Management lease agreement (location-gérance) 2026: obligations and rights of the parties

The management lease of a business (location-gérance du fonds de commerce) is attracting renewed interest in the current economic climate, particularly among companies seeking operational flexibility and entrepreneurs wishing to test a market without tying up significant capital. This form of indirect operation of a business, governed by Articles L. 144-1 et seq. of the French Commercial Code, nonetheless generates numerous disputes arising from a failure to understand the parties' respective obligations. Recent case law and regulatory changes call for an up-to-date analysis of the rights and duties of the owner of the business and of the lessee-manager (locataire-gérant), as well as of the mechanisms protecting creditors.

Legal nature and formation of the management lease agreement

Definition and essential characteristics

The management lease agreement is a contract by which the owner of a business (fonds de commerce) or craft business grants its operation to a third party, the lessee-manager, who operates it at his own risk in return for payment of a fee. This arrangement, defined in Article L. 144-1 of the French Commercial Code, is fundamentally distinct from a management mandate (gérance-mandat) in that the commercial management and the operating risks are transferred to the lessee-manager.

The distinctive feature of the mechanism lies in the separation between ownership of the business, which remains with the lessor, and its operation, which is transferred by contract to the lessee. This separation means that the lessee-manager operates the business in his own name, incurs personal liability towards third parties and bears the economic risks of the operation.

Conditions of validity and formalities

The validity of the management lease agreement requires compliance with substantive and formal conditions. As to substantive conditions, the lessor is no longer required to have operated the business for any prior period: the requirement of personal operation for at least two years, which appeared in Article L. 144-3 of the French Commercial Code, was removed by Law No. 2019-744 of 19 July 2019.

The French Commercial Code does not impose any particular form on the management lease agreement, but a written contract is indispensable in practice, if only to complete the publicity formalities. The contract usefully specifies the composition of the business, its term, the amount of the fee and the allocation of costs between the parties.

The publicity formalities, provided for in Articles R. 144-1 et seq. of the French Commercial Code, determine whether the contract can be relied on against third parties. These formalities include in particular the publication of a notice in a legal announcements newspaper and registration with the commercial and companies register (RCS).

Rights and obligations of the owner of the business

Main obligations of the lessor

The owner of the business bears several contractual and legal obligations, the breach of which may give rise to liability. The obligation of delivery requires the lessor to make available to the lessee-manager all the tangible and intangible elements making up the business, in a condition allowing normal operation.

This obligation of delivery is accompanied by a warranty against latent defects and an obligation to guarantee against eviction. Case law considers that the lessor must refrain from any act liable to disturb the lessee-manager's peaceful enjoyment, in particular in matters of unfair competition or the diversion of customers.

The duty to provide information is an essential aspect of the owner's duties. The owner must provide the lessee-manager with all the information needed to assess the profitability of the business, including operating accounts, commercial leases, current contracts and any pending litigation.

Prerogatives and rights of the owner

The owner retains certain prerogatives linked to its ownership of the business. It remains the holder of the commercial leases and may, under certain conditions, monitor the use made of the business by the lessee-manager. This right of control is exercised in particular through the ability to include in the contract clauses relating to the continuation of the activity, compliance with the intended use of the business or the conditions of operation. The making available of the premises themselves to a third party falls under a different mechanism, set out in our article on subletting under a commercial lease.

The owner is also entitled to the agreed fee, generally calculated as a percentage of turnover or as a fixed amount. This fee is the consideration for making the business available and must be distinguished from any rent due under the commercial leases.

If the lessee-manager defaults, the owner has specific remedies, in particular judicial termination of the contract and immediate resumption of operation of the business. Case law accepts that the owner may include termination clauses (clauses résolutoires) for the most serious breaches, subject to compliance with adversarial procedures.

Status and obligations of the lessee-manager

Status as a trader and related liabilities

The lessee-manager has the status of a trader and is subject to all the obligations that follow, in accordance with Article L. 144-2 of the French Commercial Code. This status entails the application of the whole commercial regime, including registration, compliance with accounting and tax obligations, and subjection to collective insolvency proceedings in the event of default.

The lessee-manager's liability extends to all debts arising from the operation of the business during the term of the contract. This liability is personal, the lessee-manager bearing the commercial, financial and legal risks linked to the activity. Creditors whose claims arise from the operation have a direct claim against the lessee-manager; they may act against the owner of the business only under the statutory joint and several liability that continues until publication of the contract (Article L. 144-7 of the French Commercial Code) or under a joint and several liability provided for by a special text.

Specific obligations of the lessee-manager

The obligations of the lessee-manager revolve around several fundamental points. The obligation to preserve the business requires the lessee to keep the constituent elements of the business in their existing condition and to preserve its economic value. This obligation implies in particular maintaining the customer base, preserving the goodwill and maintaining the equipment and installations.

