What is the responsibility of a managing agent for tenant rent arrears?

The Covid-19 pandemic has forced many landlords who normally let only short-term holiday properties to consider letting on an annual basis, when the tenant would then occupy the property as their principal residence.

By doing so, unquestionably the greatest risk for the landlord is a tenant defaulting on their rental obligations.

Tenants in France have very strong security of tenure, and it can take several years and thousands of euros in legal fees to secure an eviction. Even after an eviction, it is highly unlikely the landlord would be successful in recovering unpaid rent.

To mitigate that risk, many expatriates in France engage an estate agent to manage the property (mandat de gestion), who then takes care of the advertising, selection of the tenant, preparation of the tenancy agreement and collection of the rent.

The fee payable will not be insignificant, so what responsibility arises for an agent if the tenant does not pay the rent?

In statute law, the agent has a duty of care, covered via Article 1992 of the Code civil, which states that the agent is liable for errors of management and that such failures are presumed in the event of non-performance:

'Le mandataire répond non seulement du dol, mais encore des fautes qu'il commet dans sa gestion.'

The extent to which a landlord could sue them for a lack of due diligence would depend on the circumstances, but there is a substantial body of case law that has found in favour of the landlord.

In a case heard in the Supreme Court, the Cour de Cassation in 2016, the judges held that the estate agent, mandated to find a tenant, is required to ensure the solvency of prospective tenants by undertaking robust verification checks, stating:

'l’agent immobilier, négociateur d’une opération locative, est tenu, quelle que soit l’étendue de sa mission, de s’assurer de la solvabilité des candidats à la location à l’aide de vérifications sérieuses.'

In a major case in 2018 the court of appeal held that an the estate agent was liable because they had not carried out sufficient research on the tenant they had selected by not asking for sight of rental payment receipts from their previous tenancy. Had they done so, they would have established they were in arrears of rent. The only information supplied to the agent by the tenant were pay slips and their most recent tax notice.

Last year, in a case in the court of appeal sitting in Poitiers, an estate agent was held to be liable in relation to an insurance policy for the non-payment of rent that had been arranged by the agent.

Such insurance policies are called garantie loyers impayés/garantie des risques locatifs. They can be obtained for 2% to 5% of the annual income. You can read more about such policies in our guide Insurance Against the Non-Payment of Rent.

Although it is possible to obtain a policy as a private landlord, some insurance companies will only offer them to professionals, for whom the best policies and rates are reserved.

In the court case, an estate agent organised insurance cover, but failed to properly check that the income of the tenant met the qualifying criteria of the insurer. The tenant should have had an annual income of at least three times the rent, which it transpired was not the case. As a result the insurer failed to pay out and the landlord successfully sued the estate agent.

Other related cases have also found liable an estate agent who failed to take out an insurance policy against the non-payment of rent, and another where the agent failed to report in a timely manner to the insurer that rent arrears had arisen on an insured property.

The problem with all such cases, is of course the need to bring a legal action in the first instance, with a timescale and costs not unlike those associated with possession proceedings.

Accordingly, as is always the case, the best advice is to not only choose your tenant with care, but to also show similar caution with the appointment of your managing agent.