Under French law, on the expiry of a commercial lease agreement, a tenant benefits, subject to certain conditions, from a statutory right to renew such lease agreement. Hence, a landlord cannot refuse the renewal of a commercial lease agreement without paying an eviction indemnity to the tenant. There are exceptions to this principle, for instance, in case of a serious and legitimate reason due to a breach committed by the tenant.
Pursuant to Article L. 145-14 of the French Commercial Code, the eviction indemnity must cover the entire loss sustained by the tenant due to the non-renewal of the lease agreement. The amount of the eviction indemnity is appraised based on, among other elements, the value of the business of the tenant, the business disruption, the costs for the relocation etc. There is no cap in place in the French Commercial Code with respect to the amount of the eviction indemnity.>
This legal provision is a public policy provision. Thus, provisions in commercial lease agreements seeking to waive or even cap this eviction indemnity are deemed unwritten (“clause réputée non écrite”).
This legal provision is indeed a pillar of the regime of commercial lease agreements in France. However, since the amount of the eviction indemnity cannot be determined in advance and can sometimes even be higher than the value of the leased property itself, it could be argued by landlords that Article L. 145-14 of the French Commercial Code is a violation of the fundamental right to property.
In this context, the “Cour de Cassation” - the highest court in the French judiciary - referred to the Constitutional Council (“Conseil constitutionnel”) an application for a priority preliminary ruling on the issue of constitutionality (“Question prioritaire de constitutionnalité” or “QPC”) on Article L. 145-14 of the French Commercial Code.
In its decision issued on 5 March 2021, the Constitutional Council highlights that the objective of Article L. 145-14 of the French Commercial Code is, in essence, to protect the operation and viability of businesses and that the uncapped eviction indemnity is a proportionate measure to achieve this objective. The Constitutional Council thus ruled that Article L. 145-14 of the French Commercial Code is compliant with the French Constitution.