Sale of a business (cession de fonds de commerce): the landlord's means of control (approval, service, joint and several guarantee)

The sale of a business (cession de fonds de commerce) is, for the landlord, an imposed change of debtor. The tenant selected after a solvency review is replaced by a buyer whom the landlord did not choose, often a company formed for the occasion, sometimes with no track record or equity. Article L. 145-16 of the French Commercial Code prohibits the landlord from opposing it as a matter of principle, but does not deprive the landlord of all control: an approval clause, participation in the deed, service, the seller's joint and several guarantee and an objection against the price form a set of mechanisms whose effectiveness depends entirely on the drafting of the lease and compliance with short time limits. This guide deals with the sale from the landlord's side: on what conditions a refusal can be relied on, what service actually triggers, how to preserve the seller's joint and several liability within the three-year limit of Article L. 145-16-2, and which steps are fatal if not taken within the month.

What the landlord cannot prohibit and what the landlord can still control

The prohibition of Article L. 145-16 and its exact scope

The provision is a matter of public policy:

Agreements, in whatever form, intended to prohibit the tenant from assigning the lease or the rights the tenant holds under this chapter to the purchaser of the tenant's business (fonds de commerce) or undertaking are void. (Article L. 145-16, paragraph 1, of the French Commercial Code)

The scope of this prohibition is often overestimated by tenants and under-used by landlords. It covers only the assignment of the lease to the purchaser of the business. Two operational consequences follow.

First, the isolated assignment of the leasehold right (droit au bail), that is to say without transfer of the customer base, the trade name, the equipment and the intangible assets making up the business, falls outside the provision. The lease may prohibit it outright, and that prohibition is valid. The landlord's first reflex on receiving a request for approval is therefore to characterise the transaction: is it a genuine sale of a business, or an assignment of the leasehold right dressed up as a sale of a business to circumvent the prohibition clause? Examination of the draft deed, of the make-up of the assets sold, of the allocation of the price and of the buyer's actual continuation of the activity makes it possible to decide. A business emptied of its customer base, sold for a price allocated exclusively to the leasehold right, to a buyer who announces a different activity, is not a business. The specific regime for the isolated assignment, its price and its tax treatment are set out in our article on the assignment of the commercial leasehold right.

Second, the nullity strikes agreements intended to prohibit. It does not strike provisions that organise control of the assignment. The distinction between a prohibitive clause and a restrictive clause is at the heart of the litigation on the assignment of a commercial lease with the landlord's consent.

The control clauses that hold

Three families of clauses remain lawful and should appear in any lease drafted on the landlord's side.

• The approval clause for the assignee, which makes the assignment subject to the landlord's prior consent, provided that this is not discretionary where the assignment accompanies the business.
• The clause requiring the landlord's participation in the deed, which requires the assignment to be completed in the landlord's presence or with the landlord's intervention, and the notarial deed clause, which allows the landlord to obtain an enforceable copy and to hold a title against the assignee without proceedings.
• The service clause, which requires notice of the assignment by a deed of a commissaire de justice (bailiff), and the seller's joint and several guarantee clause.

By contrast, a pre-emption clause in favour of the landlord over the business itself is delicate to handle: applied to a sale of a business, it may be analysed as a hindrance prohibited by Article L. 145-16. It is better conceived as limited to the isolated assignment of the leasehold right.

Refusal of the assignment: conditions of enforceability and risks

A refusal is never discretionary where the business is sold

The question of the landlord's refusal of an assignment on a sale of a business calls for a nuanced answer. Where the assignment concerns the business, the landlord cannot refuse approval for reasons of personal convenience. A refusal that is unreasoned, or motivated by a wish to recover the premises, renegotiate the rent or capture the value of the leasehold right, is abusive. The courts then authorise the assignment despite the refusal and order the landlord to make good the loss resulting from the loss of the transaction, which may correspond to all or part of the sale price lost. The exposure is real.

