The principles

French law protects independent traders from loss of their trade and has created the concept of "commercial rights". The concept is based on the tenant’s right to renew a lease at the end of its term.

The tenant benefits from a nine-year lease, consented by the freeholder, whereby he may only terminate every three years and whereby he is assured of the renewal of the lease for a new term of nine years if he has met all his obligations. The tenant has the right to compensation should the freeholder decide to recover the use of his property.

This is the basis of an eviction allowance, and was originally designed to compensate prejudice caused to agricultural, industrial or commercial tenants who are obliged to leave the premises.

The components of the eviction allowance

Article L 145 - 14 of the code of commerce states that the eviction allowance must be equal to the damage caused by the failure of renewal and particularly includes the market value of the business, augmented by expenses incurred by removals, relocation and legal costs for a business of the same value, unless the freeholder proves that the prejudice is inferior to that amount.

Depending on the situation, lack of renewal can result in the loss of goodwill. The assessment of prejudice will vary accordingly.

Compensation of eviction for a tenant must be assessed and calculated differently depending on whether it concerns office space, shops, workshops, agricultural premises etc. (L.411 - 69 of the rural code).

Methodology

It is necessary to consider :

• The market rent value,
• The value of the lease,
• If the business is transferable,
• The value of goodwill,
• The amount of supplementary expenses.