Condition report in a commercial lease (Art. L. 145-40-1): what the landlord loses without a joint record

A property company recovers an office floor after nine years of occupation: partitions removed, suspended ceilings punctured, air-handling unit out of service. The tenant disputes everything, on the ground that there is no entry condition report (état des lieux). The lease, taken over in an asset deal, was concluded before the Pinel Law and the lease file passed on by the seller is incomplete. In this situation, Article L. 145-40-1 of the French Commercial Code does not merely impose a formality: it deprives the negligent landlord of the presumption of good condition in Article 1731 of the French Civil Code, and shifts onto the landlord the burden of proving the initial condition of the premises. This guide deals with the evidential consequences of the absence of a jointly agreed record, on entry as on exit, and with the levers that remain over the security deposit and over the obligation to make good.

What Article L. 145-40-1 exactly requires of the landlord

Resulting from Article 13 of Law No. 2014-626 of 18 June 2014 on crafts, trade and very small businesses, known as the Pinel Law, Article L. 145-40-1 of the Commercial Code applies to leases concluded or renewed from 20 June 2014.

When the tenant takes possession of the premises on conclusion of a lease, assignment of the right to the lease, transfer for value or free of charge of the business, and on return of the premises, a condition report is drawn up jointly and amicably by the landlord and the tenant or by a third party appointed by them. The condition report is attached to the lease or, failing that, kept by each of the parties.

If the condition report cannot be drawn up under the conditions provided for in the first paragraph, it is drawn up by a bailiff (huissier de justice), on the initiative of the more diligent party, at costs shared equally between the landlord and the tenant.

A landlord who has not taken all steps for the condition report to be produced may not rely on the presumption in Article 1731 of the Civil Code.

Three points deserve the attention of an institutional landlord.

First, the scope of application is not limited to signature of the lease. The text refers to four distinct moments: conclusion, assignment of the right to the lease, transfer for value or free of charge of the business (fonds de commerce), and return of the premises. A property company that approves an assignment of the right to the lease without drawing up a condition report with the assignee breaks the chain of proof: it will no longer be able to attribute a given item of damage with certainty to the assignor or to the assignee, even though a joint guarantee clause gave it a claim against the former.

Second, the obligation extends beyond the statutory regime itself. Article L. 145-5 of the Commercial Code, which governs the short-term derogatory lease (bail dérogatoire), refers expressly to the conditions of Article L. 145-40-1. Short-term precarious occupations, common in the management of assets undergoing restructuring or temporary letting, are not exempt from the rule. The regime of this short-term lease and the conditions on which it tips into the statutory regime are dealt with separately in our article on the derogatory lease under the commercial lease statute.

Third, Article L. 145-40-1 falls within the range referred to by Article L. 145-15 of the Commercial Code, which deems unwritten any clauses that defeat the provisions of Articles L. 145-37 to L. 145-41. The prevailing analysis infers from this a mandatory character: a standard lease clause by which the tenant “acknowledges having received the premises in perfect condition” or “waives any condition report” is not intended to produce the desired effect. Boilerplate wording inherited from leases predating 2014 and carried over by amendment is, in this respect, a frequent blind spot in portfolios.

The sanction: loss of a presumption, not loss of a right

The sanction laid down by the third paragraph is strictly evidential. It does not deprive the landlord of its claim, it removes from it a mechanism that saves the burden of proof.

The mechanism of Article 1731 of the Civil Code

Article 1731 of the Civil Code provides that, if no condition report has been drawn up, the tenant is presumed to have received the premises in good condition as regards tenant repairs, and must return them in that condition, unless proved otherwise. This rebuttable presumption is the landlord's traditional tool: it is enough to show the damaged condition on exit, the damage being deemed attributable to the tenant since the premises are supposed to have been delivered in good condition.