A refusal can be relied on only if it rests on a legitimate ground, drawn from the interest that the approval clause is intended to protect: security of payment of the rent and preservation of the building. The following are therefore admissible: the buyer's manifestly insufficient financial standing, the absence of serious guarantees, an operating plan incompatible with the contractual use of the premises, an activity generating nuisances or risks incompatible with the building, or an ongoing breach by the seller that has not been remedied, where the lease makes the assignment conditional on the absence of any breach.

The following are not legitimate grounds: an amount of the sale price considered insufficient, a wish to change the rent on the occasion of the assignment, the prospect of a future change of use (déspécialisation) that has not been requested, or a mere preference for another buyer.

Form, time limit and reasons

The lease must set out the approval procedure, failing which the landlord is left without means. An effective clause provides for notice of the proposed assignment by registered letter with acknowledgement of receipt or by a deed of a commissaire de justice, the list of documents to be produced (draft deed, identity and accounts of the assignee, balance sheets, Kbis extract (company registration extract), financing, guarantees offered, identity of the managers and beneficial owners), a response period running from receipt of the complete file, and the characterisation of silence. On compiling the file given to the landlord and the documents usually required, see our analysis of the procedure and documents for the assignment of a commercial lease.

On this last point, prudence dictates stipulating that the landlord's silence amounts to refusal, and not to acceptance. Failing such a stipulation, prolonged silence in the face of a complete file exposes the landlord to having its inaction analysed as tacit acceptance or as an abusive refusal.

The refusal must be in writing, dated, reasoned in fact and notified within the contractual time limit. A terse statement of reasons such as "insufficient guarantees" will not stand up: the ratios, the absence of equity, the absence of an operating history and the unsuitability of the planned activity for the permitted-use clause must be set out in detail. A refusal is best accompanied by an alternative proposal, for example approval conditional on a joint and several personal guarantee from the assignee's manager, an independent on-demand guarantee or a security deposit restored at a higher level. This counter-proposal shifts the debate: the landlord is no longer refusing the assignment, but making its acceptance conditional on restoration of the original level of security, which is legitimate.

Service on the landlord: what it triggers, what it does not cure

The basis and the form

The assignment of the lease is an assignment of a contract. Its enforceability against the landlord, where the landlord is not a party to the deed, requires completion of the formalities of Article 1690 of the French Civil Code: service by a deed of a commissaire de justice or acceptance by the landlord in a notarial deed. The service of the assignment of a business on the landlord is therefore not an archival formality: it conditions the very existence of the landlord and tenant relationship between the landlord and the assignee.

Until it has taken place, the assignment is unenforceable against the landlord. The landlord remains entitled to regard the seller as its sole tenant, to claim the rent from the seller, to serve notice to quit or a payment demand on the seller, and to refuse any direct relationship with the assignee. Symmetrically, the assignee cannot rely on the statute against the landlord, in particular to request renewal.

In practice, most leases drafted on the landlord's side require the landlord to take part in the deed of assignment, which amounts to acceptance and dispenses with service, while allowing the landlord to have inserted in the deed the provisions of interest to it: reminder of the joint and several guarantee, acknowledgement by the assignee of the rental position and the arrears, assumption of the works obligations, restoration of the security deposit, delivery of an enforceable copy.

The effects triggered

Service or participation in the deed produces four effects that need to be distinguished.

It makes the assignment enforceable against the landlord and substitutes the assignee for the seller in the lease relationship for the future. It fixes the date of the assignment of the lease, the starting point of the three-year period of the joint and several guarantee. In practice, it starts the period within which the landlord must react if it intends to challenge the regularity of the transaction. Finally, it allows the landlord to regularise its rental accounts and to address its rent demands to the right debtor.

What service does not cure, by contrast, deserves emphasis. It does not amount to approval where the lease required approval and none was sought. It does not cover the seller's breaches prior to the assignment, unless the landlord expressly waives them. It does not entail waiver of the benefit of the joint and several guarantee clause. It does not automatically transfer the landlord's claims against the seller: the arrears remain owed by the seller, unless expressly assumed by the assignee.