The obligation to operate is the corollary of the transfer of economic risks to the lessee-manager. The lessee-manager must operate the business in accordance with its intended use and with the commercial practices of the trade. Prolonged interruption or defective operation may justify termination of the contract at the lessee-manager's fault.

Compliance with particular contractual clauses, in particular those relating to operating conditions, quality standards or supply obligations, is a condition of the proper performance of the contract. Breach of these obligations may give rise to the lessee-manager's contractual liability and entitle the lessor to terminate.

Rights and guarantees of the lessee-manager

The lessee-manager has an exclusive right to operate the business for the duration of the contract, subject to compliance with its contractual obligations. This right of operation gives the lessee a degree of management autonomy and the ability to adapt the operation to market developments.

The management lease of a business gives the lessee-manager no right to renewal of the lease of the premises: that right may be invoked only by the owner of the business operated on the premises (Article L. 145-8 of the French Commercial Code), that is, by the lessor, who remains the holder of the lease.

No text gives the lessee-manager a right to information or a pre-emption right in the event of a proposed sale of the business by the owner. Such a right can arise only from the contract, through an information clause, a right of first refusal (pacte de préférence) or a promise to sell.

Protection of creditors and statutory joint and several liability

Protection mechanism for prior creditors

Placing a business under a management lease creates a risk of insolvency for the creditors of the owner, who ceases to operate directly the activity that generates revenue. The legislature has put in place a specific protection mechanism, governed by Articles L. 144-6 and L. 144-7 of the French Commercial Code. The lessor's debts relating to the operation of the business may be declared immediately due by the commercial court if it considers that the management lease jeopardises their recovery; the action must be brought, on pain of being time-barred, within three months of publication of the contract (Article L. 144-6).

Until the management lease agreement is published, the owner of the business is jointly and severally liable with the lessee-manager for the debts the latter incurs in the course of operating the business (Article L. 144-7 of the French Commercial Code). Since Law No. 2016-1691 of 9 December 2016, this joint and several liability no longer continues for the six months following publication. Publication of the contract within fifteen days (Article R. 144-1) therefore directly determines the lessor's exposure.

After publication, the owner is no longer liable for the lessee-manager's operating debts under Article L. 144-7, subject to the joint and several liability provided for by special texts, in particular in tax matters. This limitation of liability is one of the advantages of the management lease for the owner of the business, provided the legal formalities are complied with.

Creditors' rights and recovery procedures

Creditors whose claims pre-date the management lease retain their rights against the owner of the business, subject to the enforceability of the contract against them. These creditors may pursue their remedies through ordinary law routes, in particular by seizing the elements of the business that remain the lessor's property.

Creditors whose claims arise from the operation during the management lease have a principal claim against the lessee-manager and, for debts incurred up to publication of the contract, a joint and several claim against the owner. This dual set of debtors strengthens the guarantees of recovery but may give rise to practical difficulties if one of the co-obligors defaults.

Case law has clarified how these remedies are to be exercised, in particular as regards prior formal notice and the allocation of liability between joint and several co-debtors. Creditors must comply with the rules of civil and commercial procedure, particularly as regards service of documents and limitation periods.

End of the contract and devolution of the business

Ways in which the contract ends

A management lease agreement may end on expiry of the agreed term, by termination by agreement or by the court, or on the occurrence of particular events such as the death of one of the parties or the opening of collective insolvency proceedings. Each way of ending the contract has specific consequences for the parties' rights and for the fate of assets and claims.

Expiry of the contractual term automatically ends the effects of the contract, subject to the provisions on tacit renewal. The owner resumes direct operation of the business or may enter into a new management lease agreement, once the legal formalities have been complied with.

Early termination, whether by agreement or by the court, requires the contractual relationship to be wound up, including settlement of the accounts between the parties, return of assets and regularisation of the position vis-à-vis third parties. This winding up may prove complex where claims are disputed or assets are mixed.

Sale of the business during the management lease

The French Commercial Code gives the lessee-manager no pre-emption right if the owner sells the business: Article L. 144-1 merely defines the management lease. A priority right to acquire can arise only from a provision of the contract, a right of first refusal or a unilateral promise to sell, the notification and option terms of which are set by the parties. On the points requiring care in a sale of the business, see our article on mistakes to avoid when selling a business.

Where the contract contains a right of first refusal, the lessee-manager may acquire the business in priority on the terms the owner intends to grant. This provision protects the investments made by the lessee-manager and the continuity of its operation.

Failing such a provision, the sale of the business to a third party during the contract requires the fate of the management lease to be settled in the deed of sale and with the lessee-manager: continuation by the purchaser, termination by agreement or expiry of the term.