Where an entry condition report exists, it is Article 1730 of the Civil Code that applies: the tenant must return the property as received according to that report, except for what has perished or deteriorated through age or force majeure. The comparison between entry and exit then provides an objective difference that can be directly quantified.

Article L. 145-40-1 creates a third situation, unfavourable to the landlord: no condition report, and no presumption. The landlord finds itself subject to the ordinary law of evidence under Article 1353 of the Civil Code, and must establish both the initial condition and the final condition.

The notion of “all steps” and the burden of demonstrating it

The text does not penalise the absence of a condition report as such, but the landlord's failure to take steps to have one drawn up. The nuance is decisive: a tenant who systematically avoids taking part must not be able to benefit from its own default.

The landlord must still keep the material trace of its steps. In practice, this means a documented sequence: written proposal of dates, a reminder, then a summons served by a commissaire de justice (bailiff) to attend the operations on a fixed day and time, followed, in the event of default, by a record drawn up unilaterally and served. A simple email left unanswered is only a fragile start of proof. A served summons, followed by a record of default, places the landlord in a position to argue that it took all steps within the meaning of the text.

The second paragraph moreover offers a fallback that few landlords use systematically: the condition report may be drawn up by a commissaire de justice on the initiative of the more diligent party, the costs being shared equally. The cost of the act is out of all proportion to that of a dispute over making good a floor of several hundred square metres.

What remains: Article 1732 and proof by any means

Loss of the presumption does not give the tenant immunity. Article 1732 of the Civil Code remains: the tenant is liable for damage or loss occurring during its enjoyment of the premises, unless it proves that they occurred without its fault. But this text presupposes that it has first been established that the damage did occur during the period of occupation, which brings us back to the question of the initial condition.

The landlord must then reconstruct indirect proof. The materials available, in commercial matters where proof is free, are more numerous than they might appear: the record of acceptance of the works and the file of completed works if the building is recent, fit-out plans and works authorisations issued to the tenant during the lease, the exit condition report of the previous tenant, dated photographic reports made during marketing visits, maintenance reports on technical installations, minutes of periodic visits by the asset manager, contractual exchanges relating to defects reported. Each of these items, taken in isolation, is not equivalent to a condition report; together they may persuade the court hearing the merits.

The entry condition report: an act of proof, not a form

An entry condition report that can be used in litigation is distinguished from a summary description by its level of detail and by its annexes.

• A description room by room, item by item: floor coverings, partitioning, suspended ceilings, internal and external joinery, sanitary fittings, visible services.
• An inventory of technical equipment with makes, references and working condition: air-handling units, chillers, private lifts, goods hoists, metal shutters, fire safety systems, shop windows and shopfronts for commercial premises.
• Meter readings (electricity, water, gas, heat) and the state of sub-metering, data that are also useful for monitoring compliance with the tertiary-sector energy-saving scheme.
• A dated photographic report, annexed and initialled, with locations marked on a plan.
• The list of existing fit-outs and their origin, distinguishing those carried out by the landlord from those funded by a previous occupant.

This last point goes beyond the question of damage alone. Article R. 145-8 of the Commercial Code provides that improvements made to the let premises during the lease are taken into account in determining the rental value only at the renewal following the one during which they were carried out, and on condition that the landlord has not financed them directly or indirectly. The entry condition report is the document that makes it possible, several renewals later, to date and attribute a fit-out. Without it, an institutional landlord loses a valuation argument when the renewal rent is fixed before the commercial rent judge (juge des loyers commerciaux).

The boilerplate clause by which the tenant declares that it takes the premises “in the condition in which they stand, without being able to demand any repair” plays none of these roles. It identifies nothing, dates nothing and describes nothing. It cannot stand in for a condition report within the meaning of Article L. 145-40-1.

The exit condition report: fixing the condition of the premises and the date of vacation

The exit condition report in a commercial lease has two functions, the second of which is regularly overlooked.

