The Consequences of an Error Regarding the Nature of a Commercial Lease

Fraudulent use of a transitional lease can have serious consequences for the landlord.
 

In a recent ruling, the Court of Cassation reiterated that fraud taints everything, rendering the two-year statute of limitations inapplicable. Landlords must therefore be vigilant and comply with current regulations to avoid finding themselves in a difficult situation.

Misunderstanding the nature of a commercial lease can have significant consequences for the landlord. Fraudulent use of a “derogatory” lease deprives the landlord of the statute of limitations applicable to the tenant’s claim. Commercial lease laws provide strong protection for the tenant’s interests, particularly with regard to the lease term, which cannot be less than 9 years. To circumvent this rule, the landlord may offer a so-called “derogatory” lease. The term of this type of lease is flexible but limited to 3 years (2 years in this case, which was governed by the former Article L 145-5 of the Commercial Code).
 

The parties may therefore enter into either a single lease of 3 years (in this case, 2 years) or less, or several successive leases whose total duration does not exceed 3 years. When the landlord fails to comply with these rules and enters into multiple short-term leases, he or she risks finding themselves in a difficult situation.
 

In practice, a landlord enters into three successive short-term leases with the same tenant, under different names, over a period of 7 years. The first two leases are each for 23 months; the last one is for 36 months. When this lease expires, the tenant company remains on the premises, and the landlord waits about ten days before issuing a notice to vacate, followed by a summons for summary proceedings to obtain the tenant’s eviction.
 

The tenant is fighting back by asking the judge to recognize the lease as subject to commercial lease regulations, citing the landlord’s failure to comply with the rules. The total duration of the leases exceeded the stipulated two years. And, according to the law, if the tenant “remains and is allowed to remain in possession, a new commercial lease is deemed to have been entered into.” In her defense, the landlord argues that the tenant’s request for reclassification is barred by the statute of limitations, as it was not filed within the two-year period applicable to actions relating to commercial leases (Art. L 145-60 of the Commercial Code). For the Court of Appeals, there is no doubt: the action, brought more than five years after the conclusion of the contracts in question, is indeed barred by the statute of limitations.
 

Upon review of an appeal, the Court of Cassation overturned this ruling, citing a general principle of law clearly stated here: “fraus omnia corrumpit,” “fraud corrupts everything.” In this case, it held that the two-year statute of limitations did not apply.