Frequently Asked Questions (FAQ)

A commercial lease is a rental contract for premises (e.g., commercial space) used for a commercial, industrial, or artisanal activity. For example: restaurant, bar, hotel, nightclub, bakery, pharmacy, garage, jewelry store, diamond dealer.

The duration of a commercial lease is typically 9 years. The lease does not end after 9 years; it is automatically renewed at the end of the 9 years. The commercial lease grants the tenant the right to renew the lease at the end of the lease term.

This period may be shorter.

The revision of the commercial lease takes place every 3 years, according to the ILC index, unless the lease includes a clause specifying another revision duration (e.g., 1 year) and another revision method (e.g., a mobile scale clause linked to sales performance, etc.). To benefit from the commercial lease status, there are four cumulative conditions :

1. The tenant must be a merchant or a commercial company and registered with the National Business Register (RNE) ;
2. The lease must concern a building or premises intended for commercial, industrial, or artisanal use ;
3. The operation of a business asset (e.g., restaurant, hotel, café, etc.) ;
4. A commercial lease agreement must be concluded.
   If one of these conditions is missing, the company or business cannot benefit from the protections and advantages of the commercial lease status.
   The commercial lease status allows the merchant to have the right to renew the lease when it expires (typically after 9 years) and, in case of eviction by the landlord, to be entitled to compensation.
   The landlord must pay the eviction compensation equal to the value of the business asset, including moving costs and dismissal expenses.

Eviction compensation is financial compensation paid by the landlord to a merchant when they refuse to renew the commercial lease and force the tenant to vacate the premises.

It corresponds to the value of the business asset, plus the costs of dismissal and moving.

Thus, the property owner cannot expel their commercial tenant without paying compensation that corresponds to the value of the business asset operated by the merchant, as well as the costs of moving and firing employees. The compensation is lower if the merchant has managed to relocate nearby.

However, if the merchant has committed a serious violation of the commercial lease (e.g., non-payment of rent, unauthorized activity, such as operating a nightclub instead of a restaurant), they will not be entitled to eviction compensation.

Likewise, if the building is deemed unfit for occupation or unsafe by the authorities, no compensation will be due.

In case of rebuilding the building, the former merchant holding the commercial lease will have a right of priority to rent in the new building.

A lease-management contract is an agreement between a merchant (the lessor) who rents a business asset to another merchant (the tenant-manager) to exploit it.

The duration is agreed upon by mutual consent between the merchant, who owns the business asset, and the tenant-manager, who operates the business. The merchant grants the tenant-manager the enjoyment of the business to help grow its sales, and in return, the tenant-manager pays a fee consisting of rent and expenses related to operating the business asset (e.g., personnel, equipment, operating costs, etc.).

The benefit of the lease-management contract for the tenant-manager is that they can operate a business without purchasing it. When someone lacks the financial means to buy a business, the lease-management contract allows them to operate it. However, they will develop the sales of a business that is not theirs and, while they will benefit from it throughout the lease period, they will ultimately return the keys to the business owner at the end of the contract. The tenant-manager will have developed and increased the business’s value without owning it.

An option to purchase the business may be agreed at the end of the lease-management contract, allowing the tenant-manager to buy the business for their own account.

Selling shares involves an associate selling their shares in the capital of a company to a buyer, while selling a business asset involves selling all its tangible elements (e.g., equipment, materials) and intangible elements (e.g., commercial lease, clientele, trade name, most contracts, etc.).

The sale of a business asset results in the transfer of the business to a new buyer. As a result, the sale price will be escrowed for several months, during which creditors may raise objections to the sale price—meaning they can claim part of the sale price before the remainder is transferred to the seller. Therefore, the seller may have to wait several months before receiving the balance of the sale price. The buyer, however, acquires a business that is typically free of debts.

In the case of selling shares, the same company continues to operate the business. Only the company’s associates change, so there is no risk of the debtor disappearing. As a result, there is no escrow of the sale price. However, to protect the buyer of the shares against a decrease in asset value or the emergence of liabilities linked to the seller after the sale, a clause is often included where the seller guarantees the buyer (GAP : Guarantee of Assets and Liabilities).

