Draft law No. 278 establishing a commercial activity lease in Monaco

Draft law No. 278 establishing a commercial activity lease ("bail d'activité commerciale") (15 articles) was received by the Parliament on 4 May 2026.

It follows on from Resolution No. 2025-855 of the Economic, Social and Environmental Council to supplement the existing legal framework for commercial leases (Law No. 490 of 24 November 1948 concerning leases for commercial, industrial or craft use), in favour of creating a new lease aimed at boosting commercial activity in the Principality of Monaco.

This approach is similar to that which led, in 2016, to the introduction of the office lease (Law No. 1.433 of 8 November 2016, Articles 1616-1 to 1616-7 of the Civil Code).

Note: a draft law adopted by Parliament (Conseil National) is forwarded to the Government, which has the option of transforming it into a bill or suspending the legislative procedure.

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Background

Draft law No. 278, introduced by members of parliament, arises against a backdrop of vacant commercial premises in Monaco, as evidenced by the latest census from 2022, which identified several dozen unoccupied shops, many of which have stood empty for many years – a situation that appears paradoxical in a territory where land is scarce.

According to the Explanatory Memorandum, this situation is partly due to the current commercial lease regime established by Law No. 490 of 24 November 1948 concerning leases for commercial, industrial or craft use. It is said to be “such as to deter landlords from offering their properties for commercial lease for a term of more than three years, due to the protection afforded to the tenantguaranteeing them a right to renewal upon expiry of the lease and, conversely, the difficulty for a potential tenant to pay the key money demanded by the landlord in return for the grant of the commercial lease.”

The Explanatory Memorandum also highlights that the transfer of commercial property to the tenant, as provided for by Law No. 490 of 24 November 1948, is unusual in Europe and less suited to new consumer habits, characterised by shorter business cycles, fads, declining brand loyalty and the growth of distance selling.

The creation of a new commercial activity lease is therefore intended to encourage the return of vacant premises to the market, to encourage the establishment of new commercial activities and to better balance the interests of landlords and tenants.

KEY POINTS

• A lease intended exclusively for the pursuit of commercial activities, with the exception of estate agency, banking and insurance activities;
• Prohibition of a key money payment ("pas de porte") upon entering the premises (a financial practice under existing standard commercial leases, designed to avoid financial difficulties at the outset of the business);
• A lease term of at least 7 years (rather than a three-year renewal, to allow the tenant to plan the amortisation of their investments and fit-outs undertaken upon taking possession of the premises over a stable period);
• No transfer of commercial property rights to the tenant (to separate the operation of a business from any gradual appropriation of the premises by the tenant, thereby guaranteeing the landlord retains ownership);
• Exclusion of the principle of compensation for eviction of the tenant in the event of non-renewal of the lease (a deterrent mechanism for the landlord).
• Early termination of the lease in strictly defined circumstances that would necessitate the tenant’s departure.

IN DETAIL

Article 1. Principle governing the creation of a commercial activity lease.

• A commercial activity lease, the terms of which are defined by this Law, is distinct from commercial leases governed by Law No. 490 of 24 November 1948.

Article 2. Conditions for the application of the provisions of this Law.

• This Law applies exclusively to premises used for commercial purposes, where the parties have contractually agreed to be bound by it. In such cases, the application of Law No. 490 of 24 November 1948 is excluded.
• Any clauses, stipulations or arrangements contrary to this Law shall be null and void, regardless of their form.

Article 3. Scope of application.

• The commercial activity lease is strictly limited to the conduct of commercial activities, such as food or non-food retail businesses.
• Banking, insurance and estate agency activities are excluded “in view of the town planning restrictions set out in Sovereign Order No. 4.482 of 13 September 2013 on the demarcation and town planning regulations for the designated neighbourhoods sector, as amended” (Explanatory Memorandum).
• Any change to the designated use specified in the commercial activity lease requires the express consent of the landlord and does not give rise to the payment of compensation to the landlord “insofar as (....) no sum may be requested upon taking possession of the premises” (no key money "pas-de-porte"). However, this change “does not preclude an adjustment to the terms of the lease.” (Explanatory Memorandum).
• The carrying out of a main commercial activity alongside activities considered to be ancillary or complementary to the main commercial activity requires only that the landlord be informed, and shall not give rise to the payment of compensation or an increase in rent. The aim is “to enable the tenant to adapt their business to changing economic trends. The assessment of related or complementary activities must therefore be made in light of the tenant’s business purpose.” For example, “a tenant whose business involves the sale of clothing may, after giving prior notice to the landlord, also develop a business selling costume jewellery and non-prescription optical goods, at no additional cost.” (Explanatory Memorandum).

