Commercial leases in times of crisis

Against a backdrop of rising rent arrears and an increasing number of insolvency proceedings, commercial leases have become a key issue for businesses in difficulty – both as a cost to be renegotiated and as an asset to be preserved. Act No. 2026-403 of 26 May 2026 on the simplification of economic activity has significantly rebalanced the relationship between landlords and tenants, without fundamentally altering the main principles governing commercial leases and businesses in difficulty.

Two stages should now guide the strategy of directors and their advisers:

• anticipate and negotiate while the situation still allows;
• protect and maximise the value of the lease if insolvency proceedings become unavoidable.

1. Amicable phase: new negotiation levers, all mandatory

The 26 May 2026 Act introduces several new measures, all of which are mandatory and therefore cannot be excluded by the terms of the lease, and which may be relied upon even before any dispute arises.

Tenants now have a right to pay rent monthly (Article L. 145-32-1 of the French Commercial Code): upon simply requesting this from the landlord, they may pay rent monthly where it was previously payable quarterly, provided that they have no disputed rent arrears. This provides an immediate cash-flow lever that can be used at an early stage or alongside amicable negotiations.

The guarantees required from tenants are also capped at three months’ rent (Article L. 145-40), across all forms of security, including security deposits, guarantees, independent guarantees and security interests. This rule applies only to leases entered into or renewed from 26 May 2026 onwards; for existing leases, the cap will apply upon renewal, with any excess to be refunded.

With regard to rent indexation, the Act expressly recognises the so-called “tunnel” clause (Article L. 145-38-1), which now lawfully limits annual rent variations, both upwards and downwards, on a strictly symmetrical basis – subject to a limited scope covering commercial premises whose rents are indexed to the ILC.

These new rules share the same sanction: the relevant provision is deemed unwritten (Article L. 145-15), rather than being declared null and void. This sanction has two distinctive features which make it a continuing negotiation lever for tenants – and a potential latent liability for landlords: an action to have a provision deemed unwritten is not subject to a limitation period, whereas claims for repayment of sums unduly paid remain subject to limitation rules.

Where direct negotiations fail, amicable procedures – mandat ad hoc and conciliation – remain the preferred route, given their confidential nature and the degree of control they leave with the director. Failing an agreement, the debtor may ask the court to grant a grace period for payment under Article L. 611-7, paragraph 5, of the French Commercial Code. Since 28 May 2026, however, any application for payment terms or suspension of the effects of a termination clause for non-payment has been conditional upon the tenant demonstrating its ability to repay the rent arrears and resume payment of current rent – a new requirement that significantly restricts access to this mechanism.

2. Judicial phase: the lease as a strategic asset subject to timing constraints

When insolvency proceedings become unavoidable, the lease ceases to be merely a contractual matter and becomes a question of timing – as well as an asset to be valued.

A landlord seeking to terminate the lease has two distinct legal grounds: a termination clause, which takes effect automatically once the one-month period following formal notice to pay has expired, and termination under ordinary law (Articles 1224 and 1227 of the French Civil Code), which requires a court decision and means that the lease continues until that decision is handed down. This distinction is significant: the opening of insolvency proceedings fundamentally alters the balance between the parties.

The order opening insolvency proceedings does not, in itself, terminate the lease: the landlord must continue performing the contract despite any pre-existing rent arrears, which may thereafter only be recovered by filing a proof of claim. The landlord may only seek termination on the grounds of post-opening rent and service charge arrears once three months have elapsed from the date of the order opening the proceedings (Article L. 622-14, 2°).

The decisive factor is therefore chronological rather than substantive: everything depends on the status of the termination clause in relation to the order opening the proceedings. If the clause has not been triggered by a decision having acquired the force of res judicata before that date, its effects are suspended – the landlord can no longer recover pre-opening rent arrears or rely on those arrears as grounds for termination, and the more favourable provisions of Article L. 145-41 of the French Commercial Code cannot be used to circumvent the three-month period. Conversely, if the clause has already taken effect before the proceedings are opened, the lease is terminated, the occupant becomes liable only for an occupation indemnity, and the leasehold interest definitively ceases to form part of the company’s transferable assets.

The court-appointed administrator also has an independent right to terminate the lease where continuing it no longer appears useful to the proceedings or the debtor is unable to meet future rent payments. In such circumstances, the landlord is only entitled to compensation if it can establish loss or relies on an express contractual provision providing for such compensation – a penalty clause may validly determine the amount in advance, within the limits of its scope (French Supreme Court, Commercial Chamber, 15 May 2019, No. 18-14.352; Commercial Chamber, 29 June 2022, No. 21-11.674).

Beyond its contentious dimension, the leasehold interest is also an asset in its own right, and its value may represent a significant proportion of the company’s overall value, particularly where the location is critical to the business. This value is relevant both to the compensation payable for refusal to renew the lease (Article L. 145-14) and to the price offered as part of a sale plan, where it may influence the court’s choice between competing bids.

Anticipate rather than react

From one stage to the next, the message remains the same: a commercial lease is no longer simply a cost to be monitored; it is a strategic asset to be protected from the outset. The new mechanisms introduced by the 26 May 2026 Act should be deployed as soon as the first signs of financial pressure emerge, before the timetable of insolvency proceedings itself determines the fate of the lease – and, often, that of the business as a whole.

Our Business Litigation, Mediation & Arbitration and Insolvency & Restructuring teams, and in particular Julie Degenève and Marie-Alice Lafontaine, who recently hosted a conference on this topic, are available to discuss these issues with you.