Also known as a precarious lease, the derogatory lease is a rental contract governed by Article L 145-5 of the Commercial Code. This type of lease is for premises intended for commercial or artisanal use. It is a fixed-term contract that is not renewable. What are the advantages of a precarious lease? Discover them here.
The advantages of a precarious lease
Both parties, namely the landlord and the tenant, derive numerous benefits from the short-term derogatory lease mentioned below.
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The advantages of a precarious lease for the tenant
The derogatory lease is particularly beneficial for companies that are in development. Indeed, it allows these companies, which cannot anticipate their needs over time, to quickly vacate their rental space. This can be done as soon as the development of their activity requires it.
The precarious lease also gives the tenant the opportunity to test the area. They can therefore assess the performance of their activity based on the customers they are targeting. If this assessment is not satisfactory, they have the option to quickly leave the area due to the short duration of the lease.
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The rent and security deposit for the derogatory lease are lower than in the case of a traditional commercial lease. Moreover, there is no question of periodic rent reassessment since the lease duration does not exceed 3 years. Additionally, the precarious lease involves few commitments and its guarantee is lighter.
The advantages of a precarious lease for the landlord
The derogatory lease is advantageous for the landlord as it allows them to assess the situation of their tenant. This helps them determine whether they can trust the tenant to commit to a long-term contract. Otherwise, the short duration of the precarious lease allows them to quickly part ways with the tenant.
In the derogatory lease, the landlord can expect a possibility of increased profitability of the lease in case of transformation. This means that the landlord can raise the rent when concluding a commercial lease following the precarious lease, taking into account the economic situation of the tenant.
In this case, the advantage the landlord has over the tenant is that the latter risks losing their clientele if they refuse the rent increase. Therefore, they have an interest in negotiating the rent price with their landlord. Furthermore, in this type of rental contract, the landlord does not pay any eviction compensation to the tenant at the end of the lease.
The characteristics of a precarious lease
The precarious lease or derogatory lease is essentially characterized by:
- its short duration;
- its termination;
- and the transformation of the contract.
Regarding the duration of a precarious lease, it is a maximum of 3 years and non-renewable. Thus, several successive precarious leases can be concluded by both parties. However, the total duration of all these leases must not exceed 3 years.
As for the termination of a precarious lease contract, it cannot occur prematurely. This means that both contracting parties are required to honor their commitment until the end of the contract. That being said, the tenant who decides to leave the premises before the end of the contract will be obliged to pay the rent to their landlord.
A precarious lease automatically transforms into a traditional commercial lease when the duration of the contract exceeds the 3 years stipulated. The same applies if the tenant continues their activities in the premises by mutual agreement with the landlord at the end of the contract.