The Protection of Goodwill in Commercial Lease: Focusing on the discussion in French law
Authors:   Korean Association of Aggregate Building Law, Park Soo-Gon , Kim Young-Doo 
Published: May 2023

Commercial lease in France is protected if the lease term is more than 9 years. If the lease term is less than 9 years, the lease cannot be regarded as a commercial lease. However if the lease is implicitly renewed, it can be converted to a commercial lease. In a commercial lease, if the lessor refuses to renew, eviction compensation must be paid to the lessee. Eviction compensation is to protect the tenant's goodwill. If the lessee was a retailer or small merchant, and the leased premises were the place where the lessee was operating, such a retailer could suffer considerable damage if the lessee could not open a new business nearby immediately after eviction. In particular, if the lessor rents the premises to the lessee's competitor, the lessee's damage may be increased. In this case, the competitor is prepared to pay a higher rent to the lessor because the intangible assets such as customer which is already formed are available.
Anyway, in France, the tenant's right to business is also called commercial ownership(propriété commerciale). In fact, this expression is intended to indicate that commercial lease is the most important element of goodwill and can be transferred together with goodwill.
In relation to the requirements for the right to claim eviction compensation under French law, if the renewal is rejected, the lessee can claim eviction compensation, occurs, and other requirements are not necessary. However, only goodwill holders can request the renewal of the commercial lease, and there is no need to pay compensation if there is a reason to refuse the renewal, such as the tenant's failure to pay rent. In addition, there is no need to pay compensation if the demolition or reconstruction of the building is required for safety or hygiene. Therefore, if the above reasons do not exist and the lessor refuses to renew, the lessor must pay the lessee the eviction compensation. However, the amount and scope of the compensation may vary depending on the type of commercial lease. It is also controversial whether the agreement excluding compensation is valid, but considering the principle of private autonomy, such an agreement should also be considered valid. However, if the amount of compensation is large, it is not realistic to make a waiver agreement for eviction compensation. In this case, it is unlikely that the tenant will agree to give up the right of compensation.
Regarding the scope of compensation, the French Commercial Law stipulates that the scope of compensation that the lessor must pay to the lessee corresponds to the amount of damage caused to the lessee due to the refusal to renew the commercial lease. However, the question of how to calculate the amount of damage arises. Article L.145-14 of the French Commercial Code states in principle that damages corresponding to 'loss of business' should be compensated. The market value of business is usually determined by multiplying the annual turnover of a business by a certain coefficient. In addition, ordinary moving costs and resettlement costs should also be added to the compensation.
The lessor is indirectly forced to renew the contract because if the lessor refuses to renew, he or she has to pay eviction compensation. This protects the tenant's goodwill. However, in some cases, the compensation is not calculated based on the value of goodwill, but solely on the value of the lease right. In particular, this applies to cases where changes in the place of business do not affect customer attraction due to the special knowledge or situation of tenant.