Commercial leases are normally granted for the minimum term of nine years, and are subject to the mandatory commercial leases regime laid down in the French Commercial Code. The aim of this legislation is to grant security of tenure (propriété commerciale) to tenants so that they may ensure the continuation of their business undertakings and the retention of their clientele.
Overriding leases (or short-term leases) have a duration of up to three years. The tenant gives up the protection of the mandatory regime applicable to commercial leases. Any renewal of the lease must be on the terms of a normal commercial lease.
Professional leases have a minimum duration of six years and are exclusively for professional activities (to the exclusion of commercial, craft, industrial and agricultural activities). The lease can be terminated by the tenant at any time by giving six months' notice.
Last modified 22 Mar 2024
The minimum obligatory term for a commercial lease is nine years. The tenant has the right to terminate the lease at the end of each triennial period by giving notice (by bailiff or by registered letter with acknowledgement of receipt). The parties are free to negotiate a notice period longer than six months.
Short-term leases can be granted for a maximum term of three years (several short-term leases can be granted consecutively provided that in aggregate their duration does not exceed three years), but in this case the legislation relating to commercial leases does not apply.
In certain cases, the tenant may waive its right to terminate the lease at the end of the relevant three-year periods. The parties are free to provide for whatever termination options/mechanisms that they wish (eg the parties may agree that there will be a financial penalty for exercising a right to terminate the lease at the end of a three-year period, to be paid by the tenant to the landlord). The cases in which the tenant may waive its triennial termination right are the following:
There is no maximum obligatory term for a commercial lease and the parties may agree to a lease of more than nine years. However, any lease of more than twelve years must be entered into before a notary and should be recorded with the locally competent mortgage office (Service de la Publicité Foncière). This involves the payment of a fee amounting to approximately 0.715% of the total rent and service charges due for the entire period of the lease (within the limit of 20 years).
Last modified 22 Mar 2024
Residential leases are governed by the specific law on residential leases. They are normally granted for terms of three years, and require a cash deposit corresponding to one month's rent.
Office, industrial and warehouse premises are usually let under the commercial leases regime, with the level of rent determined by reference to the market value of similar premises.
Professional premises (let to lawyers, doctors etc) are usually let under professional leases with a duration of six years. The lease can be terminated by the tenant at any time by giving six months' notice.
Lettings of retail space and hotels are governed by the commercial leases regime.
Furthermore, in order to contain the effects of the COVID-19 pandemic and avoid a worsening of the tenant’s situation, the French governmental authorities have adopted general and temporary tenant’s protective measures that do not distinguish between leases of particular categories of real estate but between natural or legal person’s size/situation/category and which are related to the application modalities of the leases sanctions and to the possible moratoriums granted to the tenants in case of non-payment of their rent (it being specified that no rent discount is applicable per se).
Last modified 22 Mar 2024
With certain exceptions specified by law, the tenant has a right to renew the lease for a nine-year term – this does not apply to short-term leases that are granted for a term of up to three years.
If the tenant wishes to renew, and has not already received a notice from the landlord refusing a renewal, he may apply for the lease to be renewed. This application must be made within the six-month period preceding the expiry of the lease or at any time during the lease extension. The landlord must respond to this application within three months. If the landlord does not respond within three months then the lease is renewed automatically, for a nine-year term.
Unless a refusal to renew is on the grounds specified below, the landlord must pay compensation (indemnité d'éviction) to the tenant. The grounds upon which the landlord can refuse to renew and avoid paying compensation are:
Last modified 22 Mar 2024
Legal proceedings for the recovery of premises by the landlord usually take a year or more. They may require the assistance of a bailiff and even that of law enforcement.
Eviction proceedings can be undertaken throughout the year for commercial premises but not during the winter months in relation to residential premises (this winter moratorium period (trève hivernale) is defined by law).
Last modified 22 Mar 2024
In some cases, the landlord may force a tenant to leave at the end of the three-year period, but will have to pay compensation (indemnité d’éviction). The landlord under commercial leases may terminate the lease based on certain limited grounds, such as:
If the tenant defaults on the rent, the landlord can force the tenant to vacate the building. Associated legal proceedings can take around six months or more.
In addition, if the lease contains a termination clause, the landlord may terminate the lease prior to the date agreed should the tenant fail to comply with the terms and conditions of the lease. The implementation of the automatic termination clause requires a formal notice to address the breach to be served to the tenant by a bailiff (commandement). Should the tenant fail to address the breach within one month, the landlord is entitled to initiate proceedings to obtain the acknowledgment by the court of the termination of the lease.
Last modified 22 Mar 2024
Where a compulsory purchase order takes effect, the lease is automatically terminated and the tenant is paid compensation by the purchaser.
Last modified 22 Mar 2024
A security deposit for an agreed amount, usually equal to one rent instalment excluding VAT, but sometimes more, is common. Rents paid in advance, in whatever form and even as a guarantee, bear interest for the account of the tenant at a rate specified by the Bank of France where they exceed the value of two instalments of rent. Therefore, if a rent is payable quarterly and in advance, the landlord will ask for a deposit amounting to one instalment (three months) excluding VAT as the payment in advance corresponds to one instalment. According to article L.145-40 of the French Civil Code, any sum paid in excess (including the VAT) would incur interest at the rate specified by the Bank of France.
Cash security deposits are increasingly being replaced by bank guarantees and/or corporate guarantees (which overall guaranteed amount is not framed by the aforesaid article L.145-40 of the French Civil Code).
Payment of rent and service charges is also often secured by guarantees given by a parent company, another affiliate or by a third party.
Last modified 22 Mar 2024
Leases usually specify the permitted use, which is narrowly defined, and any changes require the landlord's consent and/or administrative permissions.
