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Transfer of business
• Principle of freedom of assignment of the lease by the tenant
within the context of the right to transfer its business.
• Validity of restrictive clauses:
–– transfer of the lease without the business may be
prohibited;
–– clauses limiting the transfer to various conditions such
as prior information of the transfer by the landlord, prior
payment of any unpaid balance, drafting of the transfer
agreement as a notarised deed to which the landlord is a
signatory, etc., are deemed valid;
–– in the case of assignment of the lease, it may be provided
that the tenant remains jointly and severally liable with
the assignee for the tenant’s obligations under the lease,
in particular, the payment of rent and charges.
The environmental appendix
• Since 14 July 2013: any new lease or renewal relating to office
or commercial premises of a surface area greater than
2,000 sqm has to provide a “green appendix”.
• It contains information on current consumption, a description
of facilities such as heating, lighting or waste management,
and set out objectives for improving the building’s
environmental performance.
• No penalties in the case of absence of such document.
Evolution of the rent during the initial lease
• Rent is usually yearly adjusted in accordance with an
indexation clause providing for an evolution of the rent on the
basis of an index:
–– the Commercial Rent Index (Indice des Loyers
Commerciaux) is applicable to premises used for
commercial purposes (as opposed to office space);
–– the ILAT (Indice des Loyers des Activités Tertiaires) is
applicable to premises used for office activities.
Term of the renewed lease
• When the term of the initial lease is more than nine years, it
is renewed subject to the same terms and conditions as the
previous lease but for a term of only nine years.
Rent on renewal
• Rent on renewal must correspond to the rental value of the
leased premises: when the parties cannot agree on this value,
the law refers to certain elements:
–– the characteristics of the premises;
–– the permitted use;
–– the respective obligations of the parties;
–– local commercial factors which have an impact on the
business operated by the tenant; and
–– the prices commonly applied in the vicinity.
• Exception to this principle: the rule of capping renewed lease
rent:
–– not applicable for leases exceeding a nine-year term;
–– provides that the rate of variation applied to the rent
payable upon entry into force of a renewed lease
cannot exceed the variation in the quarterly National
Construction Cost Index published by the INSEE since
the date on which the initial rent of the expired lease was
determined;
–– does not apply when: (i) as a result of tacit extension
(ie, when the lease continues to have effect after its
contractual term because no party has given notice),
the term of the lease exceeds twelve years, (ii) single-
use premises (premises which, according to their
characteristics, can only have one use, such as a cinema
or a hotel); and (iii) premises used exclusively as offices.
• In addition, the parties may derogate by contract from the
capping rule and freely fix the procedure for determining the
amount of the renewed lease.
TAX
Direct acquisition of a property
• The acquisition of a property gives rise to either stamp duty
(droits d’enregistrement) or value added tax (VAT).
• Stamp duty applies to a construction completed for more than
5 years at the time of the acquisition. Stamp duty is assessed
on the purchase price and is, in principle, levied at the rate
of 5.0980
1
, subject to exceptions where a reduced rate of
0.715% (eg. undertaking to re-sell the property within a
5-year period) or a fixed duty of €125 (ie. undertaking to build
a property within a 4-year period) apply.
• On the contrary, the acquisition of a property from a seller
liable to VAT is automatically subject to VAT in the case of (i)
a terrain à bâtir (ie. land upon which constructions fixed to
or in the ground may be authorised under local or municipal
planning rules or the provisions) or (ii) a building completed
within the last 5 years. VAT is levied at the standard rate of
20% and assessed, in principle, on the purchase price.
• In addition, notary’s fees amount to around 0.825% of the
purchase price above €60,000 (1% incl. VAT), it being said
that, fees exceeding € 80,000 (excl. VAT) may be negotiated.
The land registrar’s salary (contribution de sécurité
immobilière), levied at the rate of 0.10% on the same basis as
stamp duty, is also due.
Acquisition of shares in a company holding a property
• For stamp duty purposes, a real estate company (sociétés à
prépondérance immobilière/SPI) is defined as a non-listed
legal entity (French or foreign) of which the assets mainly
consist, at the time of the acquisition (or during the year
preceding the sale of the shares), of property or property
rights located in France or shares in other SPIs.
SPIs
• Rate: 5%
• Taxable basis: sale price (or market value, if higher).
Companies other than SPIs
• Non listed joint stock companies (sociétés anonymes,
sociétés par actions simplifiées): rate of 0.1% assessed on the
purchase price; or
• Partnerships (sociétés civiles, sociétés en nom collectif,
sociétés à responsabilité limitée): rate of 3% (with a
deduction of €23,000 multiplied by the number of shares
transferred, then divided by the total number of shares of the
company) assessed on the purchase price.
• Regardless of the nature of the company, a merger only gives
rise to a fixed duty of €375 or €500 (plus notary fees and
land registrar salary) where it involves companies subject to
corporation tax.
Asset deal vs. share deal
• Acquisition of the shares in an SPI may generate tax savings
in terms of stamp duty but, it may also have other indirect tax
consequences (eg. inheritance of potential tax liabilities, no
right to depreciate shares).
1
Save in Paris where the rate is currently 5.09%.
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Investors Guide to Europe 2015