Subletting of Commercial Leases
CHRD operators (referred to as “Tenants”) often wish to generate income from a portion of the premises they lease from a landlord (referred to as “Landlords”) without leasing their business.
While a lease involves the transfer of all aspects of the business operation from the tenant to the managing tenant, subletting only involves making available premises that the tenant CHRD has the right to use under a lease.
Thus, several companies within the same group, particularly hotel or restaurant chains, can sublet premises from a parent company or subsidiary.
A CHRD-SME operating a hotel, restaurant, or nightclub can also sublet its premises.
Most of the time, hotels, restaurants, and cafes (CHRDs) or hotel and restaurant chains enter into either:
– a commercial sublease agreement signed with a subtenant for purely commercial purposes,
– or a sublease agreement due to their own mixed-use lease (commercial with residential premises adjoining the commercial premises).
Thus, subletting commercial leases for CHRDs is subject to the following main rules:
1- Mandatory authorization from the landlord to allow the CHRD tenant to sublet:
This obligation applies to all CHRDs.
The sublease must be authorized by a clause in the lease or by the landlord during the lease term.
In the latter case, the CHRD must notify the landlord of its intention to sublet. It is advisable to do so through a bailiff to avoid any subsequent difficulties, although it can be done by registered letter with acknowledgment of receipt.
The landlord must be involved in the signing of the sublease agreement, whether the sublease is authorized or known to them.
Upon receipt, the landlord has 15 days to indicate whether they intend to exercise their right to participate in the sublease agreement. If they do not respond, the sublease is automatically authorized.
Authorization may be implicit, but in that case, it must result from a clear and unambiguous action by the landlord.
The landlord’s mere awareness of the sublease and failure to react cannot be construed as their agreement.
On the other hand, for example, a letter from the landlord to the subtenant authorizing them to carry out work constitutes tacit agreement to the sublease.
In the absence of an agreement, the landlord has the right, without having to pay eviction compensation, to terminate their current lease or, if they do not exercise this right, to refuse to renew the lease with the CHRD (Centre Hospitalier et de Réinsertion Sociale – Social Housing and Reception Center), thus to the detriment of the subtenant, who will also be unable to claim compensation.
When drafting the sublease agreement, the subtenant must take several precautions.
It is even recommended that the subtenant ask the tenant to provide proof of having completed these formalities.
If the subtenant has any doubt about the tenant’s compliance with the formalities, they can take the initiative to request authorization to make the sublease legally binding.
It is also recommended that the subtenant ask the tenant, before signing the sublease agreement, to commit to providing proof of service of the sublease agreement to the landlord after it has been signed. This could serve as proof of the landlord’s tacit agreement in case the tenant fails to request the landlord’s authorization.
A very common question concerns subletting furnished rooms for a few days, a week, a month, or a year in hotels. If this is not stipulated in the lease, the landlord’s agreement is generally required, either once for the entire duration of the lease or each time the hotelier signs a sublease agreement, which is extremely burdensome.
Therefore, hotels, restaurants, and cafes (CHRD) have every interest in negotiating their lease carefully and including this subletting option from the outset, as a request made to the landlord during the lease term may result in refusal or approval only with a rent increase.
2 – The tenant may only sublet their premises for the activity authorized by the lease:
The landlord is generally caught off guard by the tenant, and therefore the subtenant (whether authorized by the CHRD or not), engaging in an activity not stipulated in the lease, often in addition to the authorized activity.
First example: A hotel, restaurant, or café (CHRD) cannot sublet the premises (or part of them) for the operation of a nightclub (as defined by SACEM regulations), when the lease only authorizes hotel or restaurant activities.
Second example: If a tenant wishes to sublet the ancillary living space on the first floor for the hotel, restaurant, or café (CHRD) business carried out on the ground floor in the commercial area (for example, installing a kitchen or storage area attached to a restaurant, or a dance floor attached to a hotel).
