LEASE AGREEMENTS. In a decision dated September 27, , the Third Civil Chamber of the Cour

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1 LEASE S WHEN A POOR WINE ENTAILS THE TERMINATION OF THE FARM LEASE Christophe Degache February 2012 In a decision dated September 27, , the Third Civil Chamber of the Cour de Cassation (French Supreme Court) not only appeared to be sensitive to wine quality which will undoubtedly please wine amateurs but it also reaffirmed the need to protect wine quality by implicitly recalling the basic principles that govern the concept of lease agreements. In the commented decision, the wine at the heart of the dispute is Côtes du Ventoux, a wine that benefits from a so-called Appellation d Origine Contrôlée ( AOC ), i.e. a controlled designation of origin aimed at protecting a product originating from a specific geographical area. Just for the record, it should be noted that AOCs were created by Baron LE ROY DE BOISEAUMARIE, wine grower in CHATEAUNEUF du PAPE, who laid down as early as in 1924 the foundations of the current system of protected designations. AOCs enable the identification of a product by guaranteeing its characteristics and protecting its name when such product is too old to be patented. The requirements to be granted the Côtes du Ventoux AOC are set forth in Decree of July 27, 1973 that clearly excludes the use of the Caladoc grape variety to produce Côtes du Ventoux wines. In addition, the aforementioned Decree lists other requirements that must all be met. As such, for all grape vines planted since November 10, 1990, the distance between the vine rows must not exceed 2.50 meters. The legal basis for the management and operation of a vineyard is the farm lease agreement, even if the relevant wine is a top-of-the-range wine whose production and distribution have more in common with a business activity than with an agricultural/farming activity. 1 3 rd Civil Chamber of the Cour de Cassation, September 27, 2011, n

2 1. Nature of the farm lease agreement The farm lease agreement is regulated by a set of mandatory rules and is widely viewed as an unbalance contract in favor of the tenant. A farm lease agreement is a synallagmatic contract that is based on the fundamental principle according to which the landlord s obligation to deliver the land corresponds to the tenant s obligation to operate such land. There lies a discrepancy between a farm lease agreement and other types of lease agreements where the tenant s main obligation is to pay a rent in return for the possession of the leased thing. In farm lease agreements, the payment of the rent appears to be secondary to the operation of the leased land. It is the operation of cultivating the land that gives it a economic value and that enables such value to be maintained. As such, Article L of the French Rural and Maritime Fishing Code defines the farm lease agreement as: Any lease for valuable consideration of a rural real estate property in view to have such property operated. The unbalance between the parties respective obligations is so important that a legal author, Marie-Odile Gain once wrote: Fortunately, the landlord is not only liable for the payment of the property tax and for major repair works! The set of rules governing farm lease agreements left him a few crumbs of the property right enacted by Article 544 of the French Civil Code. The decision rendered by the Cour de Cassation on September 27, 2011 is an illustration of the fact that the landlord still retains some rights under a farm lease agreement. 2

3 2. Tenant s obligations under a farm lease agreement In the commented decision, the landlord claimed that the tenant poorly operated the leased vineyard and consequently requested the termination of the lease agreement. The Cour de Cassation upheld the judgment of the Nîme Court of Appeals that ordered the termination of the lease. It held that the Court of Appeals had rightfully considered that the conduct of the tenant was wrongful, thereby jeopardizing the smooth operation of the vineyard and even its sustainability. The tenant s wrongful conduct was established through a court-ordered expert investigation that concluded that the tenant had cultivated the Celadoc grape variety - whose use for the production of Côtes du Ventoux AOC wines has been prohibited since that was found in a proportion of 4 vines out of 10. The expert investigation also revealed that the vines had been planted at irregular intervals and that the maximum 2.50 meter distance between vine rows was exceeded. These elements were likely to result in the loss of the Côtes du Ventoux AOC designation, which according to the judge justified the termination of the lease, the tenant being personally liable for the loss of the intrinsic qualities of the vineyard. This decision of the Cour de Cassation is a source of comfort to landlord. This is all the more true since, on the issue of the unbalance nature of the farm lease agreement, the Cour de Cassation had consistently judged that, pursuant to Article of the French Civil Code and Article L of the French Rural and Maritime Fishing Code, the landlord had the obligation to ensure the continuity and quality of the plantings because of the very nature of the lease agreement and without the need for any specific contractual provisions in this respect. The commented decision of September 27, 2011 in fact transfers this legal obligation to the tenant as it is clearly the poor quality of the plantings, i.e. vines in this case, that justified the termination of the lease agreement. 3

4 In its appeal, the tenant had raised this obligation imposed on landlord to ensure to continuity and quality of the plantings but the Cour de Cassation dismissed this argument and rejected the appeal. The tenant legitimately raised this argument since in a decision 2 rendered on the following day, the same Chamber of the Cour Cassation held again that: The landlord has to ensure the continuity and the quality of the plantings because of the very nature of the lease agreement and without the need for any specific contractual provisions in this respect. In the commented decision, the Cour de Cassation seems to have taken into account the tenant s misconduct that reportedly caused the destruction of the elements of the vineyard that had made it eligible to the Côtes du Ventoux AOC designation, by referring, implicitly, to Article 1722 of the French Civil Code that provides for the termination of the lease without any compensation in case of destruction of the leased thing. Court decisions are uncertain, just like the quality of wine since some wines presented as Grands Crus are sometimes of poor quality 2 3 rd Civil Chamber of the Cour de Cassation, September 28, 2011, n

5 Click here to consult the e-newsletter You can also copy this link: Articles published in Soulier s February 2012 e-newsletter Health and Environment: Latest developments concerning the REACH and CLP regulations by Claire Perez Labor & Employment: Is the loan of employees really secure since the adoption of the CHERPION law on July 28, 2011? by Emilie Ducorps-Prouvost Dispute Resolution: Entry into force of the Decree of January 20, 2012 on the amicable resolution of disputes by Flore Foyatier Lease Agreements: When a poor wine entails the termination of the farm lease agreement by Christophe Degache International Perspective: Criminal Liability of Legal Entities in the Czech Republic contribution authored by Martin Šíp Soulier s e-newsletters are available on our website info@soulieravocats.com 5