The first is the joint recording of defects and of breaches of the obligation to return the premises. It must take place after the tenant's furniture and installations have been completely cleared, failing which underlying damage will remain invisible. The exit timetable must therefore distinguish the date of physical vacation from the date of the recording operations.

The second function is fixing the date of actual return. As long as the keys and means of access have not been returned, the tenant remains liable, as the case may be, for rent or for an occupation indemnity. An exit condition report recording the handover of badges, keys, remote controls and access codes, with their number, closes the debate on the starting point of vacancy. In its absence, the tenant will argue that it had left the premises several months earlier, and the landlord will have to prove the contrary.

Where the tenant refuses to attend, or where the operations risk degenerating into a technical dispute (structure, waterproofing, air-conditioning installations, ground pollution for industrial premises), summary proceedings (référé) under Article 145 of the Code of Civil Procedure should be preferred. An expert investigation in futurum, ordered before any trial, makes it possible to have the defects recorded and costed by a technician appointed by the court, in an adversarial framework that can be relied on against the other side. It has a further advantage for an institutional landlord: it stops the file from deteriorating and provides a costing that will stand up better than a unilateral contractor's quotation in negotiation or at the hearing on the merits.

The obligation to make good: what the condition report makes enforceable

Making good by the landlord, or more precisely the tenant's obligation to return the premises in conformity, rests on an interplay of texts and clauses that must be distinguished with rigour.

Tenant repairs, wear and tear and major repairs

Article 1755 of the Civil Code excludes from the tenant's responsibility the repairs deemed to be tenant repairs caused by age or force majeure. In commercial matters, however, freedom of contract allows repairs made necessary by age to be placed on the tenant by contract, subject to the following two reservations.

On the one hand, since Decree No. 2014-1317 of 3 November 2014, Article R. 145-35 of the Commercial Code prohibits charging to the tenant the expenses relating to the major repairs under Article 606 of the Civil Code and the associated fees, as well as works remedying age or regulatory compliance where they fall within those major repairs. The text applies to contracts concluded or renewed from 5 November 2014. The allocation of major repairs between landlord and tenant is examined in our article on Article 606 of the Civil Code applied to the commercial lease.

On the other hand, wear and tear is no more to be presumed than damage. Without an entry condition report, the tenant will argue that the defects recorded result from normal wear of premises that were already old when it took possession. The debate then becomes a clash of expert reports on the probable age of the coverings and equipment, an uncertain and costly outcome for a property company managing several dozen exits a year.

Return in the original condition and fate of fit-outs

Two distinct obligations are often confused. The first is return in good condition of maintenance and tenant repairs. The second is restoration to the original condition, that is, removal of the fit-outs carried out by the tenant during the lease.

The usual accession clause reserves to the landlord an option at the end of the lease: keep the fit-outs without compensation, or require their removal at the tenant's expense. Exercising this option presupposes knowing what the original condition was. A landlord who cannot establish that the floor was delivered as open-plan space cannot require the partitioning to be removed. The accession clause, however well drafted, is ineffective without a documentary reference point.

Costing and compensation

It is generally accepted that the landlord may obtain damages for damage without having to show that it had the works carried out, the loss arising from the damage itself and the corresponding loss of value. This solution has a limit relating to the reality of the loss: where the asset is destined for major restructuring or scheduled demolition, the courts may refuse compensation for works that would not have been carried out in any event. A landlord engaged in a repositioning operation therefore has an interest in costing its loss by reference to the programme actually envisaged rather than on the basis of a theoretical complete refurbishment.

Security deposit, bank guarantees: levers conditional on proof

The security deposit in a commercial lease is subject to no specific statutory regime. Its creation, its amount and the conditions for its return are a matter for the contract. Article L. 145-40 of the Commercial Code provides only that rent paid in advance, even by way of guarantee, bears interest in favour of the tenant for sums exceeding two rent terms.

