Fonds de commerce lawyer in Paris: lease audit, price and warranties.

The sale of a fonds de commerce follows seven main steps. First, signature of a bilateral promise of sale with conditions precedent (landlord's approval, the buyer's financing, accounting audit). Second, notification of the proposed sale to the landlord and the request for approval. Third, satisfaction of the conditions precedent, in particular obtaining the loan and auditing the accounts. Fourth, signature of the final deed with the mandatory particulars of Article L. 141-2 of the Commercial Code and payment of the price into escrow. Fifth, publication in legal notices and the BODACC within fifteen days. Sixth, the ten-day opposition period for the seller's creditors. Seventh, gradual release of the price by the escrow agent after oppositions are cleared and the three-month joint tax liability has expired. The firm calibrates each of these steps in advance to avoid later disputes.

The commercial lease is generally the most valuable asset of the business, sometimes the only one that can really be valued. A lease with unfavourable clauses, an overvalued rent, an assignability clause incompatible with your project or a defective administrative authorisation can reduce the value of the business by 30 to 50%. The audit covers the remaining term, the assignability and approval clauses, the permitted use of the premises, any de-specialisation, the rent compared with the market, the history of rent reviews, the position on service charges, the joint guarantee provided for by Article L. 145-16-2 of the Commercial Code and the necessary administrative authorisations. The firm carries out this audit within forty-eight hours on the basis of the documents provided and issues a quantified risk note. The commercial leases page sets out our approach.

The escrow agent is in practice a notary, a lawyer or a trusted third party named in the sale deed. They receive the sale price on the day of signature and hold it for three to six months. This period corresponds to the combined opposition period of the creditors (ten days after the last publication), the joint tax liability period (three months from filing of the Article 201 CGI declaration) and any extended joint tax liability. The price is released gradually: repayment of justified oppositions, payment of established debts, and the balance to the seller after tax clearance. Where an opposition is disputable, the seller may apply to the urgent applications judge under Article L. 141-15 of the Commercial Code for authorisation to receive the price despite the opposition. The firm drafts escrow agreements and handles the related disputes.

The landlord's refusal of approval is not absolute. Article L. 145-16 of the Commercial Code provides that agreements aimed at prohibiting the tenant from assigning the lease to the buyer of their business are deemed unwritten. The assignment to the buyer of the business is therefore protected by a mandatory rule. The landlord may nevertheless make agreement conditional on legitimate obligations: approval, joint guarantee, provision of the assignee's documents, participation in the deed. Where the refusal is not based on objective grounds (the assignee's insolvency, a clear lack of experience, a project incompatible with the permitted use), it may be challenged before the urgent applications judge or the trial court. The court grants judicial authorisation of the assignment in most cases where the assignee shows sufficient financial standing and a consistent project.

Article L. 141-14 of the Commercial Code gives the seller's creditors ten days to oppose payment of the price, running from the last of the publications required by Article L. 141-12 (legal notice and BODACC). On pain of nullity, the opposition must state the amount and causes of the debt and include an election of domicile within the jurisdiction of the business. The landlord, by way of derogation, may not lodge an opposition for current or future rent. During this period, the escrow agent holds the entire price. The Court of Cassation, Commercial Chamber, 8 March 2023, No. 21-18.677, published in the Bulletin, reiterated that payment made to the seller before this period expires does not discharge the buyer as against third parties, exposing the buyer to paying twice.

Proof of fraudulent misrepresentation about turnover rests on cross-checking several documents. The certified balance sheets provided at the sale are compared with the business bank statements, the VAT returns and the accounting books that the seller must make available for three years under Article L. 141-2 of the Commercial Code. Where the gap between the declared figures and reality exceeds 20%, fraudulent misrepresentation is generally established. The Court of Cassation, Commercial Chamber, 4 November 2020, No. 18-19.747, illustrates a ruling against a seller who had concealed a fall of more than half in turnover over the last financial year. The Court of Cassation, 18 September 2024, No. 23-10.183, published in the Bulletin, held that the assignee's lack of diligence cannot be a ground for rejecting the action for fraudulent misrepresentation.

The warranty and indemnity agreement (garantie d'actif et de passif, GAP) is a contract freely negotiated between seller and assignee. It protects the assignee against the appearance, after the sale, of debts or liabilities that arose earlier but had not been disclosed (tax reassessment, employment dispute, customer dispute, concealed supplier debt). The GAP sets several essential parameters. The scope: taxes, disputes, latent defects in equipment, minimum working capital. The duration: generally two to three years, sometimes five years for tax matters. The threshold: the amount below which the warranty is not triggered. The cap: the maximum amount of compensation. The claims mechanism: notifying the seller within a strict time limit, the possibility of joint management of the dispute, and how the loss is assessed. The firm drafts precise GAPs adapted to the profile of the business and the parties.

The non-competition covenant prohibits the seller from carrying on a similar activity for a limited period and within a limited geographical area. To be valid, it must be proportionate and necessary to protect the assignee's legitimate interests. Case law traditionally accepts periods of two to five years, and geographical scopes that vary with the nature of the business. A neighbourhood bakery justifies a zone of one to two kilometres for three years. A B2B consultancy with a national clientele justifies a national scope for two to three years. A five-year clause covering the whole of France for a local business would probably be annulled as disproportionate. Validity is also assessed in light of the seller's age and ability to carry on another activity. The firm drafts calibrated clauses and defends their validity or their disproportion in litigation.

