Reclassifying hotel/restaurant contracts as commercial leases in France: a risky but rewarding move

Reclassifying a hotel or restaurant management lease or a service contract as a commercial lease is no easy task in France. But when it succeeds, the benefits can be significant. Disputes are multiplying, however. This article looks at the advantages of reclassification, as well as its limits and litigation risks.

A commercial lease is appealing because it offers protection through the right of renewal

The first major advantage of reclassification is the right to renew the commercial lease (Articles L. 145-1 et seq. and L. 145-9 of the French Commercial Code). A lessee who operates the business and pays rent is, in principle, entitled to renewal at the end of the lease term, unless the lessor has serious and legitimate grounds for refusal. In practice, this provides a minimum level of stability of nine years (Cass. 3e civ., 29 October 2008, No. 07-16.185; CA Saint-Denis de la Réunion, 15 September 2017, No. 15/00923).

Unless the lessee is at fault, any repossession by the lessor gives rise to eviction compensation. Reclassification therefore gives real market value to the business operated by the incoming tenant.

Conversely, a management lease or a service contract is often shorter and less secure than a commercial lease. The lessee-manager or service provider does not benefit from commercial tenancy protection, and their position depends essentially on the contract terms (Cass. com., 23 March 1999, No. 97-15.700; CA Versailles, 12th Chamber, 25 November 2010, No. 09/06276).

A commercial lease is more attractive because it offers stronger protection for the business

The second major advantage is that reclassification entails the transfer of ownership of the business assets (customer base, trade name, patents, etc.) from the lessor to the lessee. The lessee can then sell or lease the business, thereby building up asset value.

Tax treatment and access to financing: what changes with a commercial lease

Under a commercial lease, rent is in principle deductible, provided the general conditions for deductibility are met. Under a management lease, the fee is also in principle deductible, if it qualifies as a normal operating expense.

A commercial lease is therefore not necessarily more advantageous from a tax perspective than a management lease. Its main value lies in the legal certainty it provides in relation to the occupation of the premises. The operator becomes the owner of the business and can build up value around its operation.

In addition, banks and investors are often more willing to finance a hotel or restaurant operator that benefits from a commercial lease, because of the legal security it provides.

Acting in time: the two-year limitation period, a major obstacle to reclassification

Article L. 145-60 of the French Commercial Code imposes a two-year limitation period for all disputes relating to commercial leases. This deadline is mandatory and cannot be extended or suspended by agreement between the parties. Accordingly, once the facts justifying reclassification are known, swift action is essential, otherwise the claim will be time-barred (Cass. 3e civ., 7 December 2022, No. 21-23.1032; CA Metz, 6th Chamber, 17 October 2023, No. 21/02888).

This limitation period begins when the contract takes effect. It is therefore important to act quickly and seek advice from a specialist lawyer in order to gather the necessary evidence and comply with the legal deadlines. In principle, only fraud can prevent the two-year period from running, but the courts interpret fraud very narrowly and it is therefore rarely accepted in practice (Cass. 3e civ., 31 March 2009, No. 08-11.607; CA Colmar, 4 June 2025, No. 24/02096).

Anticipating reclassification: risks for the lessor, precautions for the lessee

From the lessor’s perspective, reclassification means losing control over how the business is run, making it harder to exit through termination, and increasing the cost of refusing renewal, given the eviction compensation payable for a business that is often already valuable.

For the lessee-manager or service provider, it is therefore essential to review exclusivity and non-compete clauses carefully: once the contract is reclassified, those clauses will apply as written to the commercial lease.

Reclassification in practice: hospitality case law and the courts’ analytical framework

The competent court will examine the actual factual situation at the time the contract was entered into in order to determine its true legal classification, regardless of the label chosen by the parties. The key issue is whether the contract concerns a genuine business transferred by the lessor, or merely the occupation of the premises. Conversely, where a pre-existing business is already in place, properly equipped and operating - including through previous managers - reclassification is unlikely.

The burden is a heavy one for the party seeking reclassification: it must show that the commercial lease regime applies and that the contract in reality concerns only the occupation of the premises, not a business, and therefore falls within the scope of Article L. 145-1 of the French Commercial Code (CA Douai, 5 December 2023, No. 23/04076).

Our experience shows that the case law is indeed fairly restrictive. Courts have only rarely reclassified management lease agreements or service contracts as commercial leases where the lessee-manager or service provider actually operated a business on the premises and the contract had the usual hallmarks of a commercial lease - term, rent, and commercial purpose (Cass. 3e civ., 30 January 2002, No. 00-17.342; CA Angers, Commercial Chamber, 2 September 2025, No. 21/00137).

Reclassification may sometimes be achieved through an agreed amendment between the parties, although this is rare (exceptional, even, since it effectively removes the business from the lessor’s control). More often, it is sought through proceedings before the competent judicial court.

Proving reclassification: the evidence needed to persuade the court

The burden of proof lies with the party seeking reclassification, which must demonstrate the following, in particular:

• the absence of any contracts actually transferred by the lessor;

• the absence, in practice, of any staff transferred to the lessee-manager or service provider;

• the fact that the lessor did not provide any financial statements before the contract took effect, that the business no longer had any market value, and that the lessor had not carried out any work to bring the premises into compliance;

• the fact that “the business to which the management lease agreement was meant to apply had not existed in any meaningful form for many years when the lessee-manager took possession of the premises” (Cour de cassation, 3rd Civil Chamber, 30 January 2002, No. 00-17.342);

• the creation, or independent contribution, of a distinct customer base attached to the business and attributable solely to the lessee-manager (same case law);

• the lessee-manager’s assumption of responsibility for utility contracts, such as water, electricity, and cleaning, as well as for the payment of taxes and insurance;

• the carrying out by the lessee-manager of compliance works and major repairs, pursuant to Article 606 of the Civil Code, in order to operate the business;

• the absence of a licence IV (full liquor license) registered in the lessor’s name before the contract took effect;

• the duration and terms of the contract, including fixed rent and commercial purpose; 

• the lessor’s lack of involvement in the supervision and organisation of the lessee-manager’s services, together with the lessee-manager’s management autonomy, which is characteristic of a genuine commercial lease (CA Aix-en-Provence, 13 January 2011, No. 09/04614).

This list is not exhaustive: evidence is assessed on a case-by-case basis, considering all the circumstances.

In short, a lessee-manager or service provider may be strongly tempted to seek reclassification of its contract as a commercial lease, given the clear advantages of the commercial lease regime. 

However, as we have often seen, such a claim will only succeed where the owner has in reality leased only the premises, under the guise of leasing a business that did not actually exist, in an attempt to circumvent the protective commercial lease regime.