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Is the pinel law immediately applicable to current leases?

  • France
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Comments on the answer from the French Secretary of State responsible to the Minister for Economic Affairs, dated 31st May 2016 and relating to the so-called Pinel law (Question No. 93154 - The answer provides for the immediate application of the possibility for a tenant to terminate a commercial lease at the end of a three-year term, to current 9-year leases

In a Minister’s answer dated 31st May 2016, the French Secretary of State responsible to the Minister for Economic Affairs considered that those clauses, which are contained in commercial leases entered into prior to the taking effect of the Pinel law (law No. 2014-624 of 18th June 2014), and which prevent tenants from terminating the lease at the end of a 3-year term, shall be deemed not to be written.

Real estate professionals were not necessarily expecting this Minister’s answer and, to be quite honest, the answer went somewhat unnoticed. Yet, the answer deals with an important issue.

One will recall here that the new article L145-4 of the French Commercial Code provides for four different types of exceptions to the general possibility for a tenant to terminate the lease at the end of a three-year term. They are: where the term of the lease is higher than nine years; where the lease agreement relates to premises built for a single use only; where the lease agreement relates to premises for use exclusively as offices; and where the lease agreement relates to certain types of storage premises.

If the lease agreement meets none of those criteria, then the clauses, which prevent the tenant from terminating the lease at the end of a three-year term, shall be deemed not to be written. Yes but…the article 2 of the French Civil Code provides that legislation provides only for the future, and that it has no retroactive effect. So, what about the situation of current leases (including any leases, which were entered into before 1st September 2014), especially insofar as the Pinel law contains no specific interim provisions in this respect?

In her answer, the French Secretary of State decides that the new article L.145-4 of the Commercial Code shall be applicable immediately to current leases. Such decision is based on the following main reasons:

- the mandatory nature of article L.145-4 of the Commercial Code; and

- the theory relating to the legal effect of contracts.

However, it appears that the well-founded nature of this decision may be disputed, for various reasons.

In normative terms first: a Minister’s answer, in principle, has no legal value (except in tax matters) and is always “subject to the court’s sovereign appreciation of the situation”. So, the question is to know whether courts shall rule in the same way or not. We may wonder whether they will, because, had the legislator wanted to include Article L145-4 of the Commercial Code among those provisions of the Pinel law, which are applicable immediately (these include, notably, the provisions about the inventory of the premises upon vacating the premises, or those about the right of pre-emption that is available to the tenant), then the legislator would have done so.

Similarly, Mrs Sylvia Pinel had stressed during the parliamentary debates that the purpose of this law “is not to harm the equilibrium of those contracts, which have already been entered into”. Mrs Pinel had also recalled that the firm commitment made by the tenant would generally have been made in exchange for one or more concessions granted by the landlord (a rent-free period and/or a contribution to works that are carried out; etc.). So, challenging the firm duration of the lease would mechanically result in creating a manifest disequilibrium.

And landlords may want to invoke such manifest disequilibrium, notably in view of the new article 1195 of the French Civil Code (resulting from the Ordinance No. 2016-131 of 10th February 2016 reforming French contract law). This new article 1195 is about an “unforeseeable change in circumstances”, …which makes it “excessively expensive for a party to perform the contract, although that party had not accept to bear such a risk…”. Even though that article is likely not to be applicable to current contracts, the “spirit” of that article may very well be invoked to strengthen the factual circumstances of a case.

The abovementioned Minister’s answer also presupposes that one considers that the new provisions of the article L145-4 of the Commercial Code are among those mandatory provisions, which are compelling. But this is not the case in the case we are talking about here, as such new provisions are mandatory provisions, which are for protective purposes (as stated by the Minister in her answer).

Finally, this decision amounts to considering that the firm duration of a lease would be a legal effect of the agreement. And yet, the doctrine of the legal effects of contracts, being a doctrine finding its origin in case-law, is based on the principle according to which only the legal effects of contracts are governed by the new legislation. The legal effects are those, which are beyond the contracting parties’ will. In our case, it is the parties (and not the law), who decided to provide for a lease of a firm duration of nine years, likely in “exchange” for the aforementioned concessions granted by the landlord.

So, we cannot be sure that this interpretation will last, as various arguments to the contrary exist. Once again, we will have to wait until the courts take a stand. It is only then that we will get a clearer view of the situation.

Really, it seems we won’t get through.