The Supreme Court analyses the compensation for clientele in article 34 of the Urban Lease Law

The concept of compensation for clientele is regulated on the one hand in the LAU (Article 34) and on the other hand in the Law on Agency Contracts (Article 28). Both regulations are based on a comparison with situations of unjust enrichment, i.e. to avoid the unjust enrichment that would occur in the event that the clientele created with the efforts of the lessee or the agent were taken advantage of by the lessor or entrepreneur, as the case may be.

The aim of Article 34 of the LAU is to protect the tenant who has been carrying out a ‘commercial activity of sale to the public’ in a specific premises for the last 5 years and the owner/landlord of the premises, once the contract with the tenant has expired and the renewal has been refused, would like to continue renting the premises with the same activity.

In order for the lessee to be entitled to claim compensation for clientele, the following requirements must be met: 

1. That we are dealing with a lease contract for use other than as a dwelling in accordance with article 3 of the LAU.
    
2. That the leased premises have been used for commercial retail activity for the last five years. In this sense, it is logical to establish a minimum period of time as necessary for a clientele to be formed.
    
3. That the term of the contract signed has elapsed, i.e. that it has expired due to the passage of time.
    
4. The tenant must give notice 4 months prior to the expiry of the contract of his wish to renew the contract for at least 5 more years and at a market rent.

The amount of the compensation to be paid by the lessor will depend on the new business opportunity created, i.e:

• If the lessee starts the same activity in the same location in the following 6 months after the termination of the contract, the compensation will correspond to the relocation expenses and the damages derived from the loss of clientele compared to the one he had in the previous premises. In order to calculate the damages for loss of clientele, it will be necessary to compare the previous income with that of the first 6 months of the new activity. 
• If the lessee starts a different activity within the six months following the termination of the lease or does not start any activity at all, and the lessor or a third party, within the same period of 6 months, carries out the same activity in the premises or an activity similar to that carried out by the lessee, the compensation will be one monthly payment per year of the duration of the contract, with a maximum of eighteen monthly payments.

The same LAU defines a related activity as one that is typically apt to benefit, albeit only in part, from the clientele captured by the activity carried out by the lessee. This is, for example, the case of the lessor starting a restaurant activity in the same premises where the lessee carried out the café activity.

It is important to note that the right to compensation for clientele of Article 34 of the LAU applies to any tenant who meets the requirements of the article, unless, by virtue of Article 4.4 of the LAU, the parties expressly agree to its exclusion, so it will be important to check whether there is any exclusion to the right in the lease contract signed between the parties.

The Supreme Court, in its Ruling no. 877/2024, of 19 June 2024, Rec. 4135/2019, pronounces for the first time in relation to the tenant's compensation for clientele in order to put an end to some conflictive aspects, although it leaves several aspects unclarified. The judgment simply analyses whether the requirements are met in the specific case of a bar business with a terrace, analysing especially the question of whether this business can be considered as ‘a commercial activity of sale to the public’.

On the one hand, the SC establishes that the right to compensation for clientele only arises in the event of termination of the leasing relationship due to the expiry of the contractual term of the lease and not in other cases. Thus, the only factual event that gives rise to compensation is the termination of the lease due to the expiry of the term of the lease, so that the termination of the lease due to causes attributable to the lessor or lessee will not entitle the lessee to request compensation for goodwill.

On the other hand, with regard to the interpretation of the meaning of ‘commercial activity of sale to the public’ made by the Supreme Court in relation to the specific case, the Chamber declares that the hotel business dedicated to ‘bar with terrace’ must be considered within article 34 of the LAU, because the double requirement of ‘commercial activity’ and ‘sale to the public’ is fulfilled.

Firstly, ‘the same is likely to generate a clientele, which gives the leased premises an additional economic value, derived from the people who habitually frequent it as regular consumers of its products, customer loyalty, and which is likely to be enjoyed by whoever replaces the lessee in the commercial traffic’. Secondly, because, although the literal definition of the precept ‘trade’ does not seem to fit in with the activity of a bar with terrace, because it is defined in the RAE as ‘buying and selling or exchange of goods or services’, the Supreme Court includes it within the same because it considers that the fact of ‘dispensing drinks’ means ‘selling a good or merchandise’.

In short, the Supreme Court ruling concludes the coverage of compensation under article 34 of the LAU as we are dealing with an establishment open to the public, in which drinks are sold and consumed in the same premises, equipped with a terrace for this purpose, the ingestion of the products on offer is satisfied with the stay in the premises as a rest or meeting place with other people. The customer pays the cost of the drink, which is consumed on the premises.

In relation to the Supreme Court's interpretation regarding the assiduity and loyalty of consumers, the question arises as to whether this interpretation should be applied only in the specific case (bar with a terrace) or whether it is a requirement that applies generically to all premises that carry out commercial activity selling to the public.

In this regard, we consider that compliance with the condition of ‘commercial activity of sale to the public’ can in no case be linked to the need for regular consumers or to the frequency with which they frequent the premises, because, otherwise, this generic interpretation would imply a discrimination of the right to compensation for leased businesses which, due to their activity, do not serve concurrent or regular customers.