Conditions to be fulfilled by the lessor

To lease the business, the renter must obtain certain authorizations in the following cases:

• If the commercial lease imposes a personal exploitation of the business: written authorization of the owner of the walls
• If the spouse participates in the operation of the business (collaborating spousespouse, employee, etc.): written consent of the spouse

Conditions to be fulfilled by the tenant-manager

The tenant-manager who operates a goodwill must have merchant status and fulfill the following obligations:

• Have the ability to trade i.e. comply with the following 3 conditions:
  
  • Be of full age or emancipated minor. The emancipated minor may become a trader if he obtains authorization from the guardianship judge or the president of the court.
  • Do not engage in any activity incompatible with the status of trader (e.g. lawyer, architectetc)
  • Not be subject to a prohibition to practice (prohibition to manage, personal bankruptcy) 
• To be RCS and RNE registrationsat the latest 15 days after the start of its activity. Where the tenant-manager operates a artisanal fund, he must be registered as a craftsman in the National Register of companies (RNE). For example, a bakery or hairdresser are artisanal funds.

Where the tenant-manager operates a artisanal fund, it must be entered in the National Register of companies (RNE) as a company in the trades and crafts sector. For example, a bakery or hairdresser are artisanal funds.

Duration of contract

The lease-management agreement may be concluded at duration determined or undetermined.

Most often, the contract is concluded for 1 year renewable by tacit renewal.

Content of the contract

It is advisable to include the following information in the lease management agreement:

• Identity of the parties
• Elements of goodwill leased-out
• Origin of the fund (creation, purchase, succession, etc.)
• Rental situation (owner of the walls or tenant of the premises)
• General situation of the fund (safety, hygiene and environmental standards)
• Duration of the contract and terms of renewal
• Current contracts (labor contracts, customer/supplier contracts
• Fee (amount and method of payment): it takes the form of a fixed sum or a percentage on profits and/or turnover. It is paid monthly or quarterly.
• Security deposit: it is paid by the tenant-manager to guarantee the proper execution of his contractual commitments (payment of the fee, operation of the fund without losing value, etc.). The constitution and the amount of the security deposit are not regulated. It must be returned at the end of the contract.
• Registration and fees
• Payment of taxes related to the operation by the tenant-manager
• Termination of the contract
• Termination of contract – consequences:

The parties may also decide to add one or more of the following clauses:

• Non-compete clause : it prohibits the lessor, during the term of the contract, from operating a competing fund in a given geographical area. It may also limit the right of the lessee-manager to operate a competing fund after the end of the contract, for a given period and in a given geographical area.
• Clause prohibiting any assignment or subletting rental management.

• Free consultation clause of the accounts which allows the lessor (owner of the fund) to check at any time the accounting documents of the tenant-manager
• Take-back clause which allows the fund lessor to recover the remaining stock at the end of the management lease

Publicity of the contract and time limit for creditors to appeal

The lease management agreement must be published as an extract or notice in a support for legal announcements, in the 15 days following his signature.

As of this publicity, the owner of the business is no longer responsible for the debts incurred by the tenant-manager for the operation of the fund.

This ad runs a 3 months delay during which the creditors the lessor may apply to the commercial court for the debts incurred by the latter for the exploitation of the land to become immediately due if the management lease jeopardizes their recovery.

Obligations of the tenant-manager

The tenant-manager must comply with the following obligations:

• Operate the fund in accordance with its purpose —Cannot modify the activity or add a new activity without the owner's consent.
• Ensure reasonable management of the fund : it must ensure the continuous and regular operation of the fund, which is necessary to maintain the clientele or the goodwill. He must exploit the fund without letting it collapse or jeopardize it. If the tenant-manager does not comply with this obligation, he risks it resolution of the contract.
• Maintain the fund in a condition to be operated : it must replace end-of-life equipment, renew patents, maintain premises.
• Pay the fee : under the conditions laid down in the contract.