The Guarantee of Assets and Liabilities (GAP) is a protection mechanism that allows the seller of company shares to guarantee and protect the buyer against any future increases in liabilities or decreases in assets arising from causes prior to the sale (e.g., a customer invoiced before the sale who does not pay after the sale).

To secure the buyer, the buyer often asks the seller to set aside an amount with a neutral third-party escrow holder, to be released if a debt arises or if the value of the assets is lower than expected.

The escrowed amount may be released progressively over time (e.g., amounts held in escrow with a mutually agreed-upon escrow agent in 2020: €20,000; in 2021: €15,000; in 2022: €10,000; in 2023: €5,000, and in 2024: end of the GAP).

A seasonal lease is a rental agreement for the duration of a tourist season (summer or winter). The season cannot exceed 6 months.

Seasonal leases are often used by merchants in ski resorts and beach resorts, but they can also be concluded in large cities for a season.

If the duration of the seasonal lease exceeds 6 months, the lease may be reclassified as a precarious or commercial lease.

For example, a lease for 2 seasons of 9 months (winter and summer) lasting over 35 years no longer qualifies as a seasonal lease. It will, in principle, be reclassified as a commercial lease.

There are various ways to finance the purchase of a business. Some options include:

• Bank loans: It is advisable to approach several banks to compare offers,
• Self-financing and intra-group loans: Personal contributions or loans between groups of companies,
• Seller financing: The seller allows the buyer to pay the purchase price of the business in installments after the contract is signed (e.g., monthly),
• Private investors or investment companies: Investors or investment firms can finance the full purchase or supplement personal contributions or bank loans,
• Blockchain and cryptocurrencies: These can be used to finance the purchase of a business asset, shares, or real estate.

A capital gain occurs when the sale price of shares or a business asset is higher than the purchase price (purchase price of shares or the business asset plus related fees and taxes).

The flat tax (PFU) applies to capital income: 30%, which includes 12.8% for income tax (IR) and 17.2% for social contributions on wealth income.

There is a minimum registration fee of €25.

The capital gain from selling a business asset is the difference between the purchase price and the sale price. A capital gain occurs when the sale price is higher than the purchase price.

To determine if it is a short-term or long-term capital gain, it is important to know how long the seller has held the business asset.

• Short-term capital gains apply to business assets purchased within 2 years.
• Long-term capital gains apply to business assets held for more than 2 years.
  Short-term capital gains are added to the taxable income and taxed at a progressive rate between 0% and 45%. They are also taxed at 17.2% for social contributions on wealth income.
  Long-term capital gains are taxed at a flat 30% (12.8% for income tax and 17.2% for social contributions).

SARL (Limited Liability Company) : A commercial company where the liability of associates is limited to their contributions. There must be at least 2 associates and no more than 100. No minimum capital is required. The merchant is not personally liable for company debts unless gross mismanagement is proven

SAS (Simplified Joint Stock Company): A flexible commercial company with at least 2 shareholders. The minimum capital requirement is €1. It is suitable for any business except certain regulated sectors.

SA (Public Limited Company) : A commercial company with at least 2 shareholders (7 if publicly traded), no upper limit. Minimum capital of €37,000. It can operate in any business sector except regulated ones.

A merchant can transfer up to 75% of the value of the business shares to their heirs or spouse without paying gift or inheritance taxes, provided certain conditions are met.

• The company must be engaged in a commercial, industrial, artisanal, agricultural, or liberal activity.
• A collective commitment to retain the shares must be made by the business owner and their heirs for at least 2 years.
• The heir must also commit to retaining the shares for at least 4 years after the transfer.

A franchise agreement is a contract where the franchisor (the one who owns the brand and expertise) grants a franchisee (an independent business) the right to operate their brand and expertise to sell products and services.

• Be cautious with exclusive clauses that are not suited to the situation
• Be wary of excessive supply volumes in contracts,
• An excessively long exclusive period can also endanger the signing client’s business.