Applicable law

Leases for premises in which a commercial, industrial or a craft industry is carried out are regulated by (i) the mandatory provisions of the Law n°490 of 24th November 1948 (applicable if the commercial, industrial or art craft activity has been held for at least three consecutive years) and, in the absence of specific provision, (ii) the provisions of the Civil Code (art 1548 and seq.).

Duration

Duration of the lease if left to the agreement of the parties; being noted that commercial lease agreements will typically have durations of three, six or nine years.

The legal notice period provided by the Civil Code to terminate a lease agreement is of 3 months before its term, but the parties may agree on a longer notice period.

Early termination by the landlord

The landlord may consider early termination of a lease under the conditions set out in the Law n°490 should the landlord want to (i) convert the building in part or in whole; (ii) demolish and rebuild it; (iii) participate in town planning operations; (iv) or should it be established that the building is in danger of ruin or is in an insalubrious condition.

Landlord may also terminate the lease in case of breach on the part of the tenant as of right in case a resolutory clause is inserted in the lease, which is common practice.

Early termination by the tenant

Tenant may also seek the early termination of the lease in case of the landlord's breach. However, as the resolutory clauses are more often in favor of the landlord, the tenant shall claim early termination before the courts.

Right of renewal and eviction indemnity

The Law n°490 grants the tenant with a right of renewal upon expiry of the lease, but only if it has carried out its commercial activity in the premises for at least three consecutive years (by way of one or successive leases). The renewal is for the same duration as the precedent lease (with a minimum of 3 years and no more than 9 years), notwithstanding anything contrary in the lease.

If the landlord refuses the renewal, it must pay an eviction indemnity to the tenant unless there is a serious and legitimate cause not to renew. As long as the indemnity is not paid to the tenant, the latter has the right to remain in the premises except in case a provisional eviction is fixed in summary proceedings.

In case of disagreement between the parties, the amount of the eviction indemnity will be set by the Commission Arbitrale des Loyers Commerciaux ("CALC"), which has exclusive jurisdiction.

In principle, the amount of the eviction indemnity shall correspond to the loss caused by the non-renewal.

In the event of relocation or transfer of the business, the compensation may represent the value of the leasehold rights to a replacement premises or to premises equivalent to those evicted, as well as the costs of relocation and removal in addition to any other prejudice the tenant may consider suffering of this situation (e.g. compensation for the commercial disruption during the time it takes to relocate).

In case of no relocation, the tenant may seek indemnification of the loss of value of the business and its components (among which the leasehold right) and the loss of its stock and cost of dismissing staff in addition to any other prejudice it may consider suffering of this situation.

If the amount of the eviction indemnity fixed by the CALC is not acceptable to the landlord, the latter has the right to withdraw and agree to the renewal, the terms of which will, in the event of disagreement, be fixed in accordance with the classic rent review procedure.

However, this is only possible if the tenant is still in the premises and has not already acquired or leased other premises.

Revision of the rent

It is common practice to agree on an annual revision of the rent based on the Cost-of-Construction Index (Indice du Coût de la Construction - ICC) published by the INSEE, French institute.

Notwithstanding any indexation clause in the lease, a rent review may be requested at each end of the lease term if it is proven that the rent does not correspond to the rental value of the premises, assessed on the basis of the extent, location, comfort, fittings and operating facilities of the premises.

The rent may be revised upwards or downwards during the course of the lease if it is established - in addition to the above-mentioned criteria - that this revision is justified by a change either in the general economic conditions of the Principality or in the specific conditions affecting the business and provided that the rent has not been revised in the last 3 years.

Fitting-out works

There are no mandatory provisions regarding fitting-out works. The matter is largely left to the parties' discretion, and to the provisions of the Civil code.

Reinstatement of the premises

There are no mandatory provisions regarding the conditions of the reinstatement of the premises at departure of the tenant. The matter is largely left to the parties' discretion and to the provisions of the Civil code.

Before the entry into the premises and before their release, it is recommended to have the state of the premises recorded by a bailiff during a contradictory inspection and to append the report to the lease.

Sublease and transfer of the lease

Unless prohibited by the lease, the tenant can sublease, in whole or in part, the premises. However, it is common practice that the landlord inserts provisions limiting the subletting for instance to companies in the same group or requires landlord's prior consent. Also, subletting shall be notified to the landlord by extrajudicial act.

The Law n°490 provides for the free transferability of commercial leases, subject to compliance with the activity authorized in the lease. On the other hand, it institutes a right of pre-emption in favour of the landlord.

In any event, whether subletting or assigning, the occupant shall comply with the activity authorized by the lease.

Acquisition of the premises

Subject to the tenant's pre-emption right (see below), the landlord may freely transfer the property of the premises. The lease shall be automatically transferred, and the new landlord shall be subject to all rights and obligations provided for in the lease.

The rental deposit shall also be automatically transferred to the benefit of the new owner.

Pre-emption right for the tenant

In the event of transfer for valuable consideration by the landlord, the tenant benefits of a pre-emption right except in case of auction sale, transfer to close relatives, transfer between joint owners, transfer of several premises located in the same building when the lessee occupies less than half of them.

Rental guarantee

There are no mandatory provisions regarding the form and/or duration of a rental guarantee. This matter is subject to the provisions of the agreement between the landlord and the tenant.

Usually, the rental guarantee is equivalent to 3 or even 6 months depending on the value of the premises and their installations and shall vary in case of rent variation.

Maintenance and repair

There are no mandatory rules for maintenance and repair obligations. This matter is therefore subject to the agreement between the landlord and the tenant and Civil Code provisions.

It is common practise for the landlord to only support the cost of works that would be considered as carcase work "gros oeuvre" (art. 491 of the Civil Code). All the other expenses are usually at the tenant's cost.

VAT & registration taxes

The rent and rental expenses – which are usually paid by the tenant quarterly and in advance - may be subject to VAT (20% as of the date hereof).

Depending on the specific situation, VAT can be optional or mandatory (e.g. rental of furnished premises, parking lots).

Also, within 3 months after the signature of the lease registration formalities are to be performed by the tenant. Registration duties shall be paid by tenant. These duties are equivalent to 1% of the total amount of the rend plus rental expenses during the initial period of the lease (0.50% if the lease is subject to VAT as of October 2023). Stamp duty will also apply.

Other provisions

Renting premises to any type of company, (where they can elect their legal domicile) without applying the provisions of law n° 490 is possible under law n° 1.433 of 18 November 2016, subject to specific conditions among which:

  • solely intellectual work and administrative services will be exercised in the premises;
  • clients can be received, subject to no stock being stored and commercial activity held;
  • the lease duration must be a minimum of five years;
  • each party may oppose the automatic renewal for the same duration, with a prior notice of six months, and with no indemnity to be paid;
  • the tenant may terminate the lease at any time after the first year of occupation, with a prior notice of six months.

Rent shall be revised on an annual basis with application of the Cost-of-Construction Index (Indice du Coût de la Construction – ICC) published by INSEE French Institute (unless agreed otherwise by the parties).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.