Retention of the security deposit in respect of making good is not a discretionary right. It presupposes a claim by the landlord and, for set-off to operate, a claim that is certain, liquid and due within the meaning of Article 1347-1 of the Civil Code. A landlord that keeps the deposit on the strength of a mere non-adversarial quotation, in a file lacking entry and exit condition reports, exposes itself to an order to repay with interest, or even to damages for wrongful retention. The absence of a jointly agreed record therefore results not only in a weakening of the claim to make good: it also weakens the only financial lever immediately available.

The same reasoning applies to more sophisticated security. An independent on-demand guarantee (garantie autonome à première demande) given by a bank is in principle insensitive to defences drawn from the underlying contract, which allows a rapid call. But a manifestly abusive or fraudulent call remains sanctioned, and the tenant keeps a claim for repayment against the landlord once the guarantee has been called. The strength of the call depends, in the last analysis, on the ability to show the claim for making good. Here again, the exit condition report in a commercial lease is the key document. On the drafting, calling and challenging of such security, see our analysis of the independent on-demand guarantee compared with a personal guarantee.

Action timetable and procedural window

Managing a contentious exit is played out over a short chronology.

• Ahead of the effective date of the notice or termination, a technical pre-visit makes it possible to identify the items in dispute and to calibrate the evidential arrangements.
• The invitation to the exit operations must be in writing, dated and sent sufficiently early, with several time slots proposed.
• In the event of silence or refusal, a summons is served by a commissaire de justice, followed by a record and, if necessary, an application or a summons in summary proceedings under Article 145 of the Code of Civil Procedure.
• The quantified formal notice, supported by quotations or by the expert report, comes before any set-off against the security deposit, which must be reasoned item by item.

The question of the time limit for acting calls for a prudent choice. The two-year period under Article L. 145-60 of the Commercial Code relates to actions brought under the commercial lease statute. A claim for compensation for damage to the premises, which arises from the ordinary law of letting, may be subject to the five-year limitation period under Article 2224 of the Civil Code. Since the characterisation is open to debate depending on the basis relied on and the wording of the clauses, risk management calls for acting within the shorter period and not letting two years pass after return of the premises.

A further point arises where the tenant is subject to collective insolvency proceedings. The claim for making good arising from performance of the lease before the opening judgment must be declared in the liabilities within the time limit under Article L. 622-24 of the Commercial Code, on pain of being unenforceable against the estate. A landlord who waits for physical return of the premises to quantify its claim may find that the time limit for declaration has expired.

Remedying a portfolio of leases with no condition reports

For a property company or an institutional investor, the issue is not only to conduct the next exit well, but to clear a documentary liability built up over years of successive acquisitions.

Three corrective measures are available. The first is to audit the stock of leases to identify premises with no entry condition report, giving priority to the largest areas and to leases nearing expiry. The second is to treat each contractual event as an opportunity to draw up the missing document: renewal, assignment of the right to the lease subject to approval, amendment extending or reducing the area, regularisation of tenant works. The third, applicable during the lease without any particular contractual basis, is to build up a dated photographic file during maintenance visits and technical interventions, with time-stamped archiving. This base is not equivalent to a condition report, but it feeds the body of evidence that will make it possible to reconstruct the initial condition.

Finally, on the acquisition of an investment building, the actual presence of entry condition reports in the lease file deserves to be treated as a due diligence point in its own right, on a par with rent receipts, guarantees and operating authorisations. Their absence is a risk exposure that can be quantified, and may justify a price retention or a specific statement in the asset and liability warranty.

Conclusion

Article L. 145-40-1 is not an administrative constraint: it is a rule allocating the burden of proof, and it mechanically turns against the passive landlord. Loss of the presumption in Article 1731 of the Civil Code does not remove the claim to make good, but it shifts its centre of gravity towards an indirect reconstruction that is lengthy, dependent on experts and uncertain in outcome. It weakens at the same time the retention of the security deposit and the calling of bank guarantees, that is, the only means of rapid enforcement available to an institutional landlord.