Obligations of the lessor (or owner of the land)

The landlord of the land has the same obligations as an owner. It must comply with the following obligations:

• Obligation to issue a business suitable for the operation of the activity. This means that he must provide all the elements necessary for the exploitation of the fund: the customer, the sign and the trade name, the patents, trademarks and drawings, the possible licenses necessary for the exploitation, the furniture, the stock, the material.
• Guarantee of a peaceful exploitation of the fund : this includes guarantee of hidden defects and the eviction guarantee. The fund must also comply with health and safety standards and follow the rules concerning public establishments (ERP).

Fixing of the fee

The amount of the fee shall be freely fixed by the parties. It can be either fixed or a percentage on profits and/or turnover.

The fee is paid monthly or quarterly.

Taxation of the fee

Fees shall be subject to value added tax (TVA) at the normal rate of 20% . The owner may pass the TVA on to the tenant-manager, provided that this is specified in the contract.

The royalties collected by the owner of the fund (natural person) shall be reported in the category of BIC: titleContent as operating profit. However, since the activity is not of a professional nature, any deficits cannot be counted against overall income.

The fee paid by the tenant-manager is deductible from the tax income of its company and constitutes an expense.

Reasons for termination of the managed lease

The management lease shall terminate in one of the following situations:

• The lease management agreement expires and is not renewed : the owner is not obliged to renew the contract. On the other hand, if the parties continue to perform the contract after the end of the term, it is renewed by tacit renewal.
• The contract is terminated unilaterally by one of the parties : a notice must then be respected, its duration is generally 3 months.
• The tenant-manager does not comply with one of his obligations : in the event of non-payment of the fee, for example.
• The tenant-manager is unfit to exploit the land : any cause rendering him unfit to exploit the fund terminates the contract (e.g. death, guardianship, occurrence of incompatibility (e.g. when the tenant-manager carries out a liberal activity: this activity is incompatible with the status of merchant, forfeiture related to the personal bankruptcy, to theprohibition to manage or to the bankruptcy).

The end of the management lease requires the following formalities:

• In the 15 days after the end of the rental management agreement, the landlord of the land or the tenant manager shall post a review in a medium authorized to receive legal notices (Shal).

Consequences for the tenant-manager

Upon the expiry of the rental management agreement, the tenant-manager has the obligation to return the business.

It may carry out an activity identical or similar to that of the fund under management lease. However, the contract usually includes a non-compete clause which forbids it.

Moreover, even in the absence of such a clause, the tenant-manager must refrain from unfair competition, i.e. it must not use unfair practices to divert customers from the fund it previously managed.

The following conduct constitutes unfair competition:

• Persuade clients that there has been a transfer of funds: the tenant-manager persuades a client that the fund has been sold and that the clients have been transferred to their new company. Customers no longer turn to the business of the lessor.
• Attracting former customers by fraudulent means (identical name and sign)
• Recall on his business papers his quality as former manager of the fund.

The tenant-manager must make a declaration of cessation of activity on the website of the company formalities desk:

Window of company formalities

Within one month of this declaration, the company shall be deleted from the RNE: titleContent and the RCS: titleContent in the case of commercial activity.

Consequences for the lessor (owner of the business)

At the end of the lease management agreement, the goodwill is returned to the landlord. The government can exploit it again. In this case:

• Current employment contracts entered into by the tenant-manager are forwarded to the lessor.
• The debts incurred by the tenant-manager during the operation of the fund are payable from the end of the contract.

The lessor of the fund must therefore refund the security deposit to the tenant-manager who returned the business.

When the value of the fund has increased, the lessor does not have to pay compensation to the tenant-manager, even if the latter has contributed by his competence to strengthen the value of the fund. However, where the landlord also owns the walls, he must pay the tenant an indemnity corresponding to the profit he can derive from the capital gain brought to the fund by the material improvements made with his agreement.

If the lessor decides to take over the operation directly from the fund, it must register or modify its registration in the RCS: titleContent and/or RNE: titleContent on the website of the company formalities desk:

Window of company formalities