The trap of accepting payment without reservation

The most dangerous time limit for the landlord is written nowhere. A landlord who is informed of an irregular assignment, and who accepts without reservation the rent paid by the assignee, runs the risk of having its conduct analysed as a tacit waiver of the right to rely on the irregularity. Waiver is not presumed and must result from acts showing unequivocally the intention to waive, but the repeated receipt of rent from an occupier whose status is known to the landlord is a strong indication.

The rule of conduct is simple. As soon as an irregular assignment comes to its attention, the landlord must give written notice that it does not approve the assignee, that the sums paid are received as an occupation indemnity and subject to the most express reservations, and must start the enforcement procedure without delay. One quarter's rent received without reservation is often enough to destroy the leverage.

The joint and several guarantee clause: three years, and subject to giving notice

The three-year ceiling of Article L. 145-16-2

The joint and several guarantee clause, under which the seller remains liable, jointly and severally with the assignee, for payment of the rent and performance of the lease charges, remains the landlord's main safety net. Law No. 2014-626 of 18 June 2014, known as the Pinel law, nevertheless limited its scope in time:

Where the assignment of the lease is accompanied by a guarantee clause from the assignor in favour of the landlord, the landlord may rely on it only for three years from the assignment of that lease. (Article L. 145-16-2 of the French Commercial Code)

Three points should be made. The starting point is the assignment of the lease, and not the signature of the deed of sale of the business where the two dates differ, nor publication in the BODACC (French official gazette of civil and commercial announcements). Hence the practical interest of dating precisely the service or the participation in the deed. Next, the ceiling is one of time and not of amount: for three years, the guarantee covers all the rent, charges, occupation indemnities, interest and procedural costs for which the lease makes the tenant liable. Finally, the limit is a matter of public policy: a clause extending the guarantee to six years is ineffective beyond three years.

Consequence for recovery strategy: a landlord facing a defaulting assignee must think in terms of the calendar. An unpaid sum that appears during the third year leaves only a few months to bring in the seller. Waiting for the outcome of proceedings against the assignee, which are often lengthy, amounts to losing the guarantee. The summons against the seller must be served before the three-year period expires, if necessary by bringing the seller in as a third party in the proceedings directed against the assignee.

The monthly duty to inform under Article L. 145-16-1

The arrangement is completed by an obligation on the landlord:

In the event of assignment of the lease, if the assignor remains guarantor of the assignee's obligations, the landlord shall inform the assignor of any default in payment by the tenant within one month of the date on which the sum should have been paid by the tenant. (Article L. 145-16-1 of the French Commercial Code)

The provision does not specify the sanction for failure to observe the time limit. The majority reading, and the most prudent for an institutional landlord, is to consider that the guarantee cannot be relied on for instalments whose non-payment was not notified within the month. In other words, each unpaid term not notified within thirty days is potentially lost for the purposes of the guarantee.

This constraint is operational before it is legal. It requires property management to identify, within its portfolio, the leases that have been assigned with a joint and several guarantee still in force, and an automatic alert to trigger the information letter to the seller as soon as the default is noted. A portfolio of several hundred leases managed without this flagging mechanically loses the benefit of its guarantee clauses.

The letter must identify the lease, the assignee, the nature and amount of the unpaid sum, and the due date. It is sent to the seller, at its known address, by registered letter with acknowledgement of receipt. It is recommended to send it for each unpaid instalment, and not once for the whole of the arrears.

Successive assignments and chains of guarantors

Where several assignments follow one another, each seller is liable only within the limit of three years from its own assignment, and only if the lease provided for the guarantee in respect of that seller. A landlord facing a chain of tenants must therefore reconstruct the sequence of deeds, check for each the wording of the clause and the date of the assignment, and notify the default to all guarantors still within the time limit. The omission of one link does not affect the others, but it reduces the recoverable base accordingly.

The sale price: objection, escrow and preferential right

The sale of the business generates a price that passes through the drafter of the deed. For a landlord who is a creditor for arrears, it is the only opportunity to seize an available sum before it leaves the seller's estate.

