rent. The trend is therefore towards a strict distinction: for housing to be considered as company housing, the employer must be the landlord (or sub-landlord) and the employee must be an occupant without a right to the lease itself. In the case of our judgment, the lease was between the employee and a third party, which excludes the classification of company housing. This rule continues to apply today, and the courts are very strict on the form of contracts.

What you absolutely must remember

• Who is responsible for the rent? The tenant, even if the employer promises to pay. The guarantor can claim reimbursement from the tenant after paying.
• Does dismissal terminate the lease? No, not automatically. The lease continues until its voluntary or judicial termination.
• What to do if the employer stops paying? The landlord can take action against the tenant and the guarantor. The tenant must pay and then claim from the employer based on his promise (action for contractual liability).
• Can I be released from my lease if I am dismissed? No, unless the lease contains an express clause providing for termination in the event of loss of employment. Without this, you must give notice in the proper form.
• What is the time limit for taking action? The guarantor has 5 years from the payment of the rent to claim reimbursement from the tenant (general limitation period). The landlord has 3 years to claim unpaid rent (law of 1948, but note for recent leases: 3-year limitation period under the law of 6 July 1989).

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