What happens to the commercial lease if the tenant transfers the business?
In order to understand how the lease relationship changes in the event of a transfer or sale of the business, it is worth making a few distinctions.
THE PROHIBITION ON SUBLEASING
In commercial leases, the lessor generally includes a clause prohibiting the tenant from subleasing.
Since the clause is part of the agreement, by signing the lease the tenant accepts the prohibition of subleasing and, if he does not comply with it, he is in breach.
The clause is perfectly legitimate since, although the tenant may sublease the property, the law allows for a contrary agreement.
If no such prohibition has been agreed in the contract, the tenant may sublease the property: in this way a second contract will be added to the original contract between the landlord and the tenant, which regulates the relationship between the original tenant/landlord and the subtenant.
The original obligatory relationship does not change subjectively as the landlord can only enforce the rights and obligations under the lease against the original tenant and vice versa.
ASSIGNMENT OF THE LEASE
The assignment of the lease is different from subleasing in the following respects:
. the assignment is a trilateral operation, for which the landlord's consent is required (art. 1594, paragraph 2, Civil Code);
. if the landlord does not consent, the assignment is not opposable to him;
. if the landlord gives his consent and releases the original tenant (transferor), the subtenant takes over the same obligations and rights as the assignor.
THE TRANSFER OF THE BUSINESS
The rule that governs the fate of the commercial lease when the tenant transfers the business is Art. 36 of Law 392/1978 (regulation of non-residential urban property).
The tenant may sublease the property or transfer the lease even without the consent of the landlord, provided that the business is transferred or leased at the same time, notifying the landlord by registered letter with acknowledgement of receipt.
The lessor may object on serious grounds within 30 days of receipt of the notice.
In the case of an assignment, the lessor, if he has not released the transferor, may take action against the latter if the transferee fails to fulfil his obligations.
The indemnity for loss of goodwill is paid to the person who is the tenant at the time of the actual termination of the lease.
A number of principles are derived from these provisions:
(a) the landlord's consent is not necessary for the transfer, but the tenant is obliged to give notice of subletting or assignment of the lease;
(b) if the tenant fails to give notice to the landlord, the sublease or transfer shall not be enforceable against the landlord;
(c) if the tenant fails to give notice to the landlord, the 30-day period for exercising opposition shall run from the time the landlord becomes aware of the sublease or assignment;
(d) the landlord may exercise opposition only on serious grounds (e.g. lack of solvency guarantees of the assignee), which must be proved by the landlord;
(e) opposition suspends the effectiveness of the assignment vis-à-vis the lessor until the serious grounds are judicially established;
(f) by way of derogation from the general rules governing the transfer of a business, the tenant-transferor is liable to the landlord in the event of non-performance by the transferee.
The same principles also apply in the case of donation, sale and purchase and corporate transaction (merger, demerger) concerning the business.
CASE LAW OF THE COURT OF CASSATION
The jurisprudence of the Court of Cassation has questioned the hypothesis in which the tenant, instead of transferring the lease together with the company, transfers the company and simply subleases the property.
It is correct to infer from the literal interpretation of Art. 36 that a confusion between the two hypotheses is not permissible.
So the tenant may, alternatively:
a) sublease the property if he rents the business;
b) assign the contract if he sells the business.
If this were not the case, the consequences in terms of the practical application of the institution would be paradoxical: think of the case where the tenant, who has only subleased the property even though he has sold the business, remains entitled to compensation for loss of goodwill (Civil cassation, sentence 10157/1994).
Jurisprudence is unanimous on this point: if the property is subleased or assigned, the actual owners of the indemnity for loss of goodwill are the subtenant and the transferee, since they are the latter who may suffer prejudice following the termination of the lease.