Article 4. Rent.

• In accordance with the principle of freedom of contract, the parties shall freely agree on the amount of the rent in the lease.
• The rent is subject to annual review in line with changes in the construction cost index published by the French National Institute of Statistics and Economic Studies (INSEE) (as is customary in the Principality), unless otherwise agreed. "For example, by referring to another index or by dispensing with any index when setting the rent." (Explanatory Memorandum)
• Any other rent review not provided for in the commercial lease is prohibited.

Article 5. Security deposit.

• The amount of the security deposit that the tenant must pay to the landlord is capped at a maximum of 3 months’ rent and service charges.
• It may be adjusted during the annual rent review, “in order to maintain the proportionality of the deposit to the index-linked rent”. (Explanatory Memorandum)

Article 6. Prohibition of financial practices under standard commercial leases governed by Law No. 490 of 24 November 1948, as amended.

• Prohibition of the practice of paying compensation to the landlord upon taking possession of the premises (key money "pas-de-porte").
• Consequently, exclusion of any compensation (for eviction) payable to the tenant in the event of non-renewal, termination of the lease, or where the building in which the premises are situated is in danger of collapse or is unfit for habitation. "This absence
  of compensation is justified by the absence of commercial ownership". (Explanatory Memorandum)

Article 7. Initial term of the commercial activity lease.

• The commercial activity lease must be concluded in writing for a term of at least 7 years. This term “may, at the parties’ discretion, be longer (...), particularly if the financial investments involved in fitting out or refurbishing the premises require a longer amortisation period.” (Explanatory Memorandum)
• The commercial activity lease is not automatically renewable. The minimum term of 7 years is justified by “the absence of a right to renew the lease”. (Explanatory Memorandum)

Article 8. Renewal of a commercial activity lease.

• A tenant wishing to renew their commercial lease upon expiry must notify the landlord 6 months before the end of the lease.
• The landlord has 1 month from receipt of the request to respond.
• If the landlord responds positively within this period, their response must include the new terms of the lease. If an agreement is reached, the parties must sign a new commercial lease in accordance with this Law. "On this occasion, the parties may, in particular, agree on a new rent or a new lease term, which may be shorter than the initial term of seven years.” (Explanatory Memorandum).
• Failure by the landlord to respond within this period shall be deemed to constitute acceptance of the renewal of the commercial lease. In this case, the lease is automatically renewed for a period of 1 year, on the same terms of tenancy. Upon expiry of this period, the tenant may again request the renewal of their commercial lease, in accordance with the aforementioned conditions. "The purpose of this provision is to encourage the parties, during this additional year, to engage in discussions and agree on new renewal terms so that, if they so agree, the commercial lease may continue." (Explanatory Memorandum)

Article 9. Unilateral termination of a commercial activity lease by the tenant.

• The tenant may terminate the commercial lease at any time, after a period of 1 year from the date the lease takes effect, subject to 6 months’ notice. This right to unilaterally terminate the lease is specifically justified by “the prohibition on assignment and subletting” (Explanatory Memorandum).
• This termination does not give rise to any financial penalty: it does not entail the payment of any compensation or the payment of rent and service charges remaining due between the effective date of termination and the normal expiry of the lease. The aim is “to ensure a degree of economic flexibility for the tenant, particularly in view of the influence of changing trends, which may affect the viability of continuing a business for a minimum period of seven years” (Explanatory Memorandum).

Article 10. Unilateral termination of a commercial activity lease by the landlord.

