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New regulations on residential rents

21/10/2015

Law 2014-366 dated 24 March 2014 amended the rules for setting the rent for leases for premises used as main residences or premises for mixed professional and main residence use.

The rent for these premises is initially set freely (article 17-III of the law dated 6 July 1989), except when the premises are located in a continuous built-up area of more than 50,000 inhabitants where a significant imbalance exists between supply and demand for homes. The law stipulated that a decree would define the list of communes falling within such areas. Decree 2015-650 dated 10 June 2015 stipulated that these communes are those listed in the appendix to decree 2013-392 dated 10 May 2013 relating to the application scope of the annual tax on vacant housing instituted by article 232 of the French General Tax Code (article 17-I). For these communes, each year the State representative in the department defines a reference rent, an increased reference rent and a reduced reference rent, expressed as a price per square metre of habitable surface area, by category of accommodation and by geographical area.

The reference rent is equal to the median rent calculated based on the levels of rent recorded by the local rent observatory according to category of accommodation and geographical area. The increased reference rent is equal to an amount 20% higher than the reference rent. The reduced reference rent is equal to an amount 30% lower than the reference rent.

In areas where the ruling applies, the initial rent must be capped at the increased reference rent (article 17-II A). Nevertheless, providing that the basic rent is not less than the increased reference rent, a rental supplement may be applied to the basic rent when justified by the property's location or level of comfort compared with accommodation in the same category located in the same geographical area. In this case, the lease must mention the amount of the rental supplement and the characteristics of the property justifying it.

Decree no. 2015-650 dated 10 June 2015 specifies that:

  • the accommodation categories are determined at least according to the characteristics of the property in respect of the rental type, furnished or non-furnished, the number of main rooms within the meaning of article R. 111-1-1 of the French Construction and Housing Code and the date of construction;
  • the geographical areas encompass zones which are consistent in terms of level of rent recorded on the rental market (article 2 of the decree).
  • The property's location or level of comfort used to justify the application of a rental supplement:
  • must not have been taken into account to determine the reference rent corresponding to the property;
  • must be decisive in setting the rent;
  • must not be subject to charges payable to the landlord or contributions to energy savings for works carried out by the landlord, as stipulated in articles 23 and 23-1 of the law dated 6 July 1989 (article 3).

In addition to fixing of the initial rent, the creation of these zones will also have an impact on the rent of renewed leases since the increased and reduced reference rents will now be criteria for admissibility of an action brought to reduce or reassess the rent (art. 17-2 of law 89- 462). Any (new) action to reduce rent may therefore now be brought if the amount of rent stipulated in the lease contract, excluding any rental supplement, is higher than the increased reference rent. Conversely, an action to reassess the rent may be brought if the rent is less than the reduced reference rent.

Ruling 2015-176-0007 dated 25 June 2015, signed by the Prefect of Paris, determines the reference rent, increased reference rent and reduced reference rent for the commune of Paris. This ruling came into force on 1 August 2015

Authors

Picture of Brigitte Gauclere
Brigitte Gauclère
Counsel
Paris