Where a creditor opposes payment of the price, the seller may apply to the urgent applications judge of the judicial court or the commercial court, under Article L. 141-15 of the Commercial Code, for authorisation to receive the price despite the opposition. Several grounds justify lifting it. The debt is not certain, liquidated and due. The opposition is manifestly abusive, for example where the creditor is itself a debtor of the seller. The debt has been extinguished by set-off, payment, limitation or waiver. The form of the opposition is irregular: no election of domicile, or failure to state the amount or causes. The judge rules in urgent proceedings on the basis of the documents provided. The amicable route, by direct negotiation with the opposing creditor, is often preferable where the debt is partly justified.

Approval is not legally required but results from the terms of the lease. Most commercial leases contain an approval clause for the assignee, the landlord having a legitimate interest in knowing who its new tenant is. The clause generally details the procedural obligations: prior notification, supply of the assignee's documents (Kbis extract, articles of association, balance sheets, guarantees), and the landlord's participation in the deed. Failure to comply with these obligations can lead to termination of the lease, to the buyer's detriment. Article L. 145-16 of the Commercial Code nevertheless protects the assignment to the buyer of the business: no clause may prohibit the assignment to the assignee of the business. The landlord may make its agreement conditional, not prohibit it. In the event of an unjustified refusal, judicial authorisation is available.

The tax treatment of the sale depends on the seller's status and the form of operation. For a sole proprietorship, the capital gain is taxed under the regime for business capital gains, with possible exemptions depending on turnover (Article 151 septies CGI), the value of the assets sold (Article 238 quindecies CGI) or retirement (Article 151 septies A CGI). For a company subject to corporate income tax, the gain on intangible assets is taxed at the standard corporate income tax rate. For shareholders selling shares, capital gains on securities are taxed at the 30% single flat-rate levy or, by election, at the progressive scale. The assignee is jointly liable for the tax due by the seller for three months from the filing of the Article 201 CGI declaration. The firm advises providing for a tax escrow calibrated to this period.

Article L. 141-2 of the Commercial Code requires that, on the day of the sale, the parties initial a document showing the monthly turnover achieved between the close of the last financial year and the month preceding the sale. The seller must also make available to the buyer, for three years, all the accounting books kept during the three financial years preceding the sale. Any contrary clause is deemed unwritten. The deed must also include the precise description of the business (customer base, shop sign, trade name, leasehold right, equipment, goods), the price broken down between intangible and tangible assets, the origin of ownership, the position on registered security interests, the necessary administrative authorisations, the non-competition undertaking and the escrow agreement. Omitting a mandatory particular engages the liability of the drafter of the deed.

The action for nullity on grounds of fraudulent misrepresentation is subject to a five-year limitation period running from the buyer's discovery of the defect, under Article 2224 of the Civil Code. Proceedings before the judicial court or the Paris commercial court last between twelve and twenty-four months at first instance. The procedure is ordinary, with mandatory representation by a lawyer once the value of the dispute exceeds €10,000, which is almost always the case for sales of a business. The court-appointed expert assessment phase, sometimes necessary to establish the turnover gap, can add six to twelve months. On appeal, the duration is generally twelve to eighteen months. Where possible, the firm favours an amicable, negotiated settlement to reduce delay and cost. In practice, a settlement can achieve a significant price reduction in six to nine months.

Jurisdiction depends on the nature of the dispute and the status of the parties. For a dispute between traders relating to the sale (fraudulent misrepresentation, warranty and indemnity, non-competition covenant), the commercial court has jurisdiction under Article L. 721-3 of the Commercial Code. In Paris, it sits at 1 quai de la Corse, in the 4th arrondissement. For a dispute with the landlord (approval, termination, joint guarantee under L. 145-16-2), the judicial court has jurisdiction. For a dispute with the escrow agent or opposing creditors, the judicial court or the commercial court has jurisdiction depending on the status of the parties. Territorial jurisdiction follows several rules. For actions relating to the commercial lease, the court for the place where the property is located has jurisdiction. For other actions, the court for the defendant's domicile. In Paris, the judicial court sits in the 17th arrondissement. Representation by a lawyer is mandatory above €10,000 and, whatever the amount, in matters within the exclusive jurisdiction of the judicial court, such as commercial leases (other than the setting of a revised or renewed rent).

Omitting a mandatory particular under Article L. 141-1 of the Commercial Code, as worded from 11 December 2016 to 21 July 2019, could lead to nullity of the sale, on the buyer's application made within one year. As that article was repealed on 21 July 2019, the omission can no longer in itself ground nullity of the sale. The buyer nevertheless retains two routes. The first is civil liability against the drafter of the deed (notary, lawyer, chartered accountant), who owes a duty of advice and vigilance. Failing to include an essential particular engages their liability, unless it is shown that the information was provided by other means. The second is fraudulent misrepresentation, where the omission was deliberate and determined the buyer's consent. The Court of Cassation, 18 September 2024, No. 23-10.183, published in the Bulletin, reaffirmed that the intentional concealment of decisive information constitutes fraudulent misrepresentation. The fraudulent misrepresentation route remains the most effective where the concealment can be proved.