Written commercial agreement

Significant imbalance

Sudden termination of established relationships

Competition investigation – French law

Civil competition action

French competition law

Competition investigation – European law

European competition law

Vertical restraints

Distribution law

Liability for defective products

Consumer law

Prohibition of measures having equivalent effect

European business law

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Compliance

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Shareholders' agreements

Removal of company directors

Abuse of voting rights

Companies

Action for infringement (counterfeiting)

Rights conferred by the trademark

Patentability

Industrial property

Commercial rent review

Renewal of the commercial lease

Despecialization (change of use)

Commercial leases

Reform of contract law

Reform of the law of special contracts

Preliminary sales agreement

Obligation to deliver goods in conformity

Classification of the contract for services (contrat d'entreprise)

Effects of the agency agreement with respect to third parties

Business contracts

Ongoing contracts

Recovery claims

Court-approved transfer plan

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Commercial law

500 Questions - Business Law

An escalator (or escalation) clause allows the parties to agree on the automatic variation of the rent, at specified intervals, based on a legally admissible index directly related to the object of the commercial lease or the tenant's activity. Before declaring an indexation clause as unwritten in its entirety, the judge must determine whether the unlawful stipulation excluding reciprocity is divi …

What is an escalator clause?

Commercial rent, whether renewed or not, may be revised at the request of either party subject to the conditions provided in Articles L. 145-38 and L. 145-39. Two types of revision are considered: the legal or triennial revision (Art. L. 145-38 Commercial Code) and the revision via a sliding scale or indexation clause (Art. L. 145-39 Commercial Code).

What are the different scenarios for rent review?

Pursuant to Article L. 145-38 of the Commercial Code, at the end of the first three years of the lease, each party has the option to request a revision of the initial rent, even in the absence of a contractual stipulation to that effect. The triennial revision applies to all leases subject to the status of commercial leases, except for leases with a turnover clause .

These provisions are mandatory public policy provisions: regardless of their form, clauses, stipulations, and arrangements that have the effect of circumventing them are deemed unwritten (Art. L. 145-15 Commercial Code). The parties cannot waive in advance any price revision, but they can do so as soon as the right to the triennial review has arisen and been acquired . Waiving the legal revision mechanism requires an amicable agreement between the parties, which may, in particular, result from a transaction freely concluded between them establishing the lessee's consent to the rent determination and their express waiver to invoke the rules of Article L. 145-38.

Finally, the triennial review must not be conducted unilaterally .

When the two components of a binary-type rent, consisting of a fixed part and a variable part, are contractually indivisible, the variable part is automatically applicable as soon as the tenant's turnover reaches the required percentage, and there is no element to support that the parties intended to set the rent based on the rental value of the premises, the setting of the rent, thus freely determined by the parties at the conclusion of the lease, is lawful both with regard to Article L. 145-15 of the Commercial Code and with regard to the texts relating to unfair terms.

Cass. 3e civ., 10 December 2002, LawLex202100004813JBJ.

Article L. 145-15 does not prohibit, once the conditions for legal review are met, the parties from deciding by mutual agreement to proceed without taking into account the rules of Article L. 145-38.

Cass. 3e civ., 26 May 2016 LawLex202300007226JBJ.

In the absence of an agreement between the parties, it is incumbent upon the party requesting the rent review to refer the matter to the commercial rents judge to set the revised rent price.

Cass. 3e civ., 12 April 1995, LawLex202100004019JBJ.

In what case can a triennial review be requested?

Reviews may take place at the request of either party. The right to seek a review therefore applies equally to both parties when a change in the defined index has occurred, regardless of the direction of the change . There is no requirement that either party act directly. The request for a review may thus be filed by an agent or an attorney.

The request for review is addressed to the lessee or the lessor, but cannot be communicated to a third party. In the case of multiple lessors, each of them must be the recipient of the request.

Advice: The co-owner who makes a review application must notify the other owners.

The request for review of the commercial rent, constituting an act of administration, may be made by co-owners holding at least two-thirds of the undivided rights, in accordance with Article 815-3 of the Civil Code, but they must inform the other co-owners.

