What are the rules for leasing and managing a business?

Verified 01 January 2023 - Directorate of Legal and Administrative Information (Prime Minister), Ministry of Justice

The management leasing or free management allows the owner of a goodwill (lessor) to grant to another trader (tenant-manager) on right to free exploitation this fund. The lessee-manager operates the fund at its own risk, in return for payment of a royalty.

Lessee-Manager

The lessee-manager must have the status of merchant and be registered to the RCS and the RNE not later than 15 days after the start of its activity.

As such, it must respect the accounting obligations of the merchant and complete the legal conditions to carry on a commercial activity.

Warning  

Management leasing should not be confused with the employee management. It is to direct the operation of the fund, for remuneration, on behalf of and at the risk and peril of the owner. In this context, the employee manager does not have merchant status independent.

Lessor

If the lessor owning the goodwill has a commercial lease without owning the walls, he must get theaExplicit permission of the premises owner to conclude a management lease.

However, if the lessor also owns the premises in which the land is operated, no authorization is required.

Please note

The lessor no longer carries out by himself of commercial acts, he loses his status as a trader and is no longer registered in the SCR: titleContent nor to RNE: titleContent.

Until the management leasing contract is published in a legal listing support, the owner of the land is jointly and severally liable for debts contracted by the lessee-manager in connection with the operation of the land.

In other words, a creditor (a supplier, for example) can go both against the lessee-manager and the lessor to obtain payment of an invoice.

This liability of the lessor excludes the lessee's tortious or personal debts (old-age insurance contributions, unnecessary expenses...), even if they are related to the exploitation of the fund.

The lessor shall also be jointly and severally liable, until the contract is published, for direct taxes (income or business tax, property assessment of companies...) made as a result of the operation of the fund.

VAT is an indirect tax and is therefore not covered.

It is recommended to have the contract of management drafted by a professional (lawyer, notary...).

Duration

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

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

Advertising

The management leasing agreement must be the subject of a notice published in legal listing support, in 15 days following his signature.

This obligation of disclosure is also required when the contract ends.

Lessee-Manager

The lessee-manager must meet the following obligations:

  • To operate the fund according to its intended purpose : it cannot modify the activity or add a new one without the agreement of the lessor.
  • Maintain the fund in a condition to be operated : it must replace obsolete equipment, renew patents, maintain premises.
  • Pay royalty : under the conditions laid down in the contract.

The lessee must also respect the clauses that could be included in the management leasing contract:

  • Non-compete clause : it limits the manager's right to recover after the end of the contract, for a given period and in a given geographical area.
  • Clause prohibiting any assignment or sublease management leasing.
  • Open ledger clause of the tenant-manager by the owner of the land.

FYI  

One security deposit (called security) may also be requested from the lessee-manager to guarantee the equipment and the payment of royalties.

Its amount is freely determined by the parties.

It will have to be returned by the lessor at the end of the management lease.

Lessor

The lessor must comply with the following obligations:

  • To issue all the elements necessary for the operation of the fund : customers, brand and trade name, patents, trademarks and designs where applicable, any licenses required for operation, furniture, stock, equipment.
  • Ensuring the peaceful exploitation of the fund : this includes the guarantee of hidden defects and the eviction guarantee. The fund must also meet health and safety standards.

The lessor must also comply with any clauses that may appear in the management leasing contract:

  • Non-compete clause : it prohibits the lessor during the contract from operating a competing fund in a specific geographical area.
  • Take-back clause at the end of the contract.

The lessee-manager must pay the lessor one rent called royalty.

The amount of the fee shall be freely fixed by the contract and may be revised at the request of a party by registered letter.

The fee may adopt a variable shape :

  • Fixed Sum
  • Percentage of profit
  • Percentage of turnover
  • Percentage of both profit and turnover

Payment may be made either monthly or quarterly.

The fee shall be subject to the VAT: titleContent at the normal rate of 20% for the lessor, who may pass it on to the lessee, provided that this is specified in the contract.

The lessor must report it as operating profit in the category of BIC: titleContent.

For the lessee-manager, the fee is deductible income tax or business tax, as a charge on his business.

The management leasing agreement shall terminate in any of the following situations:

  • The fixed-term contract shall expire and shall not be renewed : there is no obligation on the lessor to renew the contract.
  • The contract is terminated unilaterally by one of the parties : a notice must then be respected, its duration is generally 3 months.
  • The lessee-manager is not fulfilling one of his obligations : for example, in the case of non-payment of the fee.

At the end of the management lease, the landlord recovers the right to exploit the goodwill, the ongoing employment contracts continue.

The tenant cannot claim to no compensationeven though it has contributed by its competence to strengthening the value of the fund.

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