What are the rules for leasing and managing a business?

Verified 15 April 2024 - Directorate for Legal and Administrative Information (Prime Minister)

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.

Prior to the conclusion of the management lease, the lessor and the lessee-manager must complete certain conditions.

Conditions relating to the lessee-manager

The lessee-manager must have the merchant status, which means:

Warning  

Do not confuse management leasing with employee management which consists in managing the operation of the fund, for remuneration, on behalf of and at the owner's risk and peril. Here, the salaried manager does not have merchant status independent.

Conditions relating to the lessor

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

The lessor must also obtain the authorization of his spouse where the latter is involved in the operation of the fund.

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 lease 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.

Please note

This joint and several liability of the lessor excludes tortious or personal debts of the tenant (old-age insurance contributions, unnecessary expenses...), even if they are linked to the operation of the fund.

The lessor shall also be jointly and severally liable, until the contract is published, for direct taxes (income or business tax, companies' property levy...) established as a result of the operation of the fund. We talk about “ fiscal solidarity ”.

VAT, on the other hand, is an indirect tax and is therefore not concerned.

Duration of contract

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

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

Content of the contract

The management leasing agreement must contain a lot of information, including:

  • Identity of the parties
  • Trade fund items leased management
  • Origin of the fund (creation, purchase, succession...)
  • Rental situation (landlord or tenant of the premises)
  • General situation of the fund (safety, hygiene and environmental standards)
  • Duration of the contract and renewal arrangements
  • Open contracts (work contracts, customer/supplier contracts)
  • Reciprocal obligations of the parties
  • Non-compete undertaking
  • Fee (amount and terms of payment)
  • Security deposit
  • Registration and fees
  • Assignment of the contract and subleasing of the fund
  • Termination of contract
  • Termination - Consequences.

Please note

It is recommended that the management leasing contract be drafted by a professional (lawyer, notary...).

Advertising of the contract

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

This advertisement runs the three-month period during which the creditors of the lessor may apply to the commercial court for the debts incurred by the latter for the operation of the fund to become immediately due if the management leasing jeopardizes their recovery.

Please note

Between the signing of the management lease and its publication, the lessor of the fund is jointly and severally liable with the lessee-manager for the debts incurred by the latter in the course of the operation of the fund.

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

Each party to the management leasing agreement shall comply with reciprocal obligations.

Obligations of the 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.
  • Ensure reasonable management of the fund : it must ensure the continued and regular operation of the fund, which is necessary to maintain the clientele or traffic.
  • 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 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 sublease management leasing.
  • Open ledger clause of the tenant-manager by the owner of the land.
  • Clause for payment of taxes related to the operation of the fund by the lessee-manager.

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.

Obligations of the 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 term of 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.

Setting of the fee

The amount of the fee shall be freely fixed by the parties. This amount may be revised at the request of a party by registered letter if the contract includes an indexation clause.

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.

Taxation of royalties

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

In addition, the fee is subject to the value added tax (VAT) at the normal rate of 20% . The lessor may pass the VAT on to the lessee-manager, provided that this is specified in the contract.

For the lessee-manager, the fee is deductible of the company income tax, as a charge on his trade.

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

  • The fixed-term contract shall expire and shall not be renewed : The lessor is not obliged to renew the contract. If, on the other hand, the parties continue to perform the contract after the expiry of the term, it shall be 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 lessee-manager is not fulfilling one of his obligations : for example, in the case of non-payment of the fee.
  • The lessee-manager is unable to operate the fund : any cause rendering him unfit to operate terminates the contract (e.g. death, guardianship, incompatibility, disqualification due to personal bankruptcy, disqualification from management or bankruptcy).

Please note

The opening of a safeguard, reorganization or winding-up proceedings against the lessee-manager does not entail the termination of the management leasing contract. The administrator or liquidator may require continuation of the current contract.

At the end of the management lease, the landlord recovers the right to exploit the goodwill, the ongoing employment contracts continue. The lessor must return to the lessee-manager the amount of the security deposit paid at the conclusion of the contract.

The tenant cannot claim to no compensationeven though it has contributed by its competence to strengthening the value of the fund. However, in the event that the lessor owns the land and the premises placed under management, he must pay the lessee compensation corresponding to the profit that he can derive from the capital gain brought to the land by the hardware improvements carried out by the lessee with the express agreement of the lessor.

In the event of a loss of value of the fund due to the fault of the lessee-manager, the lessor may incur liability.

Moreover, the end of the management leasing makes immediately due the debts related to the operation of the fund, contracted by the lessee-manager during the period of management.

Please note

The end of the management leasing requires, as for its beginning, the completion of publicity formalities in a 15-day period. The lessee-manager must also request his cancelation from SCR: titleContent within one month of cessation of activity.

On expiry of the contract, the lessee-manager may carry on an activity identical or similar to that of the fund which was the subject of the management lease. However, the contract most often includes a non-compete clause which forbids it.

In addition, even in the absence of such a clause, the lessee-manager must refrain from unfair competition, i.e. it must not use unfair practices to divert clients from the fund it has previously managed.

Example :

The following conduct constitutes unfair competition:

  • Persuading clients that there has been a transfer of funds
  • Attract the former clientele by fraudulent means (identical name and brand)
  • Recall on his business papers his status as former manager of the fund.

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