Investors and tenants seeking to sign or renew commercial property leases in France should be wary of changes to the legislation governing agreements.
New legislation governing commercial property leases in France which was introduced a year ago has increased the complexity of lease agreements for landlords and tenants, legal experts warn. Designed to protect small business operators by increasing the protection of tenants, the Pinel Law, which came into force in June 2014, stipulates new criteria for issues ranging from the duration of commercial leases, recoverable taxes and charges, and the landlord's duty to inform the tenant of works to the property and fees/charges.
'Both investors and tenants should be aware of the many changes brought by the Pinel Law into the regime of commercial leases in France and the potential pitfalls, notably those regarding the charges,' say Aline Divo and Arnaud Valverde, partner and associate respectively at the real estate unit of Paris-based law firm CMS Bureau Francis Lefebvre. 'Parties should be particularly cautious when negotiating new leases as well as negotiating the renewals of older leases as the Pinel Law makes the regime of commercial leases more complex than it already was,' they warn.
Charges and taxes
The biggest changes lie in the provisions relating to charges and taxes (see table).
Before the Pinel Law came into force, agreements between the parties regarding charges and taxes were defined by the terms of the lease. The new legislation requires every commercial lease agreement to include a precise inventory of the categories of charges and taxes linked to the lease. Moreover, it specifies a list of charges, taxes and works that are no longer recoverable from the tenant. The list includes structural repairs, work linked to wear and tear of the premises and compliance work that can be considered as structural repairs with the exclusion of refurbishments that cost more than replacement. In addition, the list includes landlord management fees linked to the management of rents and taxes where the landlord is personally liable for payment such as the 'Territorial Economic Contribution'.
Nevertheless, key charges are still recoverable from the tenant such as the land tax, the premium for the building insurance paid by the landlord, maintenance work that is not structural, waste tax and the annual tax on offices, stores, warehouse and parking spaces in the Ile-de-France area. At the same time, the Pinel Law puts an end to the practice of triple net leases which were common in the market.
Divo and Valverde say that as the legislation is still fairly new, case law is expected to define its provisions more precisely in the coming months.
Recoverable charges from the tenant
Leases signed or renewed before 5 November 2014
- all charges and taxes and other rental fees were potentially recoverable from the tenant.
Leases signed or renewed from 5 November 2014
- Recoverable charges from the tenant
- maintenance work and non-structural repairs in the sense of article 605 of the French Civil Code
- compliance work and work caused by wear and tear
- land tax
- annual tax on offices, stores, warehouse and parking spaces in the area of Ile-de-France
- the garbage tax
- premium for the building insurance paid by the landlord
- technical management fees
- Non-recoverable charges from the tenant
- structural repairs and work in the sense of article 606 of the French Civil Code
- compliance work and work caused by wear and tear if they are structural repairs in the sense of article 606 of the French Civil Code
- taxes such as the 'Territorial Economic Contribution', where the landlord is personally liable for payment
- for premises located in a real estate complex: service charges, taxes and other related fees that should be borne by other tenants or that are linked to vacant premises
- the management fees of the landlord linked to the management of rents
Source CMS Bureau Francis Lefebvre
By Aline Divo, Partner, and Arnaud Valverde, associate
PropertyEU Magazine n°9, November 2015