How to give your Food Business under rental management?

The owner of a Hotel Café Restaurant may want to rent out his business. It can be a preparation for a recovery or simply to devote your time to something else.

Rental management can also be used as an intermediate solution before the purchase of the business to verify its economic viability.

Rental management concerns business assets. The tenant against payment of a price obtains the right to manage the business as his own. He will be able to benefit from the benefits and take all the administrative measures he wants.

We talk about lessor (for the owner of the Hotel-Café-Restaurant) and lessee for the person who takes the business under lease-management.

The conditions

On the lessor's side:

1. have operated the fund for at least two years (some exceptions to L. 144-5 of the Commercial Code);
2. he must ask for the permission of the owner of the premises (in case of commercial lease). In any case, it will be necessary to analyze the contractual conditions of the lease, and to respect their terms.

On the taker's side:

1. have the ability to trade (this means being able to be a merchant);
2. register in the trade and companies register or in the trades register (for artisans);
3. commit to exploiting the fund according to its destination, that is to say without changing the activity. This question should be well thought out, especially if the buyer intends to take over the fund in order to implement a growth or development strategy.

The rental management contract cannot be less than 9 years.

Registration formalities

1. Cancellation or modification of registration in the Trade and Companies Register (R.C.S.) for the lessor if he ceases to be a merchant during the rental management period. This will be the case if the lessor has no other funds to manage;
2. Registration with the lessee's R.C.S. if he is a merchant or in the Répertoire des Métiers if he is a craftsman, within 15 days of the start of the rental management;
3. Mention of the status of tenant/manager and the registration number on commercial documents — invoices, letterheads;
4. Advice to the Business Formalities Center (C.F.E.);
5. Advice to social organizations;
6. Within 15 days following the signing of the rental management contract, or its end, an extract from the contract, or a notice, must be published in a newspaper of legal notices;
7. Registration with the Tax Office of the situation of the property (optional).

The royalty

The law does not provide for a method of calculating the fee which can therefore be freely set by the parties. Thus, it is possible to provide for a review mechanism. However, the fee must comply with common law, which provides for the obligation that the price be determined or determinable (Article 1164 of the Civil Code).

Royalties are subject to VAT. For the lessor, royalties are taxable operating profits in the category of industrial and commercial profits (BIC). For the lessee, they are expenses.

Attention, the fees received by a lessor who continues to carry out commercial acts in respect of the rented company or carries out an activity there, are subject to social security contributions and to CSG and CRDS.

The end of the contract

According to common contract law, the conditions for terminating a management rental contract depend on the duration of the contract (fixed or indefinite).

1. If the contract is for a fixed term, early termination may only take place under the terms of mutual agreement under the conditions provided for in the contract;
2. If the contract is for an indefinite period, the termination may be made unilaterally at the initiative of one of the two parties. The rental management contract may provide for the modalities of terminating the contract.

Risk — Takeover by the lessor of the property as is: the lessor takes over the business as is.

As a result, this form of management may present a risk for the lessor. Upon resumption, the economic activity of the fund may be damaged. Consequently, it is possible to provide for the lessor to have control over certain management decisions in order to limit its risk.

Sale of the business. It often happens that the management lease is used as a lever for the acquisition of business. The tenant can benefit from an option to buy from the goodwill at a price reduced from the royalties paid.

Attention, in this type of contractual arrangements, great caution must be exercised. The tax authority may requalify the contract as a disguised transfer. Thus the tax base (the price of the goodwill) is increased by the royalties paid.

‍