Location-Gérance: Leasing Out a French Business Instead of Selling It

Location-gérance: leasing out a French business instead of selling it

Not every owner who steps back wants to sell. French law offers a middle path: the location-gérance (also called gérance libre), by which the owner of a fonds de commerce leases it, wholly or partly, to a tenant-manager who operates it at its own risk against a rent called a redevance (C. com. Art. L 144-1). The owner keeps the fonds; the tenant runs the business, becomes a trader in its own name, and keeps the operating profits and losses. Retiring owners bridge to a sale with it, families prepare successions through it, buyers test a business before committing to it, and groups use it to trial combinations before merging them. The regime, public order, applicable to artisanal establishments as well, has precise conditions, real risks for the owner, and its own tax logic; this article is the door to the whole cluster that covers them.

Here: what a location-gérance is and what it must contain, how it differs from the contracts that resemble it, why parties choose it, and the fiscal and social snapshot that often decides the choice - with the cluster's dedicated guides for the conditions, the contract, the owner's risks, the ending and the taxes.

What a location-gérance is - and what it must contain

A lease, so a rent. The location-gérance is a location: the tenant-manager pays a determined rent, the redevance (C. civ. Art. 1709). Without one, there is no location-gérance - the concession of a restaurant was not one merely because the owner drew "advantages important enough to be assimilated to a profit". The case law's one softening: where no contract fixed a redevance, the courts have found a location-gérance in a fonds conceded "in the common interest of the owner and the tenant" - an economic-common-interest reading that stands apart from mere advantages.

A real fonds, above all a clientele. The contract must bear on a fonds de commerce, whose existence is assessed at the contract's conclusion and proven by the owner: intangibles (clientele, lease right, trade name, industrial property) and tangibles (goods, equipment), the clientele being the element without which no fonds exists. No clientele, no location-gérance. And the courts requalify: where the "letting" comes with the sale to the tenant of the very elements the clientele attaches to, the owner can never take the operation back - so the whole arrangement is a sale of the fonds. The illustration: a father "let" his fonds to his son, who bought the equipment, traded under the same sign on the same market pitches and took over the clientele in fact, while the father told the tax administration his lessor activity had ended - a sale, whatever the papers said.

When a location-gérance is impossible. Three families of obstacles:

• the premises' lease: where the owner of the fonds rents its premises, the commercial lease must be checked first - a clause obliging the tenant to operate the premises personally bars the location-gérance (granting one justifies the lease's termination), while a clause merely requiring personal occupation does not, nor a clause barring "substitution or lending of the premises"; but a clause barring any making-available of the premises to a third party in any form, without the landlord's prior written consent, does bar an unauthorised location-gérance. The drafting differences are fine - and the stakes are the lease itself;
• regulated activities: some businesses cannot be let out at all - pharmacies must be personally operated (with a temporary two-year exception for a deceased pharmacist's family), tobacco shops likewise save in rural communes;
• competence requirements: some fonds can be let only to a tenant who proves professional competence - travel agencies, drinks outlets.

At the tenant's own risk. The tenant-manager operates at its own risk and peril - not as the owner's agent, and not as its employee: economic dependence without subordination does not make a salarié. Where operation at own risk is established, a location-gérance exists even with no written contract organising it - with all the regime's consequences.

A commercial contract. The location-gérance is a commercial contract: it makes the tenant a trader if it was not one already (C. com. Art. L 144-2), and it is commercial for the owner too - save the exceptional owner who never operated the fonds, and the usufructuary lessor, for whom the contract stays civil. Special statutory adaptations exist for public-transport and industrial-vehicle-hire businesses, and for the court-authorised location-gérance inside insolvency proceedings - both outside this cluster's scope.

Location-gérance or something else: the contracts that resemble it

Not a commercial lease. The bail commercial lets the walls; the location-gérance lets the business. The line is the fonds' existence: courts have found a location-gérance where a fully equipped butcher's shop was handed over as a going operation; where a five-month interruption had not destroyed the fonds; where the clientele spontaneously re-formed at reopening; and where a made-available complex came with staff, licences and supply contracts attached. They have found a mere lease of premises where the fonds had not been operated for two years, with bare premises, poor equipment and derisory stock; where the incoming tenant brought its entire clientele itself; where a licence IV had lapsed after ten years' non-operation; and where no independent clientele attached to the claimed fonds.

Not a sub-letting - unless it is one. A location-gérance is not a sub-letting of the premises: it lets an intangible, the enjoyment of the premises being only its necessary accessory. But because sub-letting is in principle prohibited without the landlord's consent, parties are tempted to disguise one as a location-gérance - and the courts look for the tell-tale indices: a real financial counterpart, a real fonds identical to the one operated, personal operation at own risk, and the absence of clauses copied from the commercial-lease statute. A "location-gérance" that obliges the occupant to pay the landlord's rent directly and perform all the head-lease's obligations, that covers a different trade under the occupant's own sign, that reserves the whole operation to the owner, or that concerns a fonds with no clientele of its own, a new fonds created by the occupant, is a prohibited sub-letting. A modest redevance is not, alone, disqualifying where the deal's economics explain it.