Rents may be revised at the request of either party, except in the case of leases with an escalator clause, when the price index has varied and the action for revision, aimed at applying the “fair value” of the rent for a three-year period, is also available to both parties, regardless of the direction of “the variation of the index defined above.”

Cass. com., 22 March 1966, LawLex202300007358JBJ.

Who can request the triennial review?

A rent  review request can only be made at least three years after the date the tenant takes possession or after the start date of the renewed lease. New requests can be made every three years from the day the new price becomes applicable (Art. L. 145-38, para. 1). The three years must have elapsed .

The starting point of the three-year period varies depending on whether it is the first revision or subsequent revisions. For the first rent revision, it is set at the date of entry into possession of the leased premises . In the case of a commercial lease renewal, the starting point of the three-year period is the effective date of the renewed lease and not its due date . For subsequent revisions, the starting point of the three-year period is the effective date of the revised rent. The provisions of Article L. 145-38 of the Commercial Code apply only to triennial revisions and in no case to the determination of the price of the renewed lease, which is subject to its own legal regime.

The computation of the three-year period of Article L. 145-38 of the Commercial Code is carried out in accordance with the provisions of Article 641, para. 2, of the Code of Civil Procedure. The request for revision can thus only be made the day following the expiration date of the three-year period.

The request for revision is made by extrajudicial act or by registered letter with acknowledgment of receipt request (Art. R. 145-20) . It must specify, on pain of nullity, the amount of rent requested or offered. However, it is possible, pending the publication of the index for the quarter on which the variation of the revised rent depends, to indicate a provisional amount .

Advice: Obtain acceptance of the request for revision.

The request for review, initiated by either of the parties to the lease contract, requires the acceptance of the other party, either in writing or by payment of the rent increases. Failing this, the commercial rent judge must be seized to set the price of the revised rent.

A court of appeal cannot hold, to declare admissible the request for revision of the rent of a commercial lease, that Article L. 145-38 of the Commercial Code does not require the request to be made precisely on the day of the start of the triennial period, and that landlords must be allowed, so as not to be disadvantaged by excessive formalism, to request a rent increase within a reasonable time before the due date from which it is owed.

Cass. 3e civ., 11 June 1985, LawLex202300008000JBJ.

The date of commencement of enjoyment by the lessee, which constitutes the starting point of the three-year period required by Article L. 145-38 of the Commercial Code for a rent revision request to be admissible, is the one specified in the lease, without taking into account the fact that the lessee took possession of the premises before this date.

Cass. com., 28 June 1960, LawLex202300008002JBJ.

The starting point of the three-year period provided for by Article L. 145-38 of the Commercial Code is the date of renewal of the lease, even in the event of a postponement of the due date resulting from the landlord's delay in proposing a new rent.

Cass. 3e civ., 8 September 2016, LawLex202100001390JBJ.

Letters in which the lessor informs the lessees of an already acquired rent increase and the recovery of amounts due in the absence of payment within forty-eight hours do not constitute a request for rent revision.

Cass. 3e civ., 12 April 2018, LawLex202100004785JBJ.

The letter requesting a rent review, which only indicates a provisional amount pending the publication of the index for the quarter on which the variation of the revised rent depends, is valid.

Cass. 3e civ., 20 December 1989, LawLex202300008125JBJ.

When and how to request the triennial review?

The revised rent must, in principle, be set at the rental value (Art. L. 145-33), without taking into account, for its calculation, the tenant's investments, nor the capital gains or losses resulting from their management during the current lease term (Art. L. 145-38, para. 4).

In the absence of proof of a material modification of local commercial factors that by itself resulted in a variation of more than 10% of the rental value, the increase or decrease in rent following a triennial review cannot exceed the variation of the quarterly commercial rent index or the quarterly index of tertiary activity rents mentioned in the first and second paragraphs of Article L. 112-2 of the Monetary and Financial Code, occurring since the last amicable or judicial determination of the rent (Art. L. 145-38).

The quarterly commercial rent index (ILC) applies when the lessee operates a commercial or craft activity, whereas the quarterly rent index for tertiary activities (ILAT) concerns other tertiary activities (Art. D. 112-2 Monetary and Financial Code).

