How is compensation for eviction from a commercial lease assessed?

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

Where the lessor (i.e., landlord) refuses to renew the commercial lease, the lessor must pay the lessee an eviction allowance. This is a sum of money that compensates for the damage caused by the refusal to renew.

Where the lessor refuses to renew the commercial lease, the lessor shall in principle pay to the tenant an eviction allowance. It compensates the lessee who is forced to leave the premises.

Warning  

The lessee of a commercial lease may request payment of an eviction allowance within two years from the date of notification of the lessor's leave or receipt of the refusal to renew the lease.

However, in some cases, the lessor may deny commercial lease renewal without having to pay the tenant an eviction allowance. These are:

  • Serious behavior of the tenant. This is called serious and legitimate grounds. This is the case when the tenant does not pay the rent or when he ceases to exploit the leased land.
  • Construction or reconstruction with the offer of a replacement premises
  • Demolition of an unsanitary or antiquated building
  • Resumption of a dwelling space ancillary to the commercial premises

Please note

In order to receive an eviction allowance, the tenant must effectively operate a business and be registered the Commercial and business Register (RCS) and the National company Register (RNE).

The eviction allowance is a financial compensation paid to the tenant who has to leave the premises.

It is assessed on the basis of the damage suffered. It must cover the whole of damage caused to the lessee by the non-renewal of the lease.

The elements to be taken into consideration for the assessment of the allowance are:

  • Market value of goodwill determined according to the customs of the profession
  • Normal removal and relocation expenses
  • Costs and transfer duty to be paid for a fund of the same value (e.g. costs of negotiating a new lease, amount of commission due to an intermediary).

The eviction allowance shall consist of a principal allowance. It is either a replacement allowance where the goodwill is caused to disappear, either by travel allowance when the fund can be moved.

In many cases, incidental allowances shall be paid in addition to this principal allowance.

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Replacement (or loss of funds) compensation

Calculation of replacement allowance

If the lessee loses its clientele as a result of the refusal to renew the lease, the principal indemnity is qualified asreplacement allowance or loss of funds.

There is no specific method for assessing goodwill.

The tenant is compensated on the basis of the market value of the goodwill fixed according to the customs of the profession.

The following elements are then taken into account:

  • PLoss of customers. It can lead to the total disappearance of the goodwill. This is the case for local businesses, since customers are attached to the location of the business.
  • Operating results, often based on the turnover of the last 3 years.
  •  Right to lease rented premises by the tenant. This is one of the components of the goodwill that disappears as a result of the non-renewal of the lease. It may happen that the value of the right to lease is greater than the value of the land, for example because of the exceptional location of the premises. The eviction allowance must then be equal to the value of the right to the lease.
Incidental allowance

The replacement allowance may be increased by incidental allowances following:

  • Removal costs
  • Cost of relocation of goodwill
  • Costs and transfer duty related to the purchase of the new fund
  • Possible redundancy payments due to employees, if the eviction leads to their dismissal
  • Compensation for loss of accommodation, where the lease includes accommodation
  • Expenses related to the payment of termination benefits
  • Ancillary costs (e.g. loss of license)
  • Disorder benefit to compensate for discomfort due to eviction
  • Double rent (during the relocation period, the lessee may have to pay both the rent of the old and the new premises)

Travel (or transfer) allowance

Calculation of travel allowance

Where the activity carried out in the premises is transferable, a travel allowance (or transfer) must be paid. In assessing the possibility of relocation of the tenant, account must be taken of the nature of the activity and the rental status of the market in the neighborhood.

The assessment of the travel allowance is based on the difference between the amount of rent the tenant would have paid on renewal and the amount payable for the new space. A coefficient is applied to this difference which takes into account the quality of the location of the premises and the nature of the activity.

The cash displacement eviction allowance shall take into account the following:

  • Transfer of the fund, as a result of the tenant's move to new premises, without loss (or partial loss) of customers
  • Value of right to lease of the former premises
  • Possibly, cost of a new door-step.

If the cost of the trip is greater than the actual value of the fund, the compensation is limited to the replacement value. It is up to the lessor to prove that the fund does not disappear.

Incidental allowance

The travel allowance shall be increased by incidental allowances following:

  • Removal costs
  • Cost of relocation of goodwill
  • Costs and transfer duty related to the purchase of the new fund
  • Possible redundancy payments due to employees, if the eviction leads to their dismissal
  • Compensation for loss of accommodation, where the lease includes accommodation
  • Expenses related to the payment of termination benefits
  • Ancillary costs (e.g. loss of license)
  • Trade disorder to compensate for discomfort due to avoidance
  • Double rent (during the relocation period, the lessee may have to pay both the rent of the old and the new premises)

FYI  

One so-called employment allowance is paid by the lessor to cover the costs and transfer duties when acquiring a new business. However, it is not paid if the lessor provides evidence that the lessee has not in fact relocated to a new premises.

Who sets the eviction allowance?

The eviction allowance may be fixed amicably between the parties.

In practice, it is most often determined by a professional expert.

In the absence of an agreement, the parties may ask the court to fix the amount. The judge then decides on the extent of the damage that the eviction award must remedy.

When is the eviction allowance assessed?

The amount of the eviction allowance shall be assessed at the time closest to the time when the damage.

The allowance shall be assessed on the date of departure of the tenant or where the tenant is kept in the premises, on the date of the decision of the judges who fixed the allowance.

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