Ending a Location-Gérance: Getting the Business Back, Stock and Debts

Ending a location-gérance: getting the business back, the stock and the debts

The end of a location-gérance is where its drafting is graded. The tenant has no renewal right: the fixed term simply expires, and everything then turns on questions the contract either answered or left to fight over - in what state the fonds returns, who keeps the stock, what the tenant's improvements are worth, and who is liable for the decline. The law adds two mechanisms of its own: the end makes the tenant's operating debts immediately payable (C. com. Art. L 144-9), and the employees pass back to the owner by the automatic-transfer rule. Around them: an end-of-contract publicity with its own fifteen days, a possible non-compete for the departing tenant, and a take-back the owner must run without stripping the assets from under the tenant's creditors.

This guide covers the exit: the ways a location-gérance ends, the publicity, the restitution and its accounts (state, inventory, stock, improvements), the debts the end accelerates, the staff's return - and what the departing tenant may and may not do next door.

How a location-gérance ends

Term, without renewal. The contract is usually for a fixed term and ends at it: the tenant can claim no renewal (C. civ. Art. 1212) - the protection belongs to commercial leases, and reappears only where the location-gérance disguised one. A tacitly renewed contract becomes open-ended (C. civ. Art. 1214 and 1215), terminable by either party at any time on the contractual notice or, failing one, a reasonable notice.

Termination for breach. Non-performance opens judicial termination - with the courts weighing the facts: a grocery open three days a week in a village of 160 was not under-operation justifying termination, while a quarry left partly unworked for years, its operation folded into a merged company until it was no longer an autonomous production unit, was. A termination clause can sanction the tenant's breaches automatically; and the duty to operate runs on after a termination judgment until the fonds is returned in fact, as the contract guide in this cluster notes.

Events. The contract ends with the disappearance of the fonds, an administrative closure, for instance, and with the tenant's death, the contract being intuitu personae; the owner's death does not end it, the heirs continuing it. The disappearance is strictly read: a fire that left the premises restorable within eight months had not destroyed the fonds - the contract survived, and the owner engaged its liability by failing to return the restored premises to the tenant.

What does not end it. The tenant's insolvency proceedings do not terminate a running location-gérance, whatever the contract says - subject to the insolvency law's own termination cases. And the landlord's refusal to renew the premises' bail is no ground for the tenant to walk: a clause renewing the contract "subject to the bail's renewal" only lets the tenant give notice when its right to the premises comes to an end.

The exit publicity. The end of the location-gérance is published within fifteen days in a legal-announcements medium (C. com. Art. R 144-1); a tenant whose activity ceases applies for de-registration within a month. The publicity matters to third parties for the same reasons the entry publicity did - dates from which the world must treat the operation as changed hands.

Giving the business back after the location-gérance: the restitution and its accounts

The fonds returns - all of it. The tenant returns the fonds or faces expulsion and an indemnity; co-tenants who undertook solidarily cannot deflect blame onto each other for missing equipment. The restitution covers every element the fonds comprised at the letting. Where the contract lists them precisely, the tenant answers for any missing item - without arguing the owner suffered no loss; without a list, the owner proves that a claimed element was in the letting. The inventory annexed at signature is, again, the document that decides.

The stock. Save a contrary clause, the owner is not obliged to take back the existing stock. A tenant who built inventory near the term can find itself owning goods with no shop - the stock-take-back clause (price, valuation method, condition) belongs in the original contract.

The state - write it or fight it. The law says nothing about the state in which the fonds must be returned; the parties should: indemnities for the owner against degradations, and for the tenant for improvements. In the contract's silence, the case law's grid applies:

• degradations burden the tenant where it undertook to return in good state; otherwise only on the owner's proof of the tenant's fault - economic circumstances depressing the fonds are no fault, an unjustified interruption of the operation is;
• the presumptions of the lease law do not apply: Article 1731 (tenant presumed to have received in good state) and Article 1732 are for tangible lettings - the owner cannot borrow them;
• improvements follow the fonds as its accessories - unless they amount to a new, distinct fonds or a heavily increased profitability; and the tenant is never simply expropriated: the principle that one who improves what one must return is indemnified gives the tenant a claim to the added value, the courts drawing the line between mere betterment and an indemnifiable extension;
• where the owner of the fonds also owns the premises and let both together, it owes the tenant, save contrary clause, an indemnity equal to the profit it draws from the added value the tenant's authorised material improvements gave the fonds or the premises' rental value (C. com. Art. L 145-46).

No retention. The tenant cannot hold the fonds hostage for its claims: the right of retention needs a tangible thing capable of physical possession, and a fonds is an intangible.

The location-gérance is ending - where do you stand?

Pick the dispute - the check gives the rule that decides it.

The debts the end of the location-gérance makes payable

Immediate exigibility. The end of the location-gérance, whatever its cause, makes immediately payable the debts connected to the operation of the fonds that the tenant contracted during the gérance (C. com. Art. L 144-9). The tenant's suppliers and lenders on operating credit lose their terms overnight: a rule creditors should price into any exposure on a tenant-managed business, and a cliff the tenant should anticipate in its exit planning. One exception spares one exit: where the location-gérance ends by the tenant's exercise of a purchase option under a credit-lease of the fonds, the acceleration does not apply (C. com. Art. L 144-13).

The staff comes back. The owner in principle resumes the employment contracts in force at the location-gérance's expiry, including staff the tenant hired, by the automatic-transfer rule, with the limits (a fonds no longer operable does not return its contracts) and the debt-allocation mechanics covered in this series' employees guide. The end of the letting is a workforce event as much as an asset event: the owner should know the headcount and the accrued liabilities before the term, not after.

The owner's conduct at the take-back. The end revives a warning from the owner's-risks guide: an owner who, on termination, immediately seized all the asset values that were the tenant's creditors' security answered to those creditors on the common law. The take-back follows the contract and the restitution rules - it is not self-help against the tenant's estate.

After the location-gérance: can the departing tenant set up next door?

With a clause: the sale rules transposed. Location-gérance contracts commonly carry a non-compete limiting the tenant's re-establishment after the end. Its conditions and effects mirror the non-reestablishment clause of a business sale, proportionality, time and space limits, strict interpretation, covered in this series' non-compete guide. The case law's illustration has everything in it: a pizzeria's ex-tenant, barred for two years within ten kilometres, took a cook's job a month later at his partner's grill fifty metres away - the grill served pizzas, could not run without him, and he shared its profits. Violation: €15,000 in damages, the court counting the clientele drained to the grill, the year the owner needed to find a new tenant (a €12,000 annual redevance lost), and the costs of proving the breach.

Without a clause: unfair competition remains. Clause or no clause, the departing tenant may set up again - but must avoid creating confusion in the clientele's mind between its new establishment and the fonds it managed, on pain of unfair-competition liability. The freedom is real; the sign, the name, the style and the canvassing are where it ends.

Planning the end of your location-gérance

Pick your seat - the check lists the moves before the term.

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 advice. Always seek qualified advice before acting.