The relationship between the hypothecary creditor of an immovable and the tenant begins when the tenant negotiates his commercial lease, because it contains provisions which, in principle, are intended to satisfy the requirements of a possible hypothecary creditor. The tenant's top priority is to ensure that the creditor cannot terminate the lease if he exercises his hypothecary recourses against the immovable. For it is only when the creditor exercises his recourses that he and the tenant will have a direct relationship as well as rights and obligations toward each other.
Knowing that he can be bound by a lease published in the land register, the creditor will seek to avoid having his borrower sign a lease, or an amendment to a lease, that might have a negative impact on the realizable value of the immovable. In order to do so, the creditor will require an undertaking from his borrower not to amend the leases and not to enter into any new leases without his consent. However, such stipulation cannot be enforced against the tenant since he is not a party to the financing contract made between the lender and the landlord.
That being so, the lender can nevertheless take steps to exercise rights against the tenant. The best solution, but not necessarily the easiest to put in place, is to obtain, directly from the tenant, an undertaking not to amend his lease without the prior consent of the creditor. The tenant may be reluctant to sign this kind of undertaking which gives rise to obligations of the tenant to the hypothecary creditor of the landlord. Thus, this technique is used especially in cases where all or a major part of the immovable is leased to a single tenant, since the risk associated with an unfavorable amendment to the lease is much greater.
If a direct undertaking cannot be obtained from the tenant, the lender can always serve notice on the tenant that the owner has undertaken toward the lender not to amend the leases for the immovable without the prior consent of the latter. Indeed, although in principle a contract binds only the parties who have signed it, it may nevertheless be enforced against a third party who knowingly participates in a breach of the contract. Thus, if a tenant signs an amendment to the lease with the owner of the immovable, knowing that this act constitutes a breach of the loan agreement between the creditor and the landlord, the tenant runs the risk of a claim for damages being filed by the injured creditor.
In fact, it is not so much the prospect of a claim in damages against a tenant that the creditor is seeking, but rather that a tenant, once he has been informed of the landlord's undertaking not to sign an amendment to the lease without the creditor's consent, comply with this requirement and inform the creditor before signing an agreement with the landlord for fear of being sued in damages by the creditor.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
