Cours French business law

1. Conditions of the lease

Lease of the gong concern

Sb is the owner of a going concern and doesn’t want to operate it himself

Leases it to sb elese who will do the business instead of the owner of the business

This person who operates the business instead is the lessee (le locataire-gérant)

Lessor: le bailleur

Lessee: the other party

For contact to be valid, needs some conditions :

- The lessee manager who carries out the business needs commercial capacity : a special condition of capacity required if you want to be a merchant

- The going concern must exist

If the going concern doesn’t exist, the lease will be void for lack of content

To prove it, must prove that there’s a clientele

If stop the business too long, may not be anymore clientele so no more going concern

Case of the 29th of January 2013 in which the Cour de cassation said that a pause of 22 months wasn’t too much, that the clientele hadn’t disappeared according to the Cour de cassation

So said that the lease was valid despite the pause of 22 months

- The lease contract must be published in a legal advertisement within 15 days of its conclusion

Very important for the lessor (owner of the going concern) because he will remain liable for the debt

Until the lease is published, he will be held liable for the debt of the lessee: harsh for the lessor

The lessee manages the going concern, but despite that, if the lease isn’t published, the lessor is held responsible for any debt

The lessor doesn’t carry out the going concern himself : it’s the lessee 🡪 the lessee is a merchant

The owner of the going concern isn’t a merchant anymore : the lessee is the merchant, as he operates the commercial activity

That’s why the lessee must register within the commercial registry (the RCS : registre de commerce et des sociétés)

The owner of the going concern who hasn’t got anymore commercial activity must be struck off (= radié) this register (the RCS)

1. The effects of the lease of the going concern

1. Between the parties

Between the lessor and the lessee

The obligation of the lessor who is the owner of the going concern:

* Must make the business available to the lessee = must give the keys of the shop, the customer base (name of the various customers)

* Must guarantee against hidden defects (= la garantie contre les vices cachés)

In a going concern, may find licenses or authorizations (ex :licence 4, that allows you to sell alcohol)

So if the lessee of a going concern discovers after the lease that the license has expired, considered as a hidden defect : lease can be void then

* Must guarantee quiet enjoyment (= la garantie d’éviction) : means that the lessor mustn’t compete with the lessee

Mustn’t open a shop just next to the place where the going concern is carried out by the lessee with the same activity

Would be against the guarantee of quiet enjoyment

Obligations for the lessee:

        * Must operate the business reasonably: mustn’t destroy everything

        * Pay a rent, called royalties: must pay it on time

1. With regards to third parties

The third parties are the creditors

Must distinguish the creditors of the lessor, and the creditors of the lessee

- Creditors of the lessor:

When the owner of a going concern choses to lease his going concern, he no longer carries out the business himself

The royalties that the lease will provide him with less income than what he earned when he carried out the business himself

The going concern reduces the income of the lessor: could be dangerous for the lessor’s creditors 🡪 will have less money than when he carried out the business himself

That’s why the law (the article L.144-6 of the commercial code) provides that at the time of the going concern lease, the creditors of the lessor may ask the judge to declare their claim immediately payable

Creditors must prove that the lease of the going concern puts at risk the payment of their rights

If the judge thinks that there’s a risk for the lessor’s creditor of not being paid, the creditors may obtain an immediate payment of the lessor’s debt

The creditors of the lessee are also protected by article L.144-7 of the commercial code

The lessor is jointly and severely liable for the debt of the lessee which will arise from the operation of the going concern by the lessee

This obligation exists until the contract is published

If the lease contract is never published, the owner of the goijg concern will be permanently, jointly and severely be reliable if he doesn’t carry out

🡪 creditors can ask him for the payment of the entire debt

1. Termination of the going concern lease

Many reasons why the lease of the going concern may terminate

- Ex: the arrival of the contractual term of the contract

The lessee has no right to obtain the renewal of the contract

Different for the lessee of the commercial lease: he has a right to renew the lease

- Could also be terminated by the fault of a lessee

Ex: if he doesn’t pay the rent/royalties

The lessee must give back the going concern then and is liable for any damages that he may have caused to the going concern

- If the lessee has increased the value of the going concern (lots of clients for ex)

Can’t claim anything for the increase in value that he has brought to the going concern

- The lessee must pay all his professional debt at the end of the lease

Can see that the end of a lease is a very difficult event for the lessee manager

Has no right to renew the contract, must pay his debt immediately, etc

That’s why better idea to buy the going concern even if has to borrow at the bank

Paragraph 2: the sale of the going concern

Can be sold, but sale is governed by article L.141-2 of the commercial code

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