To provide stability and security for retailers, commercial leases can sometimes lack flexibility. In some cases, however, the constraints associated with this type of lease can be overcome. By entering into a precarious agreement or a derogatory lease, the status of commercial leases can be avoided.
This paper will focus exclusively on the latter case, i.e. overriding leases. These include leases with a maximum term of two years (1) and seasonal leases (2).
It should be noted that the term "precarious lease" is sometimes used instead of "derogatory lease". Precarious lease is the wrong terminology. It should be referred to as a precarious occupation agreement, which does not confer the status of lessee and does not entitle the lessee to the status of commercial lease. What's more, the duration of this type of agreement depends on the occurrence of the event that justified the precariousness. A precarious occupation agreement may, for example, concern premises that are the subject of expropriation proceedings. Occupation of the property will last until the expropriation becomes effective.
-
Leases with a maximum term of two years
Article L. 145-5 paragraph 1 of the French Commercial Code states that the parties may, when the lessee takes up the premises, derogate from the provisions of commercial leases, provided that the total term of the lease or successive leases does not exceed two years.
The contract concluded will be for a fixed term and only a joint agreement may release the parties from their commitments. On expiry of the term, the short-term lease will terminate automatically.
Unlike commercial leases, there will be no right to renewal or eviction compensation.
You should be aware of the danger that a short-term lease presents when its term expires. If at the end of the lease the tenant remains and is left in possession of the premises, he or she will automatically benefit from a new lease that complies with the regulations governing commercial leases. The lessor must therefore take the necessary steps to ensure that the lessee vacates the premises at the end of the lease.
In theory, it is impossible to enter into several successive leases for a total term of more than two years. However, a praetorian solution has tempered this principle by allowing the lessee to waive the benefit of the provisions of the commercial leases statute and then enter into a new exceptional lease. The waiver must occur during the term of the contract, without being anticipated or concomitant with the signing of the new lease (Cour de Cassation, 23 Nov. 1959). This practice, encouraged by case law, puts the lessor at risk when faced with a well-informed and ill-intentioned lessee. The lessee may lead the lessor to believe that he will waive his acquired rights in order to enter into a new lease for a period of two years or less. Once the lessee has acquired its rights, it may decide otherwise, thereby imposing a commercial lease on the lessor. To mitigate this risk, some lessors ask their lessees for a backdated waiver.
It should be noted that there is no law prohibiting the conclusion of a new exceptional lease if it relates to different premises or is concluded between different parties.
Where the new lease is subject to the Commercial Leases Act, only the public policy provisions of that Act apply. In all other respects, the provisions of the exceptional lease remain in force.
However, in a ruling dated 14 December 2005, the Court of Cassation ruled that, in the absence of an agreement between the parties, the rent for the new lease taking effect at the end of the exceptional lease must correspond to the rental value of the property.
-
Seasonal leases
This type of commercial lease may be granted when the rented property is located in a region where this type of seasonal operation can be considered normal (e.g. in ski resorts or seaside resorts) or when the activity itself is seasonal (e.g. ice-cream sales).
According to case law, the notion of season can be "very short or quite long". It depends on the activity carried out.
These seasonal leases are expressly excluded from the status of commercial leases (article L145-5 paragraph 4 of the Commercial Code). They are granted for a fixed period of less than one year and end at the agreed term. Rent is paid only for the same period.
As in the case of a short-term lease, the lessor must ensure that the lessee returns the premises at the end of the season, so that the seasonal lease is not requalified as a commercial lease. This is a question of fact: the judges will have to check whether the lessor is able to return the property at the end of each season.
It is important to distinguish between a seasonal letting and a continuous letting with seasonal operations. In the latter case, the rules governing commercial leases will apply. For example, the concept of a continuous tenancy with seasonal operations will be accepted if the lessor authorises the lessee to maintain all his installations and stocks on the premises under conditions that go beyond mere tolerance (Cour de Cassation, 10 November 1987). The same applies if the rent is equal to the annual rental value (Montpellier Court of Appeal, 17 April 1981).