The other neighbours. An apport en jouissance of a fonds to a company creates a comparable situation and must respect the location-gérance rules, Article L 144-10 extends them to every convention with analogous clauses, though it is not a location-gérance in the parties' mutual obligations (it imposes no duty to operate on the recipient company). The gérance-mandat (C. com. Art. L 146-1) puts a manager in the shop for a commission proportional to turnover, on a mission the owner defines - but the owner keeps the fonds' risks: the gérant-mandataire manages for the owner's account, registers in the trade registry, and is no tenant. The gérance salariée keeps both control and risk with the owner, the salaried manager running the fonds for a wage. The triangle to remember: who bears the operating risk (tenant in a location-gérance, owner in the two gérances), and who pays whom (a rent to the owner in a location-gérance, a commission or wage from the owner in the others).

Is your arrangement really a location-gérance?

Pick the situation - the check gives the qualification the courts would apply.

Why choose a location-gérance

Preparing a transmission. The classic use is the staged handover of an individual business - to family or to a third party. The letting typically comes with an operating company in which the owner and the candidate successors both take part: the owner associates the future takers with the running of the business at once, withdraws progressively from direct responsibility while keeping control - and, in family businesses, the operating company built for the location-gérance becomes the structure that organises the succession and avoids an indivision over the whole business at the owner's death.

Testing before buying. For a third-party taker, the location-gérance is the trial period the sale of a fonds does not offer: run the business, at your own risk, before committing to the price. The taker's position is secured by a unilateral promise of sale of the fonds - and, where an operating company exists, the owner's undertaking to sell its stake to the other shareholders. The combinations are powerful and dangerous in equal measure: as this series' financing and duties guides show, a promise stapled to a location-gérance whose royalties are really instalments gets requalified as a completed sale. The cluster's try-before-you-buy guide draws the clean line.

Restructurings. Groups use the location-gérance to trial the combination of two activities before deciding to merge them. And in partial-asset contributions between corporation-tax companies, a location-gérance concluded for the interim period, between the contribution's effective date and the general meeting approving it, smooths the employees' transfer to the recipient from the effective date; the administration expressly accepts the technique, assessing the contributed branch's completeness at the agreed effective date.

What a location-gérance costs and saves: the fiscal and social snapshot

No exit taxation at the letting. For an income-tax owner-operator, putting the fonds into location-gérance is not a cession or cessation of business: no immediate taxation of profits or gains - the trigger that makes selling expensive simply does not fire. For a corporation-tax company, the administration has expressly stated that a location-gérance does not characterise a change of activity equivalent to cessation. The letting itself is, fiscally, a non-event; the operating regime during the location-gérance has the cluster's tax guide.

The exemptions keep working at the later sale. When the owner ultimately sells, the gains can still be exempted: under the value-based regime for businesses in location-gérance sold on the article's own conditions, full exemption up to €500,000 of transferred value and partial to €1,000,000 under current thresholds, or under the retirement exemption where the owner retires and ceases all functions within the twenty-four months around the sale; real-estate gains stay out, softened by the holding-period allowance. The gating condition to plan early: the owner must in principle have operated the fonds itself for five years before the letting. The detailed mechanics are in this series' capital-gains guide.

Social contributions on the redevances. Two situations divide the field. The pure lessor, owner and nothing more, is affiliated to no compulsory scheme on the redevances: no social-security contributions, only the patrimonial-income social levies, even where it never de-registered from the trade registry (voluntary old-age insurance remains open). But an owner who performs acts of commerce for the let business, dealing with its clients, suppliers, staff or banks, or works in it, pays the full contributions, CSG and CRDS on the redevances, whether or not that involvement is decisive and even where the redevances arrive indirectly (through a single-member company, in one case). The affiliation then follows the owner's role in the operating company, general scheme for a minority manager, self-employed scheme for a majority one, with the collection and deduction mechanics differing between the two, and the tenant able to take over the owner's contributions as extra consideration within reason. One ventilation worth drafting: where the redevance covers both the fonds and the building, only the fonds' fraction bears contributions - provided the contract splits the two.

Planning a location-gérance: which side are you on?

Pick your project - the check maps the route and the traps.

The location-gérance rulebook: what the rest of this cluster covers

The regime's depth sits in the cluster this article opens. The conditions guide covers who can let a fonds out and who can take one on, and the formalities, publicity included, that frame the start. The contract guide covers the clauses, the redevance and the duration. The owner's-risks guide covers the liabilities that survive the handover - the solidarity for the tenant's debts and taxes until publication having already been introduced in this series' joint-liability guide. The ending guide covers the return of the fonds, the stock, the debts the end makes immediately due, and the employees' automatic passage back - the employee mechanics themselves being in the employees guide. The tax guide covers the regime during the letting for both sides. And the try-before-you-buy guide assembles the purchase route: promise, redevance discipline, and the exemptions that reward a sale to the tenant.

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, updated against official sources for current thresholds. It does not constitute legal advice. Always seek qualified advice before committing.