The calculation of the legal revision is carried out by taking into account the indices, on the one hand, of the quarter during which the revision request is notified, and, on the other hand, of the quarter during which the last rent determination occurred, or of the one in effect at the time of the lease signing, if it is a first revision . To calculate the revised rent, simply apply the new index of the quarter to the rent to be revised and use as the base index that of the corresponding quarter, as agreed in the lease or used during the previous revision.

When evidence is provided of a material modification of local commercial factors, which has itself led to a variation of more than 10% in the rental value, the revised rent is no longer subject to the capping rule. The uncapped rent is set at the rental value regardless of the direction of the variation . The modification of local commercial factors must have occurred between the last amicable or judicial determination of the rent and the date of the revision request. Local commercial factors primarily depend on the interest that the size of the city, neighborhood, or street where it is located presents for the business in question, the location, the distribution of various activities in the vicinity, transportation means, the particular appeal or constraints that the location may present for the activity considered, and the changes that these elements undergo in a lasting or temporary manner (Article R. 145-6), this list not being exhaustive. A material modification of local commercial factors notably includes the transformation of a street into a pedestrian zone  or the establishment of a cinema complex . However, this is not the case for the renegotiation of rents of competing undertakings .

It is precisely by referring to the construction cost indices published by INSEE at the time of the lease signing and at the time of the revision request that the trial court determined the revised rent.

CA Paris, 6 February 2008, LawLex202300007359JBJ.

When the rental value has changed by more than 10% following the material modification of local commercial factors, the revised rent must be equal to the rental value, even if it has varied in the opposite direction of the index.

Cass. 3e civ., 16 December 1998, LawLex202100005694JBJ.

The transformation of a street into a pedestrian zone, a modification made in agreement with the neighboring merchants to increase commercial activity, constitutes a material fact within the meaning of Article L. 145-38 of the Commercial Code, and may authorize an increase in rent if it is established that it has indeed resulted in a variation of more than 10% in the rental value.

CA Versailles, 27 April 1989, LawLex202300008372JBJ.

The establishment of a cinema complex constitutes a material modification of the local commercial factors, which significantly increases the potential clientele of the lessee in view of its activity as a brewery-café-ice cream parlor, complementary to that of the cinema, thus creating a particular attraction.

CA Poitiers, 20 October 2020, LawLex202300008374JBJ.

Does not constitute a material modification of local commercial factors, within the meaning of Article L. 145-38 of the Commercial Code, the modification in favor of competing undertakings, occurring between the date of rent determination and the date of the revision request, agreements to which the lessor and the lessee are third parties.

Cass. 3e civ., 25 October 2018, LawLex202100006301JBJ.

How is the rent of the revised lease set?

An escalator (or escalation) clause allows the parties to agree on the automatic variation of the rent, at specified intervals, based on a legally admissible index directly related to the object of the commercial lease or the tenant's activity. Before declaring an indexation clause as unwritten in its entirety, the judge must determine whether the unlawful stipulation excluding reciprocity is divisible and can be removed without affecting the coherence of the clause . It applies by operation of law without being subject to any expression of will by the lessor. The latter may choose not to claim the amount of increases as soon as they take effect without waiving the right to invoke the clause. The parties may agree that the rent can only take effect after prior notification by the lessor. In this case, the revision retains its automatic nature . However, the lessor remains obliged to inform the tenant of the revised rent amount.

A court of appeal cannot deem an indexation clause entirely unwritten without determining whether the prohibited stipulation excluding any reciprocity of the index variation could be removed from the indexation clause without affecting its coherence.

Cass. 3e civ., 22 May 2025, LawLex202500004357JBJ.

The fact that an amendment to the commercial lease provides that the rent variation can only take effect after prior notification by the lessor does not detract from the automatic nature of the revision, which is by right and exempts the lessor from any request, as the notification of the revised rent amount is merely a method of implementing this stipulation, which requires an express manifestation of the lessor's intent.

CA Nancy, 9 April 2014, LawLex202100004672JBJ.

