The Location-Gérance Contract: Clauses, Rent and Duration

The location-gérance contract: clauses, rent and duration

The Commercial Code organises the location-gérance's entry and exit - but says almost nothing about life between the parties. Their relations live in the contract, and where the contract is silent, the courts reason by analogy from the ordinary law of leases (C. civ. Art. 1719 to 1735) - minus the provisions written for houses and farms, which do not fit the letting of an intangible. That silence makes drafting decisive: the owner's duties to deliver, guarantee and maintain, the tenant's duties to operate, preserve and pay, the redevance's indexation and revision, the ban on the tenant passing the operation on - each is a clause someone will one day read in a dispute.

This guide covers the contract's substance: the owner's obligations, the tenant's, the redevance from fixing to judicial revision, the duration, and the triangular relationship with the premises' landlord. The entry conditions and publicity are in the previous guide; the owner's exposure to third parties and the contract's end each have their own.

What the owner owes under a location-gérance

Delivery. The owner hands over the elements composing the fonds - excluding the goods held for sale, which cannot be "let". Where an administrative authorisation is needed to operate, failing to pass its benefit to the tenant breaches the delivery duty - provided the authorisation is transmissible. Premises-conformity failures have gone both ways: a tenant who took the fonds "as is", knowing the building's state, could not complain later; other non-conformities have been held delivery breaches. The trade books are not part of the fonds - the owner owes access to them only if the contract says so. The practical protections are documentary: an adversarial inventory of the equipment item by item, a list of the patents, marks, processes and know-how, both annexed to the contract, and an état des lieux even though none is required - the exit guide in this cluster shows what those papers decide.

Quiet enjoyment - including against the owner. The tenant must enjoy the fonds peacefully: the owner must abstain from any activity liable to compete with the tenant's, even where the contract contains no non-compete clause (C. civ. Art. 1719, 3°).

Maintenance. In principle the owner keeps the fonds fit for operation (C. civ. Art. 1719, 2°): replacing worn-out equipment, renewing the intellectual-property titles, seeing to the commercial lease's renewal, keeping the premises in order. In practice the contract usually shifts these to the tenant - but not all the way: a clause barring the tenant's claims founded on the état des lieux does not bar its damages claim for the owner's breaches of its contractual obligations.

The owner keeps its ownership - and its freedom. Absent a clause, the owner can transfer the fonds, for value or not, without the tenant's consent - the owner's person is indifferent to the tenant. The tenant who wants protection negotiates it: a preference right, a required intervention in any deed of sale, or a ban on transfers during the contract.

What the tenant owes under the location-gérance

Operate - and not let it decline. The tenant has both the right and the duty to operate the fonds, drawing profit without letting it wither (C. civ. Art. 1728). Contracts sharpen the duty, no depreciation, no fall in output, no interruption even temporary, and the courts enforce it; the duty even survives a judgment terminating the contract, until the fonds is handed back, where the judgment carries no provisional enforcement.

The security deposit. The standard protection is a deposit of two or three months' redevance, returned at the end less what is owed to the owner or to the third parties the owner had to pay. Its reach can surprise: an owner kept the deposit to cover a turnover collapse although the tenant had performed all its obligations, the fall being due to a competitor's opening nearby, because the contract so provided. The deposit clause is a risk-allocation clause; read it as one.

Exclusivity and identity. The contract can bar the tenant from operating any other fonds and demand its full time and care. Without such a clause, the tenant can run other activities - provided it neither competes with the let fonds nor diverts its clientele. And some things are barred even in the contract's silence, because they touch the fonds' identity: changing the trade name, the mode of operation or the premises - modifications that would depreciate the fonds or change its substance are off-limits with or without a clause.

Destination and upkeep. The tenant respects the fonds' destination (C. civ. Art. 1728): developing the activity and growing the clientele is its job; changing the business's object, or adding a new activity without the owner's agreement, is not. It maintains the equipment included in the fonds - but does not carry the tenant's fire presumption of Article 1733: that presumption concerns lettings of tangibles, so the tenant answers for a fire only on proven fault.