• Early termination at the landlord’s initiative is limited to cases where the premises are included within the scope of a property development project involving the demolition and reconstruction of the building, or renovation or restructuring works that do not allow the occupants to remain. “This provision goes beyond the mere interests of the parties to the lease and forms part of an urban renewal strategy, promoting the modernisation of the housing stock.” (Explanatory Memorandum)
• Such termination may not take place during the first year following the commencement of the commercial activity lease.
• The landlord must inform the tenant within one month of submitting the application for demolition or building permits. Notice of termination may not be served on the tenant until the demolition or building permits issued have become final.
• Compensation and safeguards for the tenant:
  • The landlord may only terminate the tenancy after giving 6 months’ notice.
  • The landlord must pay the evicted tenant, before the expiry of the notice period, compensation equal to the cost of the improvements made by the tenant to the premises, the value of which remains to be amortised on the date of the lease’s effective termination. “It should be emphasised that this compensation must not be confused with any compensation relating to the value of the business.” (Explanatory memorandum)
  • Upon expiry of the notice period, the evicted tenant is required to vacate the premises and is exempt from restoring the premises to their original condition. Unless the landlord fails to pay all or part of the compensation before the expiry of the notice period, in which case the tenant may remain in the premises until full payment has been made.
• In the event of a dispute, a tenant facing eviction who may be entitled to such compensation may apply to the President of the Court of First Instance (TPI). After hearing the parties, the President of the TPI shall issue an order suspending the eviction until the compensation has been paid, provided that the amount has already been determined. If not, he shall determine the amount of the compensation, which may be provisional, that the landlord must pay to the tenant. He may order the tenant’s eviction after payment, but under no circumstances may the tenant be compelled to vacate the premises before receiving the compensation, if the amount has already been determined, or the provisional compensation. Provisional enforcement may be ordered.
• The landlord is also liable for severance pay ("indemnités de congédiement") for the tenant’s staff assigned to the business carried out on the premises, to the exclusion of any other sums. These must be paid within 3 months of the expiry of the notice period, following the submission of supporting documents to establish their amount (such as payslips and final pay statements). The implementing provisions would be specified by sovereign order.
  Severance pay ("indemnités de congédiement") are those “provided for in Article 1 of Law No. 845 of 27 June 1968. However, severance pay, as provided for in Article 2 of the same Law, which must in particular be paid in the event of dismissal based on Article 6 of Law No. 729 of 16 March 1963, as amended, or any compensation that may be negotiated between the tenant and their employees, shall not be borne by the landlord." (Explanatory Memorandum).

Article 11. Exceptional circumstances for early termination of the lease, exempt from the payment of compensation (safety and health of buildings).

• Where the landlord establishes that the building is in danger of collapse or is in a state of proven unfitness for habitation, they may, at any time, terminate the commercial lease without being required to pay any compensation.
• However, the tenant may claim the compensation referred to in Article 10 in two cases: if it is established against the landlord that he terminated the lease solely to defraud the tenant of his rights; or if the landlord knowingly allowed the building to fall into disrepair in order to create the conditions for termination without compensation.

Article 12. Operation and transfer of a commercial activty lease.

• The assignment, subletting and free management of a lease are prohibited “in order to maintain a personal relationship between the landlord and the person actually carrying out the business.” (Explanatory Memorandum)
• By way of exception, the lease is transferable in two cases: where the tenant is a majority shareholder and manages a company, for the benefit of the company; or upon the death of the tenant, for the benefit of their beneficiaries.

Article 13. Procedures for notifications provided for by this Law.

• Notifications shall be sent by registered post with acknowledgement of receipt ("LRAR"), “to ensure traceability and provide evidence of communications between the parties to the lease.” (Explanatory Memorandum)

Article 14. The provisions of this Law are matters of public policy.

Article 15. Resolution of conflicts between the provisions of this Act and those of the general law on commercial leases arising from Law No. 490 of 24 November 1948, as amended.

• Principle of non-cumulation between the provisions of this Law and those of Law No. 490.
• Inapplicability of this Law to existing leases governed by Law No. 490.
• Inapplicability of the provisions of Law No. 490: to a tenant who remains in premises governed by this Law in breach of the provisions of Articles 8 and 10 of this Law; to a third party occupying premises governed by the provisions of this Law, in the event of a breach of the provisions of Article 12 of this Law.
• This shall “not preclude the possibility for the parties, in the event of termination by the tenant pursuant to Article 9 or upon expiry of the commercial lease, to agree, by mutual consent, to enter into a new lease subject to the provisions of Law No. 490 of 24 November 1948, as amended”. (Explanatory Memorandum).

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