The short-term / derogatory commercial lease
Everything you need to know about short-term and derogatory leases in commercial real estate
As its name suggests, the short-term or derogatory commercial lease is a short-duration rental agreement. Commercial in nature, it is typically chosen by landlords and tenants who do not wish to enter into a standard commercial lease. There can be many valid reasons for this choice, but it is worth taking a close look at a few key points before making an informed decision. Whether you are starting a new business, want to test the potential of a particular location, or need to respond to an urgent situation — find out how a short-term lease could meet your needs.
What is a short-term lease?
This type of commercial lease goes by several names: short-term lease, derogatory commercial lease, or twenty-three-month lease. It refers to a short-duration lease that avoids any long-term commitment, offering flexibility and agility to both tenants and landlords.
What a short-term lease is not: it should not be confused with a precarious occupancy agreement, which is far more provisional and unstable in nature. The latter allows for even shorter durations (from a few months to two years) and can be terminated at any time.
Why use a short-term derogatory commercial lease?
A lease widely regarded as ideal for getting started! The precarious lease offers numerous advantages for both landlord and tenant. For the tenant, it provides the opportunity to carry on business activities in commercial premises for a short period, allowing them to confirm that the location and premises are right for their needs. It is therefore an ideal solution for launching a new venture. Other common uses include gaining visibility over a short period, running seasonal or one-off professional activities, or responding to an urgent situation. This twenty-three-month lease should not, however, be confused with seasonal rental agreements.
At the end of the agreed period — which may not exceed two years — the tenant may choose not to renew their lease or, conversely, to confirm it. The short-term lease is then converted into a standard commercial lease.
The arrangement also benefits the landlord, since the tenant has no right to lease renewal and no entitlement to a goodwill indemnity.
Good to know: The landlord may sign several short-term leases with the same tenant, provided the total duration of those contracts does not exceed 3 years.
The short-term lease allows tenants to confirm that the location and commercial premises are suited to their business activities
Who is the short-term lease for?
The derogatory lease allows parties to depart from the rules that normally govern commercial leases. Like a standard commercial lease, it applies to the operation of a business, commercial or artisanal premises.
Sole traders and micro-businesses can also benefit from it.
What are the characteristics of the short-term lease?
From a legal standpoint, the contract concluded between the parties must reference Article L145-5 of the French Commercial Code, which provides for the exception to the standard commercial lease. It should be noted that this type of contract cannot be signed if the tenant is coming to the end of a standard 3/6/9-year commercial lease.
Duration of the short-term lease
The duration is limited to a maximum of 3 years.
Termination of the short-term lease
Both parties are bound by their commitments and cannot terminate the contract early. If the tenant nevertheless chooses to vacate the commercial premises, they will still be required to continue paying rent to the landlord. Notice of termination must be given by recorded delivery letter with acknowledgement of receipt.
Conversion of the contract
It is important to be mindful of the terms agreed with the landlord. At the end of the contract period, the short-term lease is automatically reclassified as a standard commercial lease if the total rental period exceeds 3 years.
What does a short-term lease contain?
How do you draft a short-term lease correctly? While the law imposes no particular formal requirements — unlike other types of professional lease — it is nonetheless recommended that this contract be drawn up as a private deed or notarised document. Drafting it is no straightforward task, and it is customary to seek guidance from a recognised professional.
That said, please note that several conditions must be met when drafting a short-term lease:
- A description of the commercial premises (location, address, floor area, layout…)
- The agreed duration of the derogatory lease
- The rent amount, freely agreed between the two parties
- A security deposit if required by the landlord
- A schedule of condition upon entry to the premises.
The short-term lease is not designed to be a long-term arrangement, but it can offer a valuable stepping stone for many businesses. The ideal solution for temporary situations, urgent needs or business launches, this rental contract delivers the flexibility everyone is looking for.
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Frequently asked questions
What is a short-term lease?
It refers to a short-term lease that avoids long-term commitment. It offers flexibility and agility to both tenants and landlords.
Why use a short-term derogatory commercial lease?
The short-term lease offers many advantages for both the landlord and the tenant. For the tenant in particular, it provides the opportunity to operate within commercial premises for a limited period, allowing them to confirm the suitability of the location and the premises for their business activity.
Who is a short-term lease intended for?
A derogatory lease agreement allows parties to depart from the rules that normally govern commercial leases. Like a standard commercial lease, it covers the operation of a business, whether in commercial or artisan premises. Sole traders and micro-businesses can also benefit from it.
What is the maximum duration of a short-term lease?
The duration is limited to a maximum of 3 years.
How do you terminate a short-term lease?
Both parties are bound by their commitments and cannot terminate the contract early. If the tenant nonetheless chooses to vacate the commercial premises, they will remain liable for the rent owed to the landlord. Notice of termination must be given by recorded delivery letter with acknowledgement of receipt.
What does a short-term lease contain?
Several items must appear in a short-term lease:
- A description of the commercial premises (location, address, floor area, layout…)
- The agreed duration of the derogatory lease
- The rent amount, freely agreed between the two parties
- A security deposit, if required by the landlord
- An inventory of fixtures upon entry to the premises.
What is the difference between a short-term lease and a precarious occupancy agreement?
A short-term lease should not be confused with a precarious occupancy agreement, which is characterised by its far more provisional and unstable nature. The latter allows for even shorter durations (from a few months to two years) and can be brought to an end at any time.
Is it possible to sublet premises under a precarious lease?
Subletting is not permitted under a precarious lease unless your landlord has expressly given their consent, in particular by signing a subletting agreement.