Engaging in commercial activity as an individual requires possessing a business establishment. This can be established or acquired, often demanding an investment that may discourage any entrepreneurial aspirations. But fear not! It can also be leased. This type of arrangement, known as free management or lease management, presents numerous advantages for both parties involved. Let’s take a closer look.

Definition: Free management is a form of commercial activity where the owner of a business establishment, instead of operating it directly, can entrust its management to a third party known as a free manager or tenant-manager. The latter, whether an individual or a legal entity, commits to paying a fixed fee to the owner of the establishment.

The contract typically has a limited duration after which the owner of the establishment can either regain control of their “business” or, alternatively, permanently transfer it to the tenant-manager.

Advantages: For the establishment owner, free management allows:

Stepping back from the “business” without relinquishing their hard-earned establishment. Earning a regular income without assuming the responsibility and risks associated with commercial activities. After all, managing a business isn’t everyone’s cup of tea. For the tenant-manager, free management allows:

Initiating a commercial enterprise without spending a fortune on lease rights, entry fees, and other cost-prohibitive aspects of acquiring an establishment. Testing an activity, a location, or a business model during a specified period as a free manager before deciding to acquire the said establishment.

Disadvantages: For the establishment owner, free management carries certain risks:

The owner’s liability towards third parties remains engaged for six months after the publication of the free management contract in the Official Bulletin. The lessor is jointly liable for all debts incurred by the tenant-manager during the operation of the establishment. Vigilance is thus required during this period to avoid unpleasant surprises! At the end of the contract, the owner may regain an establishment that has significantly depreciated due to poor management by the free manager. For the tenant-manager, free management can also present certain drawbacks:

The establishment always remains the lessor’s property. At the contract’s end, it’s not automatically renewed. If, at that time, the owner wants to regain their establishment, the tenant-manager is not entitled to any compensation, even if they contributed to increasing the establishment’s value. The free management fee is generally higher than a standard lease. This might affect the projected profitability of the business. A robust business plan is thus essential.

Some Examples…

Free management can be a suitable solution in various scenarios:

Death of the owner-operator and the inability of heirs to maintain the operation themselves, prompting them to opt for free management. Management of a franchise, where the owner places each new store under free management to preserve the brand. Retirement of a business owner and the lease management of their establishment for a specified period, awaiting their children’s readiness to take over the operation. A merchant’s plans to establish themselves in a new region/area, intending to “test the waters” through free management initially before committing to a larger investment. And more… Also Worth Noting: Free management is a regulated activity. The Commercial Code stipulates particular formalities to be observed when resorting to this type of contract (Articles 152 to 158).

Free management fees are subject to corporate income tax/personal income tax at standard rates. They are also subject to standard VAT rates.

For more information, seek advice from our team of experts.