CONDITIONS
When a tenant holds a commercial lease in the hospitality sector (hotels, restaurants, and cafes), they may wish to sublet part of the premises to generate income. Subletting differs from a lease-management agreement, which involves transferring the operation of all aspects of the business to the tenant-manager.
When a tenant holds a commercial lease, they may wish to sublet all or part of the premises to generate income.
Subletting differs from a lease-management agreement because the lease concerns the premises themselves, while a lease-management agreement involves transferring the operation of all aspects of the business to the tenant-manager.
Subletting may be authorized for businesses, whether they are micro-enterprises, small and medium-sized enterprises (SMEs), parent companies, or subsidiaries.
Most of the time, business owners enter into a sublease agreement:
– signed with a subtenant for the commercial premises;
– or due to the existence of a mixed-use lease: the lease covers commercial premises with an adjoining residential unit. The manager, who does not occupy all of their premises, may therefore wish to sublet part of them.
When drafting the sublease agreement, there are a number of precautions to take.
Landlord’s Mandatory Authorization
This landlord’s authorization requirement applies to all commercial properties. A tenant intending to sublet must request permission from their landlord. This allows the landlord to monitor and verify the existence, reliability, and solvency of the subtenant, and therefore, in practice, to choose them.
As a precaution, the tenant should negotiate a clause authorizing subletting with their landlord when signing the lease, or obtain written authorization from the landlord during the lease term.
Verbal authorizations are very risky for the tenant, even if the sublease has been in place for several years. Indeed, if a landlord takes legal action because they did not provide written authorization for subletting, the subletting tenant will have difficulty proving that authorization was granted and risks lease termination proceedings.
Subletting can be total or partial. When the sublease is total, the subtenant can exercise a genuine right to renewal against their landlord (the tenant holding the lease), and against the landlord of the premises under certain conditions.
Upon the expiration of the main lease, the landlord is only obligated to renew it if they have expressly or tacitly authorized or approved the sublease. Article L145-32 of the French Commercial Code extends this right to lease renewal to the partial subtenant with respect to the landlord of the premises, when the premises are divisible.
If the landlord has not consented to the sublease and it exists in practice, they have the option of:
– either, if they wish to retain their tenant, simply issuing a notice to cease the sublease, and if necessary, obtaining an eviction order for the unauthorized subtenant;
– either to take legal action to terminate the current lease after, if necessary, serving a formal notice to cease the breach under penalty of triggering the termination clause stipulated in the lease. The landlord will not be required to pay eviction compensation to the tenant who has seriously breached their legal obligations;
– or to refuse to renew the lease, thereby to the detriment of the subtenant, who will also be unable to claim renewal of their sublease agreement or any eviction compensation.
If the landlord obtains an eviction order, they can request that a provisional monthly occupancy indemnity be set in their favor (not rent, since there is no longer a lease) and paid directly by the tenant and any subtenant (examples: CA Paris, January 30, 2019, No. 18/15509 concerning a warehouse that had illegally sublet to companies; CA Paris, March 6, 2019, No. 18/21601, a shop that had sublet without the landlord’s authorization to a restaurant). Generally, this occupancy indemnity is equivalent to the rent amount, but not necessarily.
In the event that the lease has been judicially terminated and the subtenant has remained on the premises despite the departure of the main tenant, he will be liable for the entire occupancy compensation (Court of Cassation 3rd Civ. 9 July 2020 No. 19-15.874).
Formalities
The landlord must also be formally notified, by court bailiff’s notice or registered letter with acknowledgment of receipt, to participate in the sublease agreement, even if a clause authorizes it (unless otherwise stipulated).
If a clause in the commercial lease states: “The leased premises may be sublet under the sole responsibility of the tenant, who will handle all subleases personally, and the landlord shall never be involved in this matter,” this does not preclude the obligation to formally notify the landlord to participate in the agreement. Any waiver by the landlord requires unambiguous wording (CA Paris, Division 5, Chamber 3, February 26, 2020 – No. 18/05192).
If a clause in the lease authorizes subletting without restriction (particularly regarding the choice of subtenant), and the landlord refuses the sublease, the tenant can then consider signing the sublease agreement, overriding the landlord’s refusal. Any legal action the landlord might bring against the tenant to terminate the lease will then be futile, and the landlord may even be ordered to pay damages to the tenant.
Finally, a clause in the lease may authorize subletting, but under certain conditions (for example, regarding the subtenant’s solvency). If the tenant fails to comply with the conditions stipulated in the lease, the penalties are the same as those mentioned above (concerning the landlord’s lack of agreement to the sublease): activation of the termination clause or termination of the lease. Of course, these conditions imposed by the lease must not be unreasonable.
If the landlord was not a party to the sublease agreement and obtained a termination of the lease against the tenant, the subtenant may still remain on the premises if the landlord has agreed to a sublease agreement, such as an oral temporary occupancy agreement in exchange for an occupancy fee (CA Aix-en-Provence, June 13, 2019, No. 16/18821).
If there are disagreements between the tenant and the subtenant regarding the nature of the contract, and the subtenant occupied the leased property even before the contract was signed, the tenant cannot hold the landlord liable for opposing the sublease (CA Amiens, February 5, 2019, No. 17/01246).