We will look here at the problem of a lessor wishing to require his lessee to carry on the business of selling drinks, without being able to change this. This issue may arise if the lessor of the premises also leases a public house licence to the same tenant. The lessor will want to combine the two leases to ensure, among other things, that the licence does not lapse through non-use.
In fact, if the pub business has been closed for more than three years, article L.3333-1 of the Public Health Code stipulates that the licence expires. The licence remains valid only as long as the premises continue to operate. Any second, third or fourth category premises that have ceased to exist for more than three years are deemed to have been closed down and can no longer be transferred.
The difficulty of imposing the obligation to operate a public house (1) will not, however, prevent a solution from being adopted (2).
1. The difficulty of imposing the operation of a public house
The lease of the commercial premises and the licence must therefore require that a public house be operated.
Generally speaking, in the absence of a specific clause requiring him to do so, is the tenant under an obligation to operate a public house?
Case law has answered in the affirmative. Tenants thus have a legal obligation to operate a business on the premises in accordance with the purpose set out in the lease.
This obligation to operate can be deduced from the terms of article 1728-1 of the French Civil Code, which obliges the tenant to use the leased property in accordance with the purpose for which it was leased.
It would therefore seem that a contractual reminder of the obligation to operate would add virtually nothing to the lessee's legal obligations.
However, most leases include a standard clause requiring the lessee to keep his business constantly open and well-stocked.
Case law has not always been along the lines indicated above. In a decision of 15 March 1989, the Court of Cassation stated that, as the operation of the business was not one of the obligations expressly imposed on the tenant in the lease, failure to operate the business could not justify a request for termination.
In the absence of a specific clause, there is a risk that the automatic resolutory clause will not come into play because, as it is usually formulated, it only sanctions (unless otherwise stipulated) a breach of the obligations imposed by the contract.
To answer our question, the deed should provide for termination of the lease in the event of failure to operate the business. He would then be entitled to invoke the resolutory clause in order to regain possession of his property and allow the pub to reopen and operate.
However, with a view to combating alcoholism by reducing the number of public houses, the legislature has introduced a highly original provision designed to encourage the conversion of public houses into other businesses, without the need for the owner's consent. Article L. 3331-6 of the Public Health Code states that "The owner of a leased premises may not, notwithstanding any agreement to the contrary, even if previously entered into, oppose the conversion, by the lessee or the assignee of the right to the lease, of a 3rd or 4th category public house, either into a 1st or 2nd category public house, or into another business, provided, however, that this does not cause greater inconvenience to the building, its inhabitants or the neighbourhood than the inconvenience resulting from the operation of the business no longer in existence. "
In any event, if the public house can be converted into any other business, this can only be done insofar as this new activity does not present "greater inconvenience to the building, its inhabitants or the neighbourhood than that resulting from the business that has been closed".
Where a public house meets the conditions set out in article L. 3336-1 of the Public Health Code, and the operator wishes to change his business, he must first notify his landlord of his intention by registered letter with acknowledgement of receipt (failure to do so could result in the termination of his lease). If the landlord agrees, all they have to do is amend the lease. If the owner considers that the conditions of article L. 3336-1 have not been met, and in particular that the disadvantages of the conversion outweigh those presented by the debit, he will refer the matter to the Tribunal de Grande Instance, which will rule on his objection.
The existence of article L. 3336-1 of the French Public Health Code constitutes an advantage that goes beyond ordinary law for any lessee operating a public house. This legal right to despecialise, which goes so far as to constitute a genuine "free right to transfer the lease" in favour of the lessee, gives the public house operator a very privileged position compared with other commercial lessees. Some landlords saw this as a privilege that could justify an increase in the rent for the public house. Case law has rightly rejected this claim, ruling that this conversion option "which implies the surrender of the licence, can only be exercised once, and under strict legal conditions".
In each case, the judge will have to analyse and compare the disadvantages presented by the existing public house with those presented by the proposed new business.
