What happens to the commercial lease when the tenant is in collective proceedings?

Verified 05 June 2024 - Directorate for Legal and Administrative Information (Prime Minister)

When a collective proceedings is open against the tenant, the court administrator or the liquidator look at the situation. He then decides to continue the lease, to terminate it or to assign it. In some cases, the lessor may itself decide to terminate the commercial lease.

In principle, the opening of a collective proceedings has no impact on the commercial lease . The dispute continues even if the tenant in difficulty did not pay the rents before the opening of the collective proceedings.

The opening of collective proceedings entails discontinuation of proceedings of creditors. This means that creditors can no longer seek payment of their claims or termination of the contract in court. Consequently, if the tenant does not pay his rents from the start of the collective proceedings, the owner of the commercial premises will not be able to claim them in court.

On the other hand, the landlord can obtain payment of the unpaid rents before the opening of the collective proceedings. To do this, it must perform a declaration of claims within 2 months from the publication of the opening judgment in the Bodacc.

Please note

It is not possible to provide in the commercial lease contract that the opening of a collective proceedings automatically causes the lease to be terminated.

The lease continues following the decision of various parties in accordance with the open procedure.

Who decides whether to continue the lease?

The commercial lease continues following the decision of thecourt administrator or the receivership under the open procedure.

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Judicial Redress and Safeguarding

At the opening of the safeguard or judicial redress proceedings, the court shall appoint a court administrator who alone decides on the continuation of the lease.

If the court does not appoint a trustee, the tenant decides to continue the lease after agreement of the judicial representative. In this case, if a disagreement arises between the tenant and the court representative, the judge-commissioner be seized by any interested person (including the owner).

Appointment of the administrator is mandatory above the following thresholds: a duty-free turnover above €3 million and at least 20 employees.

Judicial winding-up

In the case of a court-ordered liquidation, the court-appointed liquidator decides on the continuation of the lease.

When the court authorizes the continuation of the activity, it appoints, in addition to the liquidator, a judicial administrator if the company has more than 20 employees and has a turnover excluding taxes of greater than or equal to €3 million. In this case, the court administrator decides whether the lease should be continued.

What are the conditions for the continuation of the lease?

The commercial lease may be continued if the following conditions are met:

  • The lease is ‘ongoing’ at the time of the initiation of the collective proceedings. So the lease has to have already been signed and not yet terminated. The lease is no longer "in progress" if it was amicably terminated before the commencement of the collective proceedings or if it is terminated following a final judicial decision (i.e. without recourse).
  • The tenant has the funds and cash needed to pay rent.

In this case, the court administrator or the liquidator does not have an obligation to notify the landlord of the continuation of the lease. The owner must therefore continue with the commercial lease. It cannot object even if the tenant has arrears of rent on the date of the opening of the collective proceedings.

The lease is continued under the contractual conditions provided by the owner and the tenant before the judgment initiating the collective proceedings. This entails the payment of rent and compliance with the terms of the lease (e.g. the destination of the premises) by the tenant, administrator or liquidator.

Please note

Owner can send a formal notice to the lessee, administrator or liquidator in order to ascertain the fate of the lease. However, failure to respond to this formal notice does not result in the termination of the lease.

The commercial lease may be terminated at the request of thecourt administrator, of receivership , the owner or the tenant depending on the procedure (safeguard, judicial redress or liquidation).

Termination by the receiver or liquidator

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Judicial Redress and Safeguarding

When deciding whether to initiate judicial redress or safeguard proceedings, the court shall obligatory one the court administrator where the company has a duty-free turnover of more than 3 € million and has a workforce of at least 20 employees.

The court administrator may decide, without having to justify it, to terminate the lease of the premises used for the activity of the tenant company. It may also decide to terminate the lease even if the rents can be paid.

On the other hand, where the company does not have the necessary funds to pay the rents, it must terminate the lease.

The commercial lease is terminated on the day the owner is notified of the administrator's decision not to continue the commercial lease.

Warning  

The liability of the administrator may be incurred if he decided to continue the lease when the company did not have the funds to pay the rents. It may also be incurred when the administrator has been slow in terminating the lease due to the company's difficulties.

Judicial winding-up

After the opening of the winding-up proceedings, the receivership may decide to terminate the commercial lease without having to justify it; and at any time.

He can terminate the lease he has initially pursued even if he is able to pay the rent. On the other hand, where the company does not have the necessary funds to pay the rents, the liquidator in court must terminate the lease.

The lease is then terminated on the day the owner is informed of the liquidator's decision not to continue the commercial lease.

Warning  

Where the liquidator has requested the continuation of the lease or has been late in terminating it when he did not have the necessary funds for the rents, his liability may be incurred.

Termination by tenant

A judicial administrator is required when the company has a duty-free turnover of more than €3 million and has a workforce of at least 20 employees. In other cases, the court does not always appoint a judicial administrator.

In the absence of an administrator, it is the tenant in difficulty who decides to terminate the lease after agreement of the judicial representative.

If a disagreement arises between the tenant and the legal representative, the judge-commissioner be seized by any interested person (including the owner).

Termination by Owner

After the opening of the collective proceedings, the landlord may demand the termination of the lease only when the tenant does not pay his rent and expenses.

He has to wait for a three-month period who runs from the judgment initiating the collective proceedings to apply to the court for such termination.

Who shall I contact

Warning  

To obtain payment of unpaid rents before the opening of the collective proceedings, the owner must perform a declaration of claims within 2 months from the publication of the opening judgment in the Bodacc.

The landlord may also seek the termination of the lease in court, for reasons that arose before the judgment initiating the proceedings other than the payment of the rents. For example, there is a lack of maintenance of the leased premises. He must take legal action within 3 months of the publication of the judgment of judicial winding-up in the Bodacc: titleContent.

The commercial lease may be assigned either as part of a plan to transfer the tenant company or as part of the judicial liquidation of the tenant.

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Assignment of the lease in a transfer plan

In the context of a judicial reorganization or a judicial liquidation, the commercial court may decide the total or partial assignment of the tenant company. It shall then set a time limit within which take-back bids must reach the administrator or the receivership. After examining the takeover bids, the court shall select the one which ensures the most lasting employment and payment of the creditors.

The court adopts a divestiture plan that specifies the contracts necessary to maintain the business. In principle, the commercial lease is included in the transfer plan. It is thus transferred to the buyer of the company. It must be carried out in accordance with the conditions in force on the day on which the procedure is initiated.

Warning  

The clauses of the lease contract which concern the lease assignment (agreement of the owner, the joint and several payment guarantee rents, municipal pre-emption right) shall not apply in the case of a disposal plan.

Assignment of the lease outside of an assignment plan

This assignment takes place essentially in the event of the tenant being liquidated by a court. It shall be carried out with the authorization of the judge-commissioner.

The liquidator (or the receiver, if appointed) may assign the commercial lease but in accordance with all the terms of the lease agreement provided for in assignment :

  • The clause that provides for the approval (i.e. agreement) of the owner in the event of a lease assignment must be respected.
  • The municipality's right of pre-emption should also be followed. Before selling a goodwill or assigning a commercial lease located in a backup perimeter of commerce, the seller must make a declaration to the municipality concerned. The latter then has the opportunity to buy the business or to take over the commercial lease in priority to resell it to a trader or craftsman.
  • The joint and several guarantee provided for in the commercial lease does not apply when the lease is transferred.

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