Commercial lease (bail commercial)

The commercial lease, or bail commercial, is the contract under which an owner (the landlord) lets premises to an operator (the tenant) to carry on a commercial activity. It is governed by a statutory regime in the French Commercial Code that protects the tenant: a term of at least nine years and a right of renewal, failing which the landlord must in principle pay compensation for eviction.

In the hotel sector

For a hotel run by a tenant, the lease is the cornerstone of the value of the business. Hotel premises are often treated as single-purpose premises: the renewal rent may then fall outside the statutory cap and be set according to industry practice, based on the hotel’s takings. The exact scope of this rule is assessed case by case with a lawyer specialising in commercial leases.

The clauses a buyer reads first:

• remaining term and next expiry date
• rent, indexation and review clause
• permitted use
• allocation of charges and works, notably major structural repairs (Article 606 of the French Civil Code)
• assignment clause: landlord consent, landlord’s involvement in the deed, joint liability of the outgoing tenant

In a transaction

Selling a business, or fonds de commerce, means assigning the lease in accordance with its terms, which may require the landlord’s consent or involvement and shape the timetable. An approaching expiry creates uncertainty over the future rent, which the buyer will price in. Rent to revenue shows whether the operation can sustain the rent over time. A review of the lease by a lawyer before the sale is launched avoids discovering these issues mid-negotiation.

Not to be confused with

Location-gérance, which lets the business rather than the property, and the management agreement, which entrusts management to an operator without leasing the hotel to it.

To sell a hotel business operated under a lease: selling a hotel.