The law of 18 June 2014, published under the aegis of Sylvia Pinel, the French Minister for Housing and Spatial Planning, makes a few minor changes to commercial lease rents. These changes, which have little relevance, are at best anodyne and at worst a further source of legislative inflation in France.
Among other changes, the reference to the cost of construction index, which is considered to be out of step with commercial property, has been abolished by the Pinel Act when determining the maximum rent in the event of a lease renewal or three-yearly review. This abolition will come into force on 1 September 2014 and will have no effect on current contracts. The index of rents for tertiary activities (ILAT) and the index of commercial rents (ILC) will therefore be the only reference indices for calculating changes in commercial rents.
Only the quarterly index of commercial rents (ILC) and the quarterly index of rents for tertiary activities (ILAT), depending on the nature of the lease, will serve as a reference for calculating changes in commercial rents.
The law of 18 June 2014 limits the increase in rents resulting from a de-capping to 10% per annum in relation to the last rent paid, in order to smooth out the increase, with the aim of offering retailers better financial visibility and avoiding a sudden increase in their rent.
This limitation may apply in three cases
- when the ceiling is removed as a result of a sliding scale clause leading to a variation of more than 25% of the contractually fixed price, or by a court decision;
- when the ceiling is raised as part of a three-yearly review following proof of a substantial material change in local market factors. This may be the case, for example, in the event of neighbourhood regeneration, the creation of a new underground station or the conversion of a street into a pedestrian zone;
- when the ceiling is removed from the renewed lease due to a significant change in the factors determining the rental value, or if the agreed term of the lease exceeds nine years, the ceiling rule does not apply.
The so-called Pinel Act also extends the remit of the departmental conciliation commission in order to improve relations between landlords and retailers. Initially responsible for disputes relating to the setting of rents for a renewed lease, the commission can now intervene in disputes relating to the review of rents during the term of the lease, charges and works.