Joint guarantee clause in commercial lease agreements: pay attention to leases dated after June 20, 2014

December 10th 2019

Definition of the joint guarantee clause

Upon drafting commercial leases, a clause is generally provided for, according to which, in the event of an assignment of the commercial lease, the assignor, i.e., current lessee, shall be jointly obliged to pay the assignee’s, i.e. the future lessee’s rents and charges.

Accordingly, in the event whereby the new lessee fails to pay the rent, this joint guarantee clause enables the lessor, to request that the previous lessee to pay the outstanding rent.

This mechanism can be explained by the fact that the lessor, who was able to choose the initial lessee and have a guarantee of his solvency, may not proceed likewise with the assignee, who is generally imposed upon the lessor.

In the event of the sale of a business, the lessor may not object to the lease assignment. Accordingly, the agreement shall lose its intuitu personae.

In consideration thereof, the legislator intended to provide the lessor with a guarantee concerning any outstanding rents, by enabling him to claim these rents from his previous lessee.

Consequences of the PINEL law

Prior to the PINEL law dated June 20, 2014, the joint guarantee clause required the assignor to remain the joint debtor for the payment of the rent during the entire term of the lease, even in the event of a tacit renewal of the lease[1].

Only a termination notice or termination of the lease shall terminate the solidarity between the assignor/assignee.

The PINEL law dated June 20, 2014, limited the duration of this guarantee with Article L.145-16-2 of the French Commercial Code which provides the following: “If the assignment of the commercial lease includes a clause for the assignor’s guarantee for rent payments for the benefit of the lessor, the latter may only assert such guarantee during a period of three years as from the assignment of such lease”[2].

Accordingly, the former lessee shall only be responsible for rents unpaid by the new lessee for a period of 3 years.

Application of Article L 145-16-2 of the French Commercial Code

It soon became clear that this new Article is not considered as a public policy provision.

Article L145-15 of the French Commercial Code, provides the “clauses, stipulations and arrangements” that are considered void[3].

This Article only provides for the clauses that are intended to prevent the right of renewal or a restricted list of provisions. Yet, no reference was made to
Article L145-16-2.

It is for this reason that starting from June 20, 2014, the draftors of commercial leases promptly provided for a general disclaimer clause mentioning that the parties accept waiving the benefit of Article L145-16-2 of the French Commercial Code. As a result, Article L145-16-2 lost its importance.

Decision rendered by the French Civil Supreme Court
(Cour de cassation)

The Cour de Cassation, in a decision dated April 11, 2019, rejected the aforementioned interpretation and affirmed the mandatory nature of Article L145-16-2 of the French Commercial Code, by declaring that it “was one of public policy”.[4]

In this case, the initial lessee company had been ordered to pay the outstanding rents in its capacity as guarantor for the new lessee’s rents and charges.

It lodged an appeal before the Cour de Cassation on the ground that the Court of Appeal had not applied the limitation of guarantee provided under
Article L145-16-2 of the French Commercial Code, whereas in this case, the lease had provided for a joint guarantee clause “through to the expiry of the remaining term of the lease”.

The Court dismissed the argument: “But, whereas having duly ruled that on the one hand, Article L. 145-16-2 of the French Commercial Code, which was one of public policy, does not respond to an imperative reason of general interest justifying its immediate application, and, on the other hand, that the joint guarantee, for which this text limits its duration to three years, is not provided for under the law of contract, but remains governed by the parties’ intentions, and accordingly the Court of Appeal had duly ruled that this text was not immediately applicable”.

Accordingly, the Cour de Cassation considered that Article L145-16-2 of the French Commercial Code was one of public policy, but that it only applies to lease agreements entered into after June 20, 2014.

In this case, as the lease agreement was entered into prior to this date, the court dismissed the appeal.

Public policy, scope of application of the law and sanction

In other words, for the commercial lease agreements entered into after
June 20, 2014
, the joint-guarantee clause shall only apply for a period of 3 years.

Any clause to the contrary shall be considered void.

This sanction is particularly severe insofar as the lessor, who thought that it had a guarantee for several years, shall, in reality, have none, as the clause shall be considered void.