Buying a French Business Subject to Conditions: Financing, Licences, Lease Consent

Buying a French business under conditions suspensives: sign now, complete if

Almost no one buys a French business unconditionally. The buyer needs a loan that no bank has yet approved, a licence no authority has yet granted, an audit not yet finished. French law's answer is the condition precedent (condition suspensive): the parties validly make the sale depend on a future, uncertain event - obtaining the financing, keeping an administrative authorisation, the survival of a key contract (C. civ. Art. 1304). The contract is formed at signature; its effects wait for the event.

The mechanism serves both sides. The buyer signs without betting the deposit on a bank's mood; the seller takes the business off the market against a commitment that is real - the conditional contract is formed and binding as a frame from day one. It is also heavily litigated, mostly on two questions: whether the condition was validly drafted at all, and whether the party who wanted out quietly caused its failure. A buyer who under-applies for the loan, a seller who produces accounts no one can rely on: the law treats the blocked condition as fulfilled, and the exit closes. This guide covers what a condition is and is not, the valid and the void ones, the financing condition and the conduct that forfeits it, and what happens while the condition is pending - and when it fails.

What a condition suspensive is - and what it is not

Not a term. Both make the obligation wait on a future event, but a condition turns on an event uncertain in its very occurrence, while a term turns on an event certain to occur even if its date is unknown (C. civ. Art. 1305). A sale to take effect at someone's death is a sale at a term; a sale to take effect when turnover reaches a level is a sale under condition. The distinction is not academic: terms defer, conditions can kill.

Not a resolutive condition. The parties can also agree the reverse - a sale that unwinds retroactively if an event occurs (condition résolutoire). In business sales it is rare; practice runs on the suspensive version, and so does this guide.

Not a reservation of title. Parties often provide, as security, that ownership passes only on full payment of the price (C. civ. Art. 2367). That clause is valid, it is not potestative, because paying the price is the buyer's inherent obligation, not a discretionary choice, and it does not suspend the formation of the contract: it suspends only the transfer of ownership, with the risks staying on the seller until then, absent contrary clause. A reserved-title sale is a done deal with a delayed transfer; a conditional sale is a deal whose fate is open. Choose by what you mean: security for the seller points to reserved title, uncertainty about the deal itself points to a condition.

And a formed contract all the same. A conditional sale is signed and binding as a frame: neither party can walk away from the contract because the condition is pending. What waits is performance. That has a tax translation too: the registration duty on the sale is deferred until the condition is fulfilled - one reason well-advised parties structure commitments this way.

Valid conditions and void ones

Two validity rules police the drafting.

The event must be licit (C. civ. Art. 1304-1) - an unlawful condition voids the obligation that depends on it, and voids the whole sale where the clause was, in the parties' minds, essential to their bargain, so that removing it would upset the contract's economy.

The event must not depend on the debtor's will alone (C. civ. Art. 1304-2). A sale conditioned on what one party alone can decide is void - though the nullity is relative, protecting the other party, and can no longer be invoked once the sale was performed knowingly. Conditions depending partly on a third party are fine. The case law draws the line concretely:

• Void: a promise whose performance depended on the buyer confirming its intention to buy at the end of a management lease - an event only the buyer could cause or prevent; a promise conditioned on the seller's agreement to the price asked; a sale conditioned on the buyer exercising its own option to buy the building housing the business.
• Valid: two cross-conditioned sales, the walls and the fonds, each conditional on completion of the other, where each sale was locked in a compromis the parties could not leave without a serious financial penalty: no one's bare will controlled the outcome.

Two refinements complete the validity picture. The nullity is targeted: where a sale carries both a potestative condition and a term, the term survives - only the offending condition falls. And the sanction has a time limit of its own: once the sale has been performed in knowledge of the defect, the nullity can no longer be invoked (C. civ. Art. 1304-2) - a party cannot complete the deal and then reach back for the potestativity argument.

The drafting lesson: tie every condition to an external decision-maker, a bank, an authority, an expert, a counterparty, and never to a party's own change of heart. A condition that reads "if the buyer confirms" is an exit door dressed as a condition, and the courts strike it.

The financing condition: how buyers lose it

The most common condition is the loan. The bank's decision is external, so the condition is valid - but the buyer's conduct on the way to the bank is watched, under the rule that decides these cases: the condition is deemed accomplished when the party with an interest in its failure prevented its fulfilment (C. civ. Art. 1304-3). A buyer who engineers the refusal buys the business anyway - or forfeits the deposit. Conduct is measured against the terms of the condition itself, which can impose deadlines for the applications, the characteristics of the loan, and an obligation to approach several banks. Buyers have been held to have prevented the condition by:

• refusing, without serious reason, a loan offered on normal market terms;
• applying for a bigger loan than the one the condition described;
• approaching a single bank where the promise required several;
• changing the acquisition project after signing, so that the loan sought no longer matched the compromis.