With this exception, the lessor of the business premises and the licence will not be able to impose the maintenance of a public house.
If the lessee changes his business, the licence will no longer be used and may expire after three years. In order to guarantee the substance of the leased licence, the lessee must undertake not to allow the licence to lapse through non-use.
However, it is possible to interrupt this period.
In order to demonstrate his desire to avoid the expiry of the licence and to interrupt the time limit, it is up to the retailer to reopen his establishment provisionally, which is the only way, apart from force majeure, to avoid the expiry of the licence. The duration of the reopening of an unused outlet is not set by law. However, it must be long enough for there to be no doubt as to the reality of the reopening and the desire of the owner to maintain the existence of his establishment. A one-day reopening, a bailiff's report or a turnover statement cannot revive a business that is not in operation. On the other hand, the temporary reopening of an outlet during the course of work and before it has ceased to operate for more than three years is precisely intended to demonstrate the outlet operator's desire to maintain the existence of his establishment. Under these conditions, such a reopening appears likely to interrupt the expiry of the licence.
To this end, the deed may stipulate that the lessee will operate the licence without being able to cease such operation for a continuous period of twelve months, for example, while reiterating that this period may not be interrupted or suspended following the resumption of operation for a few days in isolation.
The licence lease must therefore include a resolutory clause if the lessee fails to comply with this undertaking.
However, the fact that use of the licence is returned to the lessor if the lessee changes his business does not solve all the problems.
2. The solution adopted
Although at first sight there is no really effective solution, a precaution can be taken to avoid conversion. A certain difficulty has arisen in the case of mixed establishments, such as a café-restaurant or a hotel-bar. The question arose as to whether the lessee of an establishment could convert his entire establishment, including the hotel or restaurant business, into a completely different business, or whether article L. 3331-6 of the Public Health Code applied only to the drinks outlet part of his establishment. The Paris Court of Appeal decided that the text should be interpreted broadly, in line with the legislator's intention, and that, in a mixed establishment, the lessee could convert the whole of the establishment, including activities that are not, strictly speaking, those of a third- or fourth-category public house. However, the majority of appeal courts have preferred a very restrictive interpretation that is more in line with the principles (article L. 3331-6 of the Public Health Code, an exceptional text, must be interpreted restrictively) and with the principle of the binding force of contracts. A decision by the Tribunal de Grande Instance de Saint-Étienne on 8 July 1965 even went so far as to rule that the right to convert was strictly personal to the publican, and that he could not assign his lease to a third party who would carry on a different activity there.
This restrictive analysis is perfectly summarised in a Grenoble Court of Appeal ruling of 15 February 1960, an extract of which is transcribed below :
"Whereas Article 6 of the Ordinance of 7 January 1959 (Article L. 3331-6 of the Public Health Code), which essentially derogates from ordinary law, must be interpreted restrictively; whereas although this text authorises the conversion of 3rd and 4th category pubs, it does not authorise the conversion of a café-restaurant, even if the operator of this establishment holds a 4th category licence;
Whereas, pursuant to article 6 of the Ordinance of 7 January 1959, the lessee is authorised to convert the "café" branch of the business, this text does not allow him to do away with the "restaurant" branch of the business, which, under the terms of the lease, he is under an overriding obligation to operate and which the law does not prevent him from maintaining".
This restrictive interpretation is no longer in doubt following the Court of Cassation's decision of 8 March 1972, according to which article L. 3331-6 of the Public Health Code, which applies exclusively to public houses, cannot be applied to a restaurant whose joint operation is required by the lease.
If the case in point allows, the lease may be granted for the joint operation of a bar and restaurant (or other restaurant services) to the exclusion of any other.
Thus, in accordance with the case law discussed above, it will no longer be possible for the lessee to convert his bar business into a restaurant business. In addition, if the lessee were able to cease operating solely as a drinks outlet, it would be illogical for him to continue operating a restaurant that did not offer alcoholic beverages. The lessor would therefore be guaranteed by the facts and case law that the premises would be used for the operation of a public house.