French Leaseback: April 2017

Lack of transparency on the operator’s turnover

Many owners complain about the lack of transparency on the operators’ turnovers (made mandatory for the operator by a French law passed in 2009).

However, how can a co-owner, who accepts a reduction in rent and a share based on the turnover (clearly a still greater decline), control that the tenant sets the rent at his own discretion?

The risk of a tax adjustment for the landlord

Furthermore, a rent that is mostly or entirely variable posesthe risk of a tax adjustment by the French tax administration for the landlord.

The tax administration could qualify the co-owner as “co-operator” of the leaseback and therefore withdraw its tax benefit.

Negotiation of the commercial lease renewal: what provisions/clauses apply?

Waiver of the eviction compensation by the operator of the tourist residence

The owner can ask the operator to waive his right to claim an eviction/crowding-out compensation in the event of a non-renewal of the commercial lease. This eviction compensation, which must be paid by the owner operator,often amounts to 3 years of turnover on average.

However, each case is different. It is advisable to negotiate with the operator through a lawyer to secure a reasonable eviction compensation amount, meaning through a out-of-court settlement and without having to go through legal proceedings.

Under French law, the usual right of cancellation by the tenant after 3 years does not apply to commercial leases in a leaseback property.

Advice and tips from a lawyer specialized in leaseback properties

REFUSE TO LOWER THE RENT, AND MAINTAIN THE CURRENT LEASE

If the landlord refuses the decrease in rent, the commercial lease is maintained under the previous conditions.

During the 9 years of the commercial lease, the tenant will pay the same rent and he is not allowed (off course) to lower the rent without the landlord’s written agreement.

At the end of the 9-year time-period, the tenant is entitled to ask for a decrease in rent, but the lessor has the right to refuse.

The tenant must file a case in court requesting a legal expertspecialized in the rental value of commercial leases. This case is to be filed within a 2-year statute of limitation.

The report of the legal expert will guide the rents tribunalin setting commercial rents.

DO NOT TO PANIC, AND NEGOTIATE WITH A COOL HEAD AND THE HELP OF A PROFESSIONNAL

There is no emergency. The owner has time to negotiate with the tenant after having received legal advice.

CONSIDER DIRECT MANAGEMENT OF THE PROPERTY

The idea is to manage the real estate yourself with the other co-owner (or through a real estate agency).

Indeed, in many leaseback residences, the co-owner only needs to rent his property for a few weeks each year to earn the equivalent of what the operator payed him (9% of French leaseback properties are managed by the co-owners).

HIRE A LAWYER TO NEGOTIATE WITH THE OPERATOR

A lawyer with experience in negotiations and court proceedings can effectively represent a leaseback property owner, who faces demands to decrease rents.

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