Try Before You Buy: Testing a French Business Through a Location-Gérance

Try before you buy: the location-gérance as a test run

Most guides in this series treat the location-gérance as a standing arrangement. This one treats it as a bridge - the classic French route for handing over a business gradually: the owner lets the fonds to the intended buyer, the buyer operates it at its own risk for a year or three, and the sale closes only once both sides know what the business is worth in the buyer's hands. Done well, the sequence tests the fit, keeps the owner in control until the end, and preserves capital-gains exemptions that can make the final sale largely tax-free. Done carelessly, it collapses into a disguised sale with reversed deductions and back duties, or burns the exemptions through a control link nobody thought about.

This playbook assembles the sequence from both seats: why sellers groom the exit this way, what the testing buyer gets and risks, how the purchase is locked with a promise without turning the letting into a sale, the drafting discipline that keeps the qualification safe, the seller's social-contributions exposure during the test - and the tax payoff waiting at the end for those who sequenced it right.

Why sellers groom the exit through a location-gérance

Transmission by instalments of responsibility. The letting is the standard preparatory step for transmitting an individual business - to family members or to a third party. In the usual pattern, the owner and the candidate buyers form an operating company that takes the fonds in location-gérance. The owner associates the successors with the running of the business immediately, sheds direct responsibility progressively, and keeps control until the final transfer: the fonds is still the owner's, the letting has a term, and nothing obliges a sale to a tenant who disappoints.

A structure for the succession. In family businesses the operating company serves a second purpose: it is the vehicle that organises the succession and avoids, at the owner's death, an indivision over the whole of the business assets - the heirs hold shares in a running structure rather than undivided slices of a shop.

A test bench for restructurings. The same logic serves corporate groups: before merging two activities, a group can put one into location-gérance with the other's operator and measure whether the combination works - the merger signs only if the test succeeds. And in partial-asset contributions between companies under corporate income tax, a location-gérance concluded for the intercalary period, between the contribution's agreed effect date and the general meeting that approves it, is an accepted device for transferring the employees to the receiving company from the effect date; the administration has confirmed the arrangement's fiscal regularity, the contributed branch's autonomy being assessed at the agreed effect date.

What the owner gives up meanwhile. The counterpart risks are the standing ones of this cluster, sharpened by the transmission context: the owner answers for the tenant's operating debts until the contract's publication and for certain direct taxes over the same window, faces the debt-acceleration cliff and the staff's return if the test fails and the fonds comes back, and must resist running the business through the tenant - the owner's-risks guide covers the exposure map. A seller grooming an exit should treat the letting years as a governed handover, not an abdication: reporting clauses, inventory, insurance and non-compete drafting all belong in the contract.

The buyer's side of the location-gérance test

What the test gives. For the candidate, especially a third party, the location-gérance answers the question no due diligence can: what does this business earn in my hands? The tenant operates at its own risk and for its own account, becomes a trader by law, keeps the profits of the test years, and learns the clientele, the suppliers and the staff before pricing the purchase. A disappointing test costs the redevances and the exit accounts, not the purchase price.

What the test costs. The tenant's position has hard edges the buyer should price in from the first draft: no renewal right at the term, a restitution with its inventory accounts, the immediate exigibility of the operating debts when the contract ends (C. com. Art. L 144-9), a deposit that sits as a frozen asset, and, if the purchase never happens, a possible non-compete on the way out. The ending guide details each. Two drafting priorities follow: a stock take-back clause, and a term long enough for the test to mean something but short enough not to strand the tenant if the owner will not sell.

The position must be secured in writing. A tenant who invests in the test without securing the purchase builds value in someone else's asset - the improvements follow the fonds at the restitution, indemnity aside. The standard protection is the owner's unilateral promise of sale, usually coupled, where an operating company was formed with the owner, with the owner's undertaking to sell its stake in that company as well. The next section covers the mechanics; the point here is sequencing: the promise belongs at the start, negotiated while the owner still needs the tenant, not at the term when the leverage has flipped.

Testing a business through a location-gérance - your playbook

Pick your seat - the check lists the moves that decide the sequence.

Locking the purchase around the location-gérance

The unilateral promise. The owner alone commits to sell, holding the offer open for the agreed window; until the tenant lifts the option, the promise is only an offer, and the sale's transfer duties fall due only at the lift. One formality is unforgiving: a unilateral promise by private deed must be registered within ten days of its acceptance by the beneficiary, on pain of civil nullity (C. civ. Art. 1589-2) - a €125 fixed duty (CGI Art. 680), notarial promises being exempt from the formality. For the tenant this is the core instrument: price or price formula fixed while the leverage lasts, option exercisable when the test has run.

The synallagmatic promise is already the sale. Where both parties commit, reciprocal consent on the thing and the price, the promise is the sale, taxed and registered as one. Suspended on a condition, it is a conditional sale: the transfer duty waits for the condition, the deed meanwhile registering at the fixed duty. Parties who want a genuine test period should not sign a mutual promise dressed as an option: the qualification follows the commitments, not the title.

When the promise poisons the letting. The two instruments must keep their distance. A promise granted at the very entry into the location-gérance was held to be an outright sale where everything about the "letting" said price: the redevance was abnormally low, the "deposit" equalled the agreed sale price, its monthly instalments were in truth advances on that price, and a forfeit clause stood ready to re-price the letting retroactively if the sale fell through. The lesson is architectural - a promise at the entry is lawful, but the letting must remain economically a letting: market redevance, a deposit proportionate to the letting's risks, and no payment schedule that amortises the purchase price under another name.