The cost-benefit ratio leaves little room for discussion: a jointly agreed condition report, or failing that one drawn up by a commissaire de justice at shared cost, costs a fraction of the litigation it avoids. Two operational recommendations follow. First, build into your property management procedures a rule without exception: no handover of keys, on entry or on exit, without a written joint document or, failing that, without a served summons followed by a record. Second, have your stock of leases audited to identify premises with no entry condition report, and treat this gap as a risk exposure to be provisioned for and cleared event by event, rather than as a management detail.

Frequently asked questions

Does the absence of a condition report deprive the landlord of any claim against the tenant?

No. Article L. 145-40-1 of the Commercial Code provides only an evidential sanction: a landlord who has not taken all steps cannot rely on the presumption of good condition in Article 1731 of the Civil Code. It keeps its claim under Article 1732 of the Civil Code and the clauses of the lease, but must then establish by any means the initial condition of the premises and that the damage is attributable to the period of occupation. In commercial matters, since proof is free, a body of dated material (record of acceptance, plans, photographs, works authorisations, the previous tenant's condition report) may make up for the missing document.

Does Article L. 145-40-1 apply to leases concluded before 2014?

The obligation arising from Law No. 2014-626 of 18 June 2014 applies to leases concluded or renewed from 20 June 2014. For earlier leases not renewed since, the sanction in the third paragraph is not intended to apply and the landlord can in principle rely on the presumption in Article 1731 of the Civil Code. This protection nevertheless disappears at the first subsequent renewal, which makes it necessary to build the drawing up of a condition report into the renewal process.

Can a clause in the lease relieve the parties of drawing up a condition report?

Article L. 145-40-1 falls within the range of Articles L. 145-37 to L. 145-41 referred to by Article L. 145-15 of the Commercial Code, which deems unwritten any clauses that defeat them. The prevailing analysis accordingly recognises it as mandatory. A clause acknowledging good condition or waiving the condition report is therefore not a reliable protection for the landlord, particularly as it neither describes nor dates any physical item.

What should be done if the tenant refuses to attend the exit condition report?

The second paragraph of Article L. 145-40-1 allows the more diligent party to have the condition report drawn up by a commissaire de justice, at costs shared equally. In practice, a written invitation proposing several time slots should be sent first, followed by a summons to attend the operations on a fixed date and time, and finally a record with a record of default should be drawn up. This documented sequence amounts to demonstrating the steps the text requires. In the case of complex technical defects, an expert investigation under Article 145 of the Code of Civil Procedure is preferable to a record alone.

Can the landlord keep the security deposit without an exit condition report?

Retention presupposes a claim by the landlord and, for set-off to operate, a claim that is certain, liquid and due within the meaning of Article 1347-1 of the Civil Code. Without a joint exit document, this showing rests on unilateral documents of weak evidential value. The landlord exposes itself to an order to repay, with the interest provided for by Article L. 145-40 of the Commercial Code on the part exceeding two rent terms, and where applicable to damages for wrongful retention.

Must the landlord have carried out the works to obtain compensation?

It is generally accepted that compensation for damage is not conditional on proof that the works were carried out, the loss residing in the damage to the property and the resulting loss of value. This solution has its limit in the reality of the loss: where the premises are destined for major restructuring or demolition, the courts may reject compensation for works that would not have been carried out. The costing must therefore be consistent with the programme actually envisaged for the asset.

Within what time must the landlord act after return of the premises?

The period depends on the basis relied on: two years for actions brought under the commercial lease statute under Article L. 145-60 of the Commercial Code, five years under the ordinary limitation period of Article 2224 of the Civil Code for a purely contractual action. Since the characterisation is open to debate, risk management calls for bringing the action within two years of return. Where the tenant is subject to collective insolvency proceedings, the claim for making good arising before the opening judgment must in addition be declared within the time limit under Article L. 622-24 of the Commercial Code.