Last modified 22 Mar 2024
Any works must have the prior consent of the landlord if they impact on the structure of the property (walls, floors and roof) or if they alter the premises' character or legally permitted use.
It is market practice for leases to provide that, on the expiry of the lease, any improvements automatically become the property of the landlord without indemnity, unless the landlord requests their removal and/or the reinstatement of the premises to their original state.
Last modified 22 Mar 2024
The assignment of the leasehold right may be framed and/or prohibited by the lease’ stipulations and has to be distinguished from the assignment of the business which includes the leasehold right.
Leases normally stipulate that any transfer of the lease by the tenant to a third party is strictly prohibited or requires the landlord's prior written consent.
However, this requirement does not apply where the transfer of the lease is linked to the sale of the tenant's business (fonds de commerce). Unless otherwise provided, the tenant will remain jointly liable with the assignee and any subsequent assignees for a 3-year period from the assignment.
By law, sub-letting is not permitted, except if otherwise agreed. However, sub-letting is usually permitted in commercial leases, subject to the prior consent of the landlord. Subletting authorization are typically granted for parent companies and/or third party companies having an equivalent financial healthiness. Even when sub-letting is allowed by the landlord, the tenant shall call the landlord to the signing of any sublease to make it valid.
Last modified 22 Mar 2024
Rent can be revised every three years at the request of either party, even if a formal rent review is not provided for in the lease.
However, the parties may agree on an automatic indexation of the rent – often stipulated on a yearly basis. The most frequently used indexes are the Tertiary Activities Rent Index (indice des loyers des activités tertiaires – ILAT), the Construction Costs Index (indice du coût de la construction – ICC) and the Commercial Rents Index (indice des loyers commerciaux – ILC), all published by the National Institute of Statistics and Economic Studies (INSEE). In any case, the index chosen by the parties must have some connection with the activity carried on by one of the parties or with the purpose of the lease.
If the rent review pursuant to an indexation clause results in a change of 25% or more compared with the rent originally fixed or the rent as determined at the last rent review, either party can request that the rent be reviewed so as to be fixed by reference to the market rental value (valeur locative) or cadastral rental value.
Last modified 22 Mar 2024
Rent can be revised every three years at the request of either party, even if a formal rent review (eg indexation clause) is not provided for in the lease.
The parties may also agree on an automatic indexation of the rent – often stipulated on a yearly basis. The most frequently used indexes are the Tertiary Activities Rent Index (indice des loyers des activités tertiaires – ILAT), the Construction Costs Index (indice du coût de la construction – ICC) and the Commercial Rents Index (indice des loyers commerciaux – ILC), all published by the National Institute of Statistics and Economic Studies (INSEE).
Last modified 22 Mar 2024
The landlord can opt for one of two taxes to apply: VAT (at 20%) or CRL (Contribution sur les Revenus Locatifs – Contribution from Rental Revenues) amounting to 2.5%.
VAT can be recovered (totally or partially) by the tenant in the ordinary course of its business and if it uses the building for the purposes of a VATable business. CRL is not recoverable but is a tax deductible expense.
Last modified 22 Mar 2024
All commercial leases of more than twelve years must be registered. Such leases must be entered into before a notary and shall be recorded with the locally competent mortgage office (Service de la Publicité Foncière). This involves the payment by the tenant (it being specified that the landlord is however jointly liable for the payment of such fee) of a fee amounting to approximatively 0.715% of the total rent and service charges due for the entire period of the lease (within the limit of 20 years).
The parties may also agree on an entrance fee/key money to be paid by the tenant. These entrance fee/key money (droit d'entrée/pas-de-porte) is, depending on the circumstances, either analyzed as: a compensation for commercial advantages granted to the tenant (not relating to the rent) or as a rent supplement, paid in advance.
Last modified 22 Mar 2024
If there is more than one tenant the expenses are shared according to the terms of the relevant leases.
Typically, the expenses are allocated on a prorate basis determined with regards of the aggregate surface of the building and the rented surface by each tenant.
Last modified 22 Mar 2024
Under the French Civil Code, expenses relating to the maintenance of the premises and major repairs are payable by the landlord.
It is market practice for the landlord to recover all, or a major part, of these expenses from the tenant in the form of service charges. Major/structural works listed under article 606 of the French Civil Code, together with the fees incurred in relation to such works, may not be recharged to the tenant.
An extensive and precise list of works completed during the last three years (with their cost) and to be completed during the coming three years (with an estimated budget) must be drawn up and communicated to the tenant by the landlord on signing the lease. An updated list of works completed during the last three years (with their cost) and to be completed during the coming three years (with an estimated budget) is to be provided every three years by the landlord to the tenant.
Last modified 22 Mar 2024
Under the French Civil Code, the cost of utilities and telecommunications is payable by the landlord, but the tenant will normally be given responsibility for electricity, heating, and gas supplies. If there is more than one tenant, these expenses are shared according to the terms of the relevant leases.
Last modified 22 Mar 2024
The owner of the property must take out an insurance policy to cover risks associated with premises occupied under a commercial lease. The tenant must also insure risks associated with its own activities on the premises.
The insurance policy usually covers inter alia the risk of fire, explosion and theft.
It is common to include an express clause in the lease agreement which provides for the tenant to reimburse the owner for the cost of insuring the premises as part of the service charges.
Last modified 22 Mar 2024
Is VAT charged on rent?
The landlord can opt for one of two taxes to apply: VAT (at 20%) or CRL (Contribution sur les Revenus Locatifs – Contribution from Rental Revenues) amounting to 2.5%.
VAT can be recovered (totally or partially) by the tenant in the ordinary course of its business and if it uses the building for the purposes of a VATable business. CRL is not recoverable but is a tax deductible expense.
Last modified 22 Mar 2024