No passing it on. The tenant cannot assign or sub-let its right to operate without the owner's agreement or a clause allowing it - the inverse of the ordinary lease rule (C. civ. Art. 1717), justified by the intuitu personae: the owner chose this operator, its fonds' fate depending on this person's qualities.

Drafting the location-gérance: the clauses that earn their place

Pick your concern - the check gives the clause that answers it.

The redevance: fixing, indexing and revising the location-gérance rent

Fixing it. The redevance is usually a money sum fixed in the contract, payable at an agreed rhythm, monthly or quarterly, in advance or arrears, and indexed within the regulatory limits. Because it bears VAT, the contract should say whether the figure is exclusive or inclusive of tax. A redevance calculated on the tenant's turnover is equally lawful - with the reminder from this cluster's opening guide that royalties behaving like purchase instalments invite requalification of the whole arrangement.

The indexation and its guardrails. Where the contract carries an indexation (échelle mobile) clause, either party can seek revision whenever, by the clause's operation, the redevance has risen or fallen by more than a quarter against the last fixed figure (C. com. Art. L 144-11) - a mechanism aligned on the commercial-lease rule, and capped like it at the rental value. The clauses have their own case law: an indexation that can only move upwards is null; an ambiguous clause is for the trial courts to construe - "revisable each year on the construction index" was read as revisable, not automatically revised; and where an index disappears, revision requires economic conditions to have shifted the fonds' rental value by more than a quarter.

The revision procedure. The party seeking revision notifies the other by registered letter or bailiff's act (C. com. Art. L 144-12); failing agreement, the judge is seized as in commercial-lease rent revisions, adapts the indexation's operation to the equitable rental value at the notification's date, and the new figure applies from that date unless the parties agree another. The commercial-lease revision regime otherwise does not govern the location-gérance - only the revision action carries over, with its two-year prescription.

How long a location-gérance lasts

The parties fix the duration freely. In practice the contract is concluded for a fixed term, often with tacit renewal, a term the tenant's registry filing must disclose, and it ends at the term with no renewal right for the tenant: the location-gérance carries nothing like the commercial lease's protected renewal. An open-ended contract is possible, terminable on notice under the ordinary law. The end of the contract, non-renewal, termination, the fonds' return, the debts the end makes immediately due, has this cluster's dedicated guide; the point to carry from the drafting stage is that the exit's economics (stock take-back, improvements, indemnities: none unless stipulated) are written now or fought later.

Redevance trouble in your location-gérance?

Pick the problem - the check gives the rule and the move.

The location-gérance and the premises' lease: a triangle to manage

The owner stays the landlord's tenant. Where the fonds sits in rented premises, only the owner of the fonds has a contract with the premises' landlord: the owner alone holds the commercial-lease statute's protections and bears the bail's obligations, the rent being refactured to the tenant-manager or folded into the redevance.

The exceptions that let the tenant-manager in. Two narrow openings give the tenant-manager the statute's benefit against the landlord: proof that it created, regularly, a fonds distinct from the one let - rarely admitted, but recognised where a drinks-outlet's gérant was authorised to add and relocate distinct lines (confectionery, tobacco articles, leather goods) and won an eviction indemnity for that added fonds; or proof that it developed the clientele so far that a notable share attaches to it personally. Both are the tenant's to prove.

The tenant's breaches are the owner's problem. The landlord can seek the bail's termination against the owner for the tenant-manager's breach of a lease clause, and can refuse the owner the bail's renewal for the tenant-manager's infraction. Hence the standard drafting: annex the bail to the location-gérance or restate its main clauses, and stipulate that breach of a bail obligation terminates the location-gérance. An irregular activity carried on by the tenant in the premises is a lease infraction with its own sanctions - though the landlord can instead ratify the change of destination and invoke it to uncap the rent at renewal.

Two more corners of the triangle. If the tenant-manager buys the walls, the bail is not extinguished: it continues for the benefit of the fonds' owner. And the tenant-manager, though a stranger to the bail, can sue the premises' landlord in tort for its breaches of the lease, decayed accesses, a condemned gate, a dead goods-lift in the decided case, recovering its operating loss on proof of the causal link, with no separate tortious fault to establish beyond the contractual breach itself.

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 committing.