The counter-example marks the boundary: a buyer who filed the application late but was refused for health reasons had not prevented the condition - the refusal did not come from the conduct. The test is causal, not moralising: sloppy diligence forfeits nothing unless it produced the failure.

For the seller, the financing condition is a calendar risk to manage, not a favour to resent. The tighter the clause, deadlines, loan profile, number of banks, proof of each application, the sooner the seller knows whether the deal lives, and the stronger the deemed-fulfilment claim if the buyer drifts. For the buyer, the same precision is the safe-conduct: applications that match the clause, filed on time and kept on file, make the exit unassailable when the market says no.

The same behaviour test runs through every other condition the parties design - an authorisation to obtain or keep, an audit to complete, a minimum profit to verify. A seller blocked its own condition by producing undated, uncertified accounts that made the liabilities look larger than the deal allowed; a tenant blocked the licence condition by concealing the criminal conviction that made the licence unobtainable and doing nothing to remedy it. And the rule has a fair edge: a buyer whose good-faith negotiations with a third-party supplier simply failed, no disloyal demands, no proof the third party refused its proposals, had prevented nothing.

Which conditions suspensives does your deal need?

Pick what your purchase depends on - the check shows how the condition should be built.

While the condition is pending - and when it fails

Pending. As long as the condition hangs, performance cannot be demanded (C. civ. Art. 1304-6): the buyer owes no price yet, and a price paid by mistake is recoverable as an undue payment (Art. 1304-5). The seller remains owner of the business with every attribute of ownership, including the risks, and may take conservatory measures. Death changes nothing: the conditional right and the conditional debt pass to each party's heirs.

Fulfilment is read against the clause, word by word. The former statutory rule that a condition must be fulfilled in the manner the parties intended was not carried into the reformed Code - and it did not need to be: the parties' stipulations still decide whether the event occurred. A café-restaurant promise conditional on obtaining a planning certificate, proof the drinks licence was freely transferable, and privileged debts below the price lapsed in full when the seller could show only a letter requesting the certificate, not the certificate received by the agreed date, and had informed the buyer of nothing.

Deadlines. They matter twice over. Where a deadline was agreed, the beneficiary can ask for an extension - but an extension is never deduced from the other party's mere inaction. Where no deadline was agreed, the obligation does not become perpetual: the judges set the reasonable period that is always implied, and the condition fails if the event has not occurred within it.

Failure. When it is certain the condition will not be fulfilled, the sale is deemed never to have existed (C. civ. Art. 1304-6, al. 3): the seller no longer owes delivery, and must return any instalments received. Both parties can invoke the collapse - unless the condition was stipulated in the exclusive interest of one of them, in which case only that party may. Which leads to the last lever:

Renunciation. A party is free to waive a condition stipulated in its exclusive interest, as long as the condition is neither fulfilled nor failed (C. civ. Art. 1304-4) - the buyer who finds the cash elsewhere waives the financing condition and completes. A condition stipulated for both parties can only be waived together; and who the exclusive beneficiary is falls to the trial judges' assessment. Draft the answer instead of litigating it: say in the clause whose condition it is.

The same logic governs who may invoke a failure. In principle both parties can rely on the collapse of the sale; where the condition served one party exclusively, that party alone holds the argument - which means a seller cannot use the buyer's failed loan to escape a deal the buyer still wants and can, by waiver, still complete. Read together, Arts. 1304-4 and 1304-6 make the exclusive-interest designation the single most consequential line in the conditions section of the deed.

The condition failed - or did it? Check your position

Pick the scenario - the check shows where the law puts you.

Drafting the conditions suspensives: the checklist

Every dispute in this guide traces back to a clause that left something open. The working checklist:

• External trigger. Tie the condition to a bank, an authority, an expert or a counterparty - never to a party's own confirmation.
• Defined event. "Obtaining a loan of €X over Y years at no more than Z%" beats "obtaining financing". The event's definition is the yardstick conduct will be measured against.
• Conduct obligations. Application deadlines, number of banks, the documents to produce and who certifies them - the diligence you write is the diligence you can demand.
• Deadline and extension. Fix the period for fulfilment, and how it can be extended - in writing, never by silence.
• Whose condition. State in whose exclusive interest each condition is stipulated: it decides who can invoke the failure and who can waive (C. civ. Arts. 1304-4 and 1304-6).
• Proof of fulfilment. Say what document establishes the event, the certificate itself, not the request for it, and to whom, by when, it must be delivered.
• The deposit's fate. Align the immobilisation indemnity with the conditions: returned when a condition fails without the buyer's fault, kept when the deemed-fulfilment rule bites.
• Succession-proofing. The conditional right and debt pass to each party's heirs - if that is not what the parties want, the clause must say so.

Frequently Asked Questions

This article is for general information only and states French law as published in the sources available at the date shown above. It does not constitute legal or tax advice. What a condition covers, and who it protects, depends on its exact wording. Always seek qualified legal advice before signing.