The sale must be published in the Official Bulletin of Civil and Commercial Announcements (BODACC) within fifteen days of its date, at the buyer's initiative (Article L. 141-12 of the French Commercial Code). The seller's creditors then have ten days from that publication to lodge an objection to payment of the price (Article L. 141-14). The period is short and its computation is strict: a late objection does not render the payment unenforceable against the payer.

A landlord holding a claim for rent already due must therefore monitor the publication and lodge an objection by extrajudicial deed in the hands of the buyer, stating the amount and the grounds of the claim. The effect is to make the price unavailable up to the amount of the objection: a buyer who pays the seller despite the objection is not discharged as against the objecting creditor.

Two complementary levers deserve to be used. The lease may require the tenant to inform the landlord of the proposed sale and of the date of publication, which avoids having to monitor the BODACC. In addition, the landlord has a preferential right over the furniture and fittings in the leased premises (Article 2332 of the French Civil Code, in its wording resulting from Order No. 2021-1192 of 15 September 2021 reforming the law of security interests), which a protective attachment over the elements of the business can usefully preserve where the sale is imminent and the arrears significant.

When the landlord's control is neutralised

An assignment ordered in a sale plan

In collective insolvency proceedings, the court may order the assignment of the lease to the buyer of the business (plan de cession). Approval clauses are then ineffective, and the provision is explicit on joint and several liability:

Any clause imposing on the assignor joint and several obligations with the assignee is deemed unwritten. (Article L. 642-7 of the French Commercial Code)

The landlord therefore no longer has a guarantor. Its only lever is to appear before the court to put forward its observations on the buyer's solvency, the use of the premises and the terms of the takeover, and to obtain, where appropriate, undertakings from the candidate. Arrears prior to the opening judgment follow the fate of the claims filed.

Merger, demerger and universal transfer of assets

In the event of a merger, a demerger or a universal transfer of assets and liabilities, the beneficiary company is substituted by operation of law in the rights and obligations of the tenant. The landlord cannot oppose it, as the transaction is not an assignment subject to approval. Article L. 145-16 nevertheless opens one avenue: where the guarantee obligation can no longer be performed on the terms of the original agreement, the court may substitute any guarantees it considers sufficient. This remedy is little used and deserves to be used more where a solvent trading name disappears through absorption into an empty structure.

Management lease

Placing the business under a management lease (location-gérance) is not an assignment, but it substitutes an operator for the tenant without transfer of the lease. The lease must prohibit it or make it subject to prior authorisation: failing that, the landlord has to put up with an operator it has neither chosen nor assessed, while retaining a tenant of record that no longer trades. Subletting, another form of occupation by a third party without assignment of the lease, is dealt with separately in our article on the landlord's control of subletting.

Sanctioning an irregular assignment: the procedural timetable

An assignment made without approval, without the landlord's participation or without service constitutes a breach of the lease clauses. Three routes are open, and the choice depends on the time available and the objective pursued.

The first is the termination clause (clause résolutoire). The landlord has a formal demand (commandement) served on the tenant that expressly refers to the clause and the breach, and recalls the one-month period provided for by Article L. 145-41 of the French Commercial Code. If the breach is not remedied within that period, the clause takes effect and the summary proceedings judge (juge des référés) records the termination. The difficulty lies in remedying the breach: within the month, the tenant may request approval or have the assignment served, which neutralises the demand. The demand must therefore be served on the right addressee, that is to say on the seller if the assignment is not enforceable, and must refer to a precisely characterised breach.

The second is judicial termination, slower but allowing the judge to assess the seriousness of the breach, useful where the termination clause is badly drafted or where the landlord wishes to avoid the risk of the breach being remedied within the month.

The third is refusal of renewal without payment of an eviction indemnity for serious and legitimate grounds, on the basis of Article L. 145-17 of the French Commercial Code. This ground requires that the breach has continued or been repeated more than one month after a formal notice from the landlord to put an end to it. Formality is decisive here: without prior formal notice, the ground cannot be upheld.

These three routes have a common denominator: they assume that the landlord has not, in the meantime, shown acceptance of the assignment. Hence the rule already stated, which conditions everything else: immediate written reservations, and starting the procedure without waiting.

