In brief: Lease-management is an agreement by which the owner or operator of a business leases all or part of it to a manager operating at their own risk and profit. Articles 152-158 of the Commercial Code govern it. An extract must be published in the Official Bulletin and a legal announcements newspaper within fifteen days of the contract date. The lessor is jointly liable for operating debts until publication and for six months thereafter, subject to Article 156.
Definition and legal framework of free management (Art. 152)
Free management, also called lease-management, is defined by Article 152 of the Commercial Code as a contract by which the owner or operator of a business grants its total or partial lease to a manager who operates it at their own risk and profit.
This arrangement is fundamentally different from salaried management: the free manager is an independent trader, registered in their own name in the trade register, and who personally bears the risks of the operation. They acquire the status of trader with all the obligations that entails.
Lease-management may cover all or part of the business under Article 152. It concerns operation of the business, and differs from the commercial lease of premises.
Practical interest of free management
Free management is of considerable interest in several situations:
- Temporary inability of the owner to operate the business (illness, other activity)
- Gradual transfer of the business to a potential buyer
- Minor heirs or heirs who do not wish to operate the business themselves
- Generating value from a business without the owner’s time investment
- Probationary period before a definitive sale of the business
Conditions for establishing free management (Art. 153-154)
Capacity of the free manager
The manager must have commercial capacity and not be subject to a prohibition, disqualification or incompatibility. Authorization for a minor to trade or an early declaration of majority must be entered in the trade register under Article 13.
Publicity formalities (Art. 153)
The establishment of free management is subject to mandatory publicity formalities designed to protect third parties, particularly the lessor’s creditors.
Publication in the Official Bulletin and a legal announcements newspaper
Article 153 requires publication of an extract in the Official Bulletin and a legal announcements newspaper within fifteen days of the contract date. Termination is subject to the same publicity measures.
Amended entry in the trade register
The lessor must either deregister or amend their personal trade-register entry expressly mentioning lease-management (Art. 153). The manager registers in their own name.
Obligations of the free manager
The free manager, as an independent trader, is subject to a set of strict obligations:
Registration in the trade register
The manager has trader status and must fulfil the corresponding obligations, including registration in the trade register under Articles 37 and 153. The status derives from operating under lease-management, not from registration.
Maintaining proper accounting records
Like any trader, the free manager is required to maintain accounting records in compliance with current standards. They must prepare their own financial statements (balance sheet, income statement, etc.) and retain their accounting documents for ten years.
Mandatory mention of the status of “free manager”
Article 154 requires the manager’s registration number, the seat of the court of registration and their status as lease-manager of the business to appear on documents relating to the activity and instruments signed for it.
Respect for the business
The manager must operate prudently, maintain the clientele and not change the business’s purpose without the lessor’s agreement. The manager cannot sell a business they do not own. Assignment of the contract or subletting depends on the agreed terms, the nature of the business and Articles 668-673 of the Code of Obligations and Contracts.
Joint liability of the lessor (Art. 155)
Article 155 of the Commercial Code makes the lessor jointly liable for operating debts incurred by the manager.
This liability covers the period until publication and six months thereafter, subject to the exception in Article 156. Publication includes both the Official Bulletin and a legal announcements newspaper.
Practical consequences of joint liability
Joint liability covers operating debts incurred before publication and in the following six months. Expiry of that period does not erase liability for those debts. The lessor has an interest in checking the manager’s solvency before contracting.
Acceleration of term debts
At the start of lease-management, the court may declare prior operating debts due if the contract prejudices the lessor’s creditors. The application must be made within three months of publication under Article 153. At termination, Article 157 makes operating debts incurred by the manager during the lease-management immediately payable.
Termination of free management
Grounds for termination
Free management terminates in the following cases:
- Expiry of the agreed term
- Termination for breach by either party
- Purchase of the business by the manager
The tenant’s death does not in itself terminate the lease (Article 698 of the Code of Obligations and Contracts). Opening judicial reorganization does not in itself terminate the contract: continuation follows the rules on ongoing contracts in Article 588 of the Commercial Code.
Return of the business
At the end of the free management, the free manager must return the business to the lessor in the condition in which they received it, taking into account normal wear and tear. The free manager cannot claim any compensation for any increase in the value of the business, unless otherwise agreed.
Fate of employment contracts
In accordance with Article 19 of the Labour Code, employment contracts in effect at the time of the end of the free management continue with the lessor who resumes operation of the business. Employees benefit from the preservation of their acquired rights (seniority, salary, benefits).
Taxation of free management
Taxation of profits
The tax regime of the free manager depends on their legal form:
- Individual: profits are subject to professional income tax (IR) under the net actual income regime (RNR) or the simplified net income regime (RNS)
- Company (SARL, SA, etc.): profits are subject to corporate tax (IS) under the proportional rate schedule in effect
Lease-management royalties are professional income where the lessor is an individual. For a company subject to corporate tax, they form part of its taxable result.
Professional tax
Professional tax is assessed in the manager’s name on the rental value of premises, fittings and material means of production used for the activity, under Article 7 of Law No. 47-06.
VAT
Operations carried out by the free manager in the course of operating the business are subject to VAT under standard conditions. Lease-management royalties paid to the lessor are also subject to VAT.
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This article is written by the team of chartered accountants at Upsilon Consulting, a firm registered with the Order of Chartered Accountants (OEC) of Morocco.
Frequently asked questions
What is the difference between free management and salaried management?
Free management grants the manager the status of independent trader: they operate the business at their own risk and profit, register in the trade register in their own name and bear any losses. Salaried management, on the other hand, designates an agent of the owner who operates the business on behalf of the latter in exchange for a salary. The salaried manager does not have the status of trader and the owner remains responsible for the operation.
Can the free manager sell the business?
No, the manager cannot sell a business they do not own. Assignment of the contract or subletting depends on the agreed terms, the nature of the business and Articles 668-673 of the Code of Obligations and Contracts.
What happens if the free management contract is not published in the JAL?
The lessor remains jointly liable for operating debts until publication and for six months thereafter, subject to Article 156. Article 153 requires publication in the Official Bulletin and a legal announcements newspaper within fifteen days of the contract date. Expiry of the six months does not erase liability for covered debts.