This does not apply to making the living space available to an employee.
Third example: The tenant cannot sublet a basement cellar designated as such in the condominium regulations and converted into a kitchen by the hotel, restaurant, or café (CHR). In this case, the tenant must obtain the express or tacit consent of the building owner (e.g., consent resulting from the owner’s involvement in the renovations), and also convene a general meeting to amend the condominium regulations.
The landlord’s agreement is therefore mandatory for the CHRD, and consequently its subtenant, to engage in any activity other than that stipulated in the commercial lease.
The landlord’s agreement must be obtained prior to any unauthorized activity.
If the activity has already begun, the lease may be terminated, and therefore the sublease as well. However, subsequent explicit agreement from the landlord can resolve the matter. The CHRD therefore has every interest in regularizing this situation.
If the landlord does not give their express or tacit consent, the tenant (and therefore the subtenant) risks termination of the lease (and the sublease agreement) without compensation for eviction.
Even if the “legally new” activity is authorized, the tenant will often again face a rent increase from the landlord, as subletting allows them to increase their rent, especially, but not exclusively, if the property includes residential space.
This is why it is advisable to include a subletting authorization clause from the outset of the commercial lease agreement for the tenant hotel, restaurant, and café (CHRD).
3- The subtenant must comply with the obligations arising from the main lease and administrative health and safety regulations:
The tenant must require their subtenant to comply with all the obligations they themselves have as a business owner. The sublease agreement must therefore include these obligations.
In particular, the tenant must ensure that their subtenant respects the intended use of the premises as established in the main lease agreement.
For example, the subtenant may not operate a business such as:
– restaurant: in the adjoining residential unit,
– bar in Arguila: in premises intended solely for hotel use.
It is therefore advisable for hotels, restaurants, and cafes (CHRD) to thoroughly verify the actual business activity of their subtenant, otherwise the landlord may terminate their commercial lease without compensation for eviction.
4- Rent:
The sublease cannot result in the subtenant paying more rent than the main tenant (CHRD); otherwise, the landlord may request a rent adjustment.
Similarly, the landlord can take action against the subtenant for non-payment of rent, up to the amount of rent paid by the subtenant:
For example, if the subtenant pays €500 in rent to the tenant, this amount generally represents the maximum the landlord can claim from the subtenant.
5- Duration of subletting for hotels, restaurants, and cafes (CHRD) and renewal:
It cannot exceed the duration of the main lease: e.g., if the initial lease expires in 5 years, the sublease cannot exceed 5 years.
– Total subletting: the subtenant can directly request lease renewal from the landlord, even if the main lease has been terminated.
– Partial subletting: *This could be, for example, a hotel subletting part of its premises to a restaurant with the landlord’s agreement.
*This could also involve a restaurant that sublets its residential premises adjacent to the CHRD.
In both cases, the tenant must authorize or refuse the renewal of the sublease and must first verify the term of the main lease, as they cannot sublet for a longer period than that stipulated in their own lease.
The rent is also revised at the time of the commercial lease renewal.
The landlord must also be informed of the subtenant’s request to renew the sublease.
6- Subletting a commercial lease follows the same fate as the main lease in the event of non-renewal or termination:
- Non-renewal:
If the main tenant renews their lease, they must accept the renewal of the sublease. In the event of non-renewal, they must pay eviction compensation to the subtenant, unless there is a legitimate reason provided for by law following legal proceedings (e.g., non-payment of sublease rent by the subtenant).
The subtenant can also request renewal directly from the landlord if the tenant defaults.
- Termination of the lease:
Even if the sublease is for a term of 9 years, it terminates at the same time as the main lease if the latter is in effect but terminated following a court decision against the tenant.
The CHRD operator must therefore regularly monitor its subtenant’s activities to avoid lease termination.
Therefore CHRD tenants should thus seek advice from lawyers specializing in HORECA law from the drafting of commercial sublease agreements to mitigate the aforementioned risks.