The credit-lease route. Where the financing calls for it, the purchase can be structured as a credit-lease of the fonds, rent plus a purchase option, with one statutory reward at the exit: when the location-gérance ends by the tenant's exercise of the purchase option under a credit-lease, the immediate exigibility of the tenant's operating debts does not apply (C. com. Art. L 144-13) - the one ending that spares the tenant's creditors the L 144-9 cliff, as the ending guide details. The location-gérance rules themselves are public-order and extend to every arrangement with analogous clauses, the credit-lease included.

Keeping the location-gérance a letting: the anti-requalification discipline

Three qualifications to defend. A test structure sits between three boundaries, and each failure has a price. Toward the sale: the tax requalification covered in the taxation guide, deductions reversed, transfer duties claimed, where the owner was never going to be able to resume the operation. Toward the commercial lease: where no real fonds was let (activity interrupted too long, premises unequipped, clientele in truth the tenant's own), the "tenant-manager" holds a premises lease with the lease statute's renewal protections - against the owner. Toward the sub-letting: where the head lease prohibits sub-letting, a location-gérance that is only a dressed-up occupancy, no equipment or goods, a different trade under the tenant's own sign, a redevance shadowing the walls' rent, exposes the owner to the head landlord.

The working checklist. The same drafting keeps all three at bay:

• let a real fonds, operating, equipped, with its clientele, and inventory it in an annex; the conditions guide covers the existence question;
• keep the owner able to resume: do not sell the tenant the whole tangible substance at the outset, and keep the commercial lease in the owner's hands - the requalification cases turned on exactly these transfers;
• price the redevance as rent, proportioned to the fonds' value and results - not to the walls' rent alone, and not as instalments of the price to come;
• have the tenant operate at its own risk, for its own account, under the fonds' name - a "tenant" managed as the owner's agent or employee is no tenant-manager, and the letting exists or fails by the facts, contract or no contract;
• publish within fifteen days - the entry publicity closes the owner's solidarity window and dates the operation for third parties.

Why the discipline pays twice. The same facts that defend the qualification protect the tax sequence: a letting that is economically a sale forfeits the neutral entry, invites the abuse-of-law procedure, and can void the exit exemptions' logic - the conditions were built for a genuine letting followed by a genuine sale to the tenant.

The seller's social contributions during the location-gérance

The pure lessor owes none. An owner who is lessor and nothing more is affiliated to no compulsory social-security scheme for the letting: the redevances bear the social levies on patrimony income, but no social-security contributions - even where the owner never de-registered from the trade register. Voluntary old-age insurance remains open.

The involved lessor owes them all. Everything changes when the owner performs acts of commerce for the let business, dealings with the clientele, the suppliers, the staff, the banks, or carries on a professional activity in it: the redevances then bear the full compulsory contributions plus CSG and CRDS as activity income. The case law is strict: the involvement need not be decisive for the business, and receiving the redevances indirectly does not help - loyers collected through a single-member company whose associate works in the let business were caught (Cass. 2e civ. 1 July 2010 n° 09-14.379; Cass. 2e civ. 4 February 2010 n° 09-13.003). In a handover, this is the seller's trap: the natural impulse to keep a hand in the business during the test years has a contributions price.

Which scheme, who pays. The involved owner's scheme follows the role in the operating company: an employee-type role (a minority or equal gérant of the tenant SARL, for instance) means the general scheme - the tenant then owes the employer contributions as its own deductible charge and withholds the employee share, CSG and CRDS from the redevance; a majority gérant is under the self-employed scheme and pays, and deducts, the contributions directly. The tenant company may take over the gérant's contributions as extra remuneration - deductible if not excessive for the services rendered, and taxable income on the owner's side.

The ventilation clause. Where the redevance covers both the fonds and the building, only the fonds' fraction bears contributions - provided the contract splits the two: the bare letting of walls is a civil activity outside the contributions' scope. A one-line allocation in the contract is cheap insurance.

The tax payoff of a well-sequenced location-gérance

Neutral at every step until the sale. The sequence is fiscally light by design: the entry into the letting is not a cessation, no tax on the latent gains, profits taxed normally, and the operating company the parties typically create can be formed with a modest cash capital at no registration duty. The taxation guide details the running period; what matters here is the exit.

The exemptions the sequence was built for. Sold at the term to the tenant, the fonds can leave largely or wholly tax-free: totally where the value of the elements sold stays below €500,000, degressively up to €1,000,000 (CGI Art. 238 quindecies, thresholds set by the 2022 finance law), or fully, income tax only, social levies surviving, where the sale accompanies the seller's retirement (CGI Art. 151 septies A). Real-estate gains stay outside both, softened by the building's own holding-period allowance. The price of admission was paid at the entry: five years of direct operation when the letting began, and a sale to the tenant - with the published softenings and the control-link trap analysed in the taxation guide. The trap bites precisely in the try-before-you-buy pattern: an owner who leases to a company it controls and then sells or contributes the fonds to that company fails the no-dependence condition - the published fix being the simultaneous sale, to the successor, of the fonds and the entirety of the owner's shares in the tenant company.

Sequence, in one paragraph. Verify the five-year record; form the operating company with the successor, watching who controls it; let the fonds at a market redevance with the inventory annexed and publish within fifteen days; grant the unilateral promise and register it within ten days; keep the owner's involvement, and its contributions cost, deliberate; run the test; then close the sale to the tenant (or the fonds-plus-shares double sale) inside the exemption conditions, the buyer paying the transfer duties on the ordinary scale. Each link is ordinary; the value is in the order.

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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.