Is the commercial lease continued in the event of collective proceedings?

The opening of collective proceedings, whether a safeguard, a reorganization and even a liquidation, does not automatically entail termination of the lease. 

The continuation of commercial leases is organized by the general provisions of the law of collective procedures applicable to contracts in progress, and those more specific relating to “leases of buildings used for the activity of the company”. 

With regard to collective proceedings, the general principle of the continuation of contracts in progress is laid down in Article L622-13 I. paragraph 1 of the Commercial Code, the provisions of which apply to safeguarding and receivership. This is a principle of public order that cannot be circumvented by specific provisions of the commercial lease. A clause, inserted in the commercial lease, which would provide for automatic termination of the lease, would therefore be ineffective. 

Thus, “Notwithstanding any legal provision or any contractual clause, no indivisibility, termination or termination of an ongoing contract may result from the sole fact of the opening of a safeguard procedure. These provisions are applicable to receivership pursuant to Article L631-14 of the French Commercial Code. With regard to judicial liquidation, this principle is taken up in Article L.641-11-1 of the Commercial Code. 

This continuation of commercial leases in progress underpins the obligation of the co-contractor to continue to perform its obligations despite breaches prior to the opening judgment. Article L622-13 I. paragraph 1 thus provides that “The co-contractor must fulfil its obligations despite the debtor’s failure to perform commitments prior to the opening judgment. Failure to comply with these commitments shall entitle creditors only to be declared as a liability ”. 

The debtor, if a director is not appointed, the director or the liquidator alone may demand the continuation of the commercial lease; but, in this case, he must perform his obligation to pay the rents when due. 

This option is provided for in Article L622-13 II of the Commercial Code, which provides that the administrator alone has the option of requiring the execution of current contracts by providing the promised service to the debtor’s co-contractor. 

These provisions, which are intended to allow the company to pursue contracts useful for safeguarding or recovery, apply to commercial leases.  

More specific to commercial leases, Article L622-14 of the Commercial Code, as amended by the Law of 26 July 2005 and the Ordinance of 18 December 2008, restricted the scope of application of the provisions of Article L.622-13 when these leases relate to buildings used for the activity of the company. 

In this case, only I and II of Article L622-13 apply. The provisions of Article L622-13 III relating to the formal notice to take part in the continuation of the lease are excluded.

 Article L622-14 of the Commercial Code provides for the conditions for terminating the leases of the buildings used. Thus:

  “Without prejudice to the application of I and II of Article L. 622-13, the termination of the lease of buildings leased to the debtor and used for the activity of the company occurs under the following conditions:

 1. On the day on which the lessor is informed of the decision of the administrator not to continue the lease(…);

 2. When the lessor requests the termination or causes the termination of the lease to be noted for failure to pay the rents and charges relating to an occupation subsequent to the opening judgment (…) ”

As a result, only the administrator may unilaterally decide to terminate the commercial lease pursuant to Articles L622-13 II and L622-14 1°of the Commercial Code. 

Pursuant to Article L622-14 2°, the lessor may, for its part, continue the termination of the commercial lease for non-payment of rents and charges relating to occupation subsequent to the opening judgment.  

Its action may not, however, take place before the expiry of a period of three months from the said judgment. If payment of the sums due occurs before the expiry of this period, there is no need for termination. 

Beyond the question of the continuation of the commercial lease, the opening of a collective procedure of the lessee raises many issues in procedural matters. 

In any event, placement in collective proceedings should not be perceived as a failure or a threat by the lessee but, above all, as an instrument of protection. 

Our business real estate team is at your disposal to take the right steps.