The “Cour de cassation” – the highest court in the French judiciary – has issued on 11 April 2019 an important ruling on the joint and several guarantee between the assignor and the assignee, in case of assignment of a commercial lease agreement.
First and foremost, it is worth highlighting that it is common for commercial lease agreements governed by French law to provide a clause by which the tenant (i.e. the assignor) remains jointly and severally liable with the assignee for the performance of the lease (notably the payment of the rents and service charges) in case of assignment.
Before parties could freely agree on the duration of this guarantee, however, this is no longer the case since the “Pinel Law” No. 2014-626 was enacted on 18 June 2014.
Indeed, this important piece of French legislation created the Article L.145-16-2 in the French Commercial Code, which restricts the duration of the guarantee to three years following the date of assignment of the lease. This legal provision came into force on 20 June 2014. Nevertheless, the “Pinel Law” failed to mention whether or not Article L.145-16-2 (i) should apply to ongoing lease agreements executed before 20 June 2014 and (ii) is a public policy provision.
It is in this context that the ruling of the “Cour de cassation” was issued and provided useful answers to the following two practical questions:
- Does the three years’ restriction apply to ongoing leases executed before 20 June 2014?
The “Cour de cassation” ruled that Article L.145-16-2 of the Commercial Code only applies to lease agreements, executed or renewed as from 20 June 2014. Thus, ongoing commercial lease agreements, which were executed before 20 June 2014 and provide that the guarantee will apply for the remaining term of the lease agreement will remain enforceable by landlords.
- Are waivers of the three years’ restriction contained in leases executed or renewed as from 20 June 2014 onwards valid?
Since the “Pinel law” came into force, landlords often included waivers of Article L.145-16-2 in their lease agreements in order to be able to enforce the guarantee for the remaining duration of the lease. However, the “Cour de cassation”, in its decision dated 11 April 2019, ruled that Article L.145-16-2 is a public policy provision, meaning that waivers of Article L.145-16-2 contained in lease agreements executed or renewed as from 20 June 2014 will be deemed unwritten (“clause réputée non écrite”).
Our recommendation: landlords will have to be extremely careful when negotiating commercial lease agreements or lease renewals and should not include waivers of Article L.145-16-2 of the Commercial Code.
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