Hotel business (fonds de commerce)

The hotel business, or fonds de commerce, is the French legal concept covering the tangible and intangible movable assets used to operate a hotel: its clientele, the essential element, the trade name and sign, the right to the lease, furniture and equipment, any drinks licence, the website and domain names, and certain contracts. It does not include the building, which belongs to the owner of the property, or murs.

In the hotel sector

The value of a hotel business depends first on its EBE (the French measure of EBITDA), then on the security of its occupation. A business operated under a commercial lease is worth what its lease is worth: remaining term, rent, permitted use, allocation of works, assignment clause. Star rating, the condition of the rooms, franchise or management agreements and online reputation also weigh on value.

In a transaction

The sale of a fonds de commerce is an asset deal. It follows specific formalities, to be organised with the lawyer and the notaire:

• a deed of sale containing prescribed information
• publication of the sale and a period during which creditors may object, while the price is generally held in escrow
• compliance with the lease, including any landlord consent
• transfer of employment contracts to the buyer (Article L.1224-1 of the French Labour Code)
• in some companies, prior notice to employees of their right to make an offer (the so-called “loi Hamon” regime), which the lawyer schedules without compromising confidentiality

The scope is set out in writing: assets included and excluded, stock, contracts taken over. Transfer duties payable on the price should be confirmed at the date of the transaction.

Not to be confused with

A sale of the shares in the operating company (share deal), which transfers the company rather than the business, and location-gérance, under which the business is let to an operator rather than sold.

To sell a hotel business: selling a hotel.