Valuation of improvements and capital gains

The question of compensating the lessee-manager for improvements made to the business is one of the most delicate aspects of the end of the contract. The ordinary law of obligations requires a distinction between necessary, useful and ornamental improvements, each carrying a specific compensation regime.

Necessary improvements, meaning expenditure indispensable to keeping the business in operating condition, entitle the lessee to full reimbursement. Useful improvements, which increase the value of the business without being strictly necessary, entitle the lessee to compensation up to the amount of the added value.

Case law tends to accept lump-sum compensation for improvements where a precise valuation proves difficult or costly. This pragmatic approach facilitates the settlement of accounts between the parties but requires a case-by-case assessment of the particular circumstances.

Tax and social security regime of the management lease

Tax implications for the parties

The tax regime of the management lease has important specific features for each party to the contract. The owner of the business remains liable for the property tax on built property (taxe foncière) and for the territorial economic contribution (contribution économique territoriale) on equipment and movable assets, unless a clause provides for these charges to be transferred to the lessee-manager.

The fees received by an owner who is an individual are taxable as industrial and commercial profits, Article 35, I, 5° of the French General Tax Code covering persons who let a commercial or industrial establishment equipped with the furniture or equipment needed to operate it. This tax characterisation directly affects the taxation regime and the lessor's filing obligations.

The lessee-manager bears all taxes linked to the operation of the business, including income tax on profits, value added tax and social contributions. This full tax burden is one of the characteristics of the transfer of economic risks inherent in the management lease.

Social obligations and employee protection

Placing a business under a management lease results in the automatic transfer of employment contracts to the lessee-manager, in accordance with Article L. 1224-1 of the French Labour Code. This transfer takes place by operation of law and preserves all the employees' acquired rights, including seniority, collective agreement benefits and collective guarantees.

The lessee-manager becomes the legal employer of the transferred employees and assumes all the related social obligations, including payment of wages and social security contributions and compliance with the applicable collective agreements. This change of employer may require significant organisational and financial adjustments.

The end of the management lease agreement may lead to a further transfer of employment contracts to the owner resuming operation or to a new lessee-manager. These successive transfers require particular attention to employees' rights and to the obligations to inform and consult staff representatives.

Frequently asked questions

Can an owner enter into a management lease agreement immediately after acquiring a business?

Yes. The requirement of two years' prior personal operation, formerly provided for by Article L. 144-3 of the French Commercial Code, was removed by Law No. 2019-744 of 19 July 2019. The owner may therefore place the business under a management lease as soon as it is acquired.

Can the lessee-manager change the activity of the business during the term of the contract?

The lessee-manager must operate the business in accordance with its original intended use, unless the owner expressly authorises otherwise. Any substantial change of activity requires a contractual agreement and may involve additional administrative formalities. An unauthorised change of activity may justify termination of the contract.

What is the maximum term of a management lease agreement?

The French Commercial Code does not set a maximum term for management lease agreements. The parties may freely agree the term, subject to the general rules on perpetual commitments. In practice, terms of three to nine years are preferred, renewable as the parties' needs require.

Does the owner remain liable for the lessee-manager's debts after publication of the contract?

The lessor's statutory joint and several liability under Article L. 144-7 of the French Commercial Code applies only until publication of the management lease agreement; since Law No. 2016-1691 of 9 December 2016, it no longer continues for six months after that publication. Particular joint and several liabilities may nonetheless arise from special texts, in particular tax texts. A case-by-case analysis is required.

Does the lessee-manager have a right of first refusal if the business is sold?

No, no text gives the lessee-manager such a right. A priority right to acquire can arise only from a provision of the contract, a right of first refusal or a promise to sell, the terms of exercise of which, notification of the proposal and option period, are set by the parties.

Can bank guarantees be required from the lessee-manager?

The owner may lawfully require bank guarantees or sureties to secure performance of the lessee-manager's obligations. These guarantees generally cover payment of the fees and the proper preservation of the business. Their amount and terms are a matter for contractual negotiation between the parties.

What happens to the management lease agreement in collective insolvency proceedings?

The opening of collective insolvency proceedings against the lessee-manager does not automatically terminate the contract. The court-appointed administrator may request continuation of the contract if it is useful for the recovery. In the event of compulsory liquidation, the contract ends and the owner resumes operation of the business.

The management lease remains a complex contractual instrument requiring a rigorous legal approach and anticipation of practical difficulties. Developments in the economic and regulatory context require practitioners to keep constantly up to date and to adapt contractual clauses to the specifics of each transaction. Before any commitment, a full legal and financial audit of the business concerned should be carried out and the tax and social aspects of the transaction secured.