It is well known that a business is made up of a set of tangible elements (tools/equipment/furniture etc.) and intangible elements (clientele/contracts etc.). The commercial lease agreement normally appears among a business' intangible elements. The sale of the business therefore means the transfer of the commercial lease.
The landlord's agreement ?
In practice, most commercial leases contain a clause prohibiting the transfer of the lease without the prior written consent of the landlord.
Consequently, if the law of the contract were to be applied to the sale of the business, the outgoing tenant could be blocked if they do not obtain their landlord's agreement on the transfer of the lease.
This is why the legislator has long intervened in order to allow the tenant to transfer the lease with the business even if the lease contract prohibits the transfer of the lease (ref. Art. 10 of the Law on commercial leases, which however allows the transfer to be prohibited if the landlord or their family occupies a part of the building)
A strict procedure must be followed by the parties, whereby the landlord may still object to the transfer - albeit on exceptional grounds.
- The tenant must first notify the landlord of the proposed transfer of the lease by registered mail or bailiff's notice;
- The landlord who believes they have just cause has a period of one month to notify the tenant of their reasoned objection in the same way, failing which they are deemed to have given their consent to the transfer of the lease;
- In particular, the landlord's opposition will be considered justified if the tenant has been working on the premises for less than two years or if the lease has been renewed for less than two years, subject to the death of the tenant or other exceptional circumstances to be assessed by a judge;
- In the event of opposition by the landlord served within the time limit, the tenant must refer the matter to the justice of the peace within 15 days of the opposition, or be deprived of their right to act.
This is therefore a rather cumbersome procedure, especially since, even if the transfer of the lease is completed, the seller of the business remains jointly and severally liable with the buyer for all the obligations of the transferred lease. Consequently, if the buyer of the business does not pay their rent, the landlord will be able to claim the rent from the seller for the entire remaining term of the lease!
In order to avoid this type of problem, it is therefore advisable to sign a new commercial lease in the name of the buyer of the business which also discharges the seller. The initial lease will therefore not be part of the business assets.
This process is of interest to all parties:
- the buyer of the business has a new lease which they can negotiate themselves and the duration of which starts at zero;
- the seller of the business is completely discharged and no longer risks being held liable for the obligations of the lease after the transfer;
- the landlord, like the buyer of the business, has a new lease with a term starting at zero; they will also often take advantage of the opportunity to demand a small increase in rent; moreover, they know or should know that if they simply oppose the transfer, there is a risk that the transfer will still be carried out without their agreement, possibly at the end of legal proceedings which could result in significant costs.