Article L. 145-39 establishes a special regime for judicial revision of indexed rent, which differs from the automatic revision of rent under the sliding scale clause. It provides that when the lease includes a sliding scale clause, revision can be requested whenever, through the operation of this clause, the rent is increased or decreased by more than a quarter compared to the price previously set contractually or by judicial decision. Unlike the triennial revision, the implementation of the indexed rent revision is not subject to any time limit. The text imposes no other requirement than the simple observation of the increase or decrease in rent through the operation of the sliding scale clause. Not distinguishing who, between the lessor or the lessee, is entitled to act, the request is equally open to both parties.

The request for rent review, pursuant to Article L. 145-39 of the Commercial Code, and its setting at a certain amount, is admissible at any time as long as, through the operation of the escalation clause, the variation between the rent in effect at the date of the request and the rent previously set by agreement reaches 25%. The triennial periodicity of the clause's operation does not prevent the rent from being subject to adjustment during the period .

A request for implementation of the escalator clause must be made by extrajudicial act or by registered letter with acknowledgment of receipt and must specify, on pain of invalidity, the amount of rent requested or offered.

The triennial periodicity of the operation of the escalator clause does not prevent the rent from being adjusted during the period in accordance with the provisions of Article L. 145-39 of the Commercial Code.

Cass. civ. 3e, 22 November 1989, LawLex202200000220JBJ.

When can the sliding scale clause be implemented?

To determine the variation of a quarter, it is necessary to compare the last price set by the parties' agreement, excluding indexation, with the rent price obtained through the application of the escalator clause. When the rent is increased or decreased by more than a quarter, the revision is calculated according to the rental value . The judge is required, unless the parties agree on another date, to adapt the application of the escalator clause to the rental value on the day of the request . The waiver of the benefit of the indexation clause is not presumed: it requires positive acts clearly indicating the intention to waive it, and therefore cannot result from its mere non-application .

The rent thus assessed serves as the calculation basis for the application of the escalator clause, both regarding the subsequent variation of more than a quarter and the future indexation of the rent based on the variation of the reference index. In this case, the base index to be used for the application of the indexation clause will be the index published on the date of the request for revision .

The escalator clause does not prevent the triennial review provided for in Article L. 145-38 of the Commercial Code. In this case, the revised rent must be equal to the rental value, even if it has varied in the opposite direction of the index, as long as the rental value has changed by more than 10% due to the material modification of local commercial factors between the effective date of the lease and the request for revision . Furthermore, according to Article R. 145-22, para. 2, of the Commercial Code, “if one of the elements used for calculating the escalator clause disappears, the review can only be requested and pursued under the conditions provided for in Article L. 145-38.”

A court of appeal cannot reject the landlord's request to have the rent set above the cap at the rental value by applying Article L. 145-39, when at the date of the request, the rent having increased by 27.7% compared to the previously contractually set price, the courts should have adjusted the rent to the rental value at that date by applying Article R. 145-22.

Cass. 3e civ., 3 November 2016, LawLex202100005111JBJ.

The increase in the rent price, beyond the contractual rent, can only take effect on the date of the request made by the landlord.

Cass. civ. 3e, 27 January 1988, LawLex202100006357JBJ.

Insofar as the failure to exercise a right is insufficient to characterize its waiver, which requires the demonstration of positive acts manifesting the unequivocal intention to waive it, the waiver of the application of the indexation clause cannot result from the fact that it has not been applied.

CA Toulouse, 3rd ch., 23 May 2024, LawLex202400003983JBJ.

The base index to be used for the application of the sliding scale clause is, in the event of a rent review made pursuant to Article 28 of the decree of 30 September 1953 (current Art. L. 145-39 Commercial Code), the index published on the date of the request for review.

Cass. civ. 3e, 12 February 1985, LawLex202200000219JBJ.

When the sliding scale clause does not prevent the triennial review provided for in Article L. 145-38 of the Commercial Code, the annual application of the construction cost index to the current rent must be distinguished from its review. The period to be considered for the application of this Article runs from the effective date of this contract to the request for review, with no amicable or judicial review having taken place since the conclusion of the lease.

500 Questions - Business Law

334. What is an escalator clause?

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334. What is an escalator clause?

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