Conclusion

The landlord has no right of veto over the sale of a business, and it is illusory to build a strategy on the hope of a refusal. The landlord's real power is procedural: it lies in the quality of drafting of the approval, participation in the deed and joint and several guarantee clauses, and above all in compliance with short time limits that day-to-day property management most often ignores. A perfectly drafted lease is worth nothing if the assignee's default is not notified to the seller within the month of its falling due, if the summons against the guarantor is served after the three-year term of Article L. 145-16-2, if the objection against the price is lodged on the eleventh day, or if three quarters' rent have been received without reservation from an assignee who was never approved.

The recommendation is therefore more organisational than legal. Before any recovery campaign, have a statement prepared, lease by lease, of the assignments made over the last three years, with the exact date of service or participation in the deed, the wording of the guarantee clause and the identity of the guarantors still bound. It is on the basis of that statement, and not of the accounting balance alone, that litigation strategy is decided.

Frequently asked questions

Can the landlord prohibit the assignment of a commercial lease outright?

Not where the assignment accompanies the sale of the business: Article L. 145-16, paragraph 1, of the French Commercial Code makes void any agreement intended to prohibit the tenant from assigning the lease to the purchaser of the tenant's business. Yes, however, for the isolated assignment of the leasehold right, without transfer of the customer base or the operating assets: the prohibition clause is valid there. Characterisation of the transaction is therefore the first point to check on receipt of a request for approval.

Can an unreasoned refusal of approval be relied on against the tenant?

No. Where the assignment concerns the business, the refusal must rest on a legitimate ground drawn from the protection of the rent, the guarantees or the use of the premises. A refusal that is unreasoned, late, or based on the wish to recover the premises or renegotiate the rent is abusive: the judge may authorise the assignment and order the landlord to compensate the tenant, the loss frequently corresponding to the loss of the sale price.

What exactly is the purpose of serving the assignment on the landlord?

It makes the assignment enforceable against the landlord, under Article 1690 of the French Civil Code, and substitutes the assignee for the seller in the lease relationship. It also fixes the date of assignment of the lease, the starting point of the three-year period of the joint and several guarantee. Until it has taken place, the landlord may continue to treat the seller as its sole tenant. The landlord's participation in the deed of assignment has the same effect and allows the landlord to insert its own provisions in it.

How long does the seller remain guarantor of payment of the rent?

Three years at most from the assignment of the lease, under Article L. 145-16-2 of the French Commercial Code resulting from Law No. 2014-626 of 18 June 2014. This limit is a matter of public policy: a clause providing for a longer period is ineffective beyond three years. The action against the seller must be brought before this period expires, without waiting for the outcome of the proceedings against the assignee.

What does a landlord risk by not notifying the seller of the default within the month?

Article L. 145-16-1 of the French Commercial Code requires the landlord to inform the guarantor seller of any default in payment within one month of the date on which the sum fell due. The provision does not state an express sanction, but the prudent reading is to consider that the guarantee cannot be relied on for instalments not notified within that period. An automatic alert in the property management tool, triggered by flagging the assigned leases, is the only reliable safeguard.

Can the landlord be paid its arrears out of the sale price of the business?

Yes, provided that an objection to payment of the price is lodged within ten days of publication of the sale in the Official Bulletin of Civil and Commercial Announcements (BODACC) (Articles L. 141-12 and L. 141-14 of the French Commercial Code). The objection, lodged by extrajudicial deed in the hands of the buyer, makes the price unavailable up to the amount of the claim stated. After that period, the price may be released to the seller and the arrears become very difficult to recover.

Do the approval and joint and several guarantee clauses survive collective insolvency proceedings against the tenant?

No, in the case of an assignment ordered under a sale plan (plan de cession): Article L. 642-7 of the French Commercial Code deems unwritten any clause imposing on the assignor joint and several obligations with the assignee, and the court may impose the assignment of the lease without regard to the approval clause. The landlord must then put its observations before the court on the solvency of the candidate buyer and on compliance with the use of the premises, and file its prior claim within the statutory time limits.