Commercial Leases/Business Goodwill

When concluding a commercial lease, the parties are free to set the frequency for implementing the escalation clause, even though it is common in practice for them to agree on annual indexation, avoiding the completion of the statutory three-year period provided for in Article L. 145-38 of the Commercial Code. The rent therefore varies with each publication of the index according to a certain peri …

Frequency of indexation

When concluding a commercial lease, the parties are free to set the frequency for implementing the escalation clause, even though it is common in practice for them to agree on annual indexation, avoiding the completion of the statutory three-year period provided for in Article L. 145-38 of the Commercial Code. The rent therefore varies with each publication of the index according to a certain period agreed upon by the parties. However, the ambiguity of the terms of the clause may lead the trial court to interpret it. Thus, a court of appeal was able to deduce from an escalation clause, according to which the parties agreed that the rent could be revised at the beginning of each three-year period, that it cannot be implemented by the landlord during this period .

There are two different calculation methods for indexed rent in the context of annual indexation:

- the first consists of applying the new index of the quarter, as agreed in the clause, to the rent of the previous year, with the base index becoming the index of the same quarter corresponding to the previous year;

- the second allows the base index agreed upon in the initial lease to be retained and applies the new index of the same quarter corresponding to the year of revision to the initial rent.

This latter method has raised some questions insofar as Article L. 112-1, para. 2, of the Monetary and Financial Code deems unwritten “any clause of a contract for successive performance, and notably leases and rentals of any kind, providing for the consideration of a period of index variation longer than the period between each revision.” The Court of Cassation responded by establishing the principle that if the application of a fixed reference index has not led during successive indexations to a distortion between the index variation interval and the period between two revisions, the contractual indexation clause referring to a fixed base index is valid . Trial courts do not have the power to assess the severity of a distortion related to indexation, even if its effects are minimal . Only the stipulation that creates the prohibited distortion is deemed unwritten, not the entire indexation clause . An indexation clause cannot, however, be deemed unwritten when the noted distortion does not result from the indexation clause itself, but from the gap between the lease renewal date and the date scheduled for the annual rent indexation . Furthermore, when a sliding scale clause stipulated in the lease includes a fixed base index, the multiplier index must correspond to the same quarter as the reference index in view of the risk of temporal distortion between these two indices .

Thus, the indexation clause of the initial lease reproduced in an amendment that creates a distortion by applying the reference index of the 4th quarter provided in the initial lease to the new base rent must be deemed unwritten , or the indexation clause stipulating that the first revision will occur on 1 January following the delivery date of the premises based on the last known construction cost index and the subsequent ones on 1 January of each year, based on the comparison index considered during the previous adjustment and the index of the same quarter of the year preceding the indexation date, which itself contains a distortion between the index variation interval and the period elapsed between two revisions . However, the indexation clause is not unlawful if it provides, on the one hand, that the rent will be indexed annually on the construction cost index and, on the other hand, that if the revised rent to come was set at a different date than that provided by the clause, the judge should adapt the operation of the sliding scale clause to the rental value, as the rent revision cannot itself organize the distortion prohibited by law .

Cass. 3e civ., 30 October 2002, LawLex202100004797JBJ.

Cass. 3e civ., 16 October 2013, LawLex202100005695JBJ. – See also Cass. 3e civ., 11 December 2013, LawLex202100004795JBJ. – Also see Cass. 3e civ., 19 December 2019, LawLex202100004778JBJ, which overturns the appeal decision rejecting the tenant's request to declare the indexation clause in the lease deemed unwritten, as this clause itself contained a distortion between the index variation interval and the period elapsed between the effective date of the lease and the rent review date.

Cass. 3e civ., 17 May 2018, LawLex202100004784JBJ.

Cass. 3e civ., 29 November 2018, LawLex202100004780JBJ, according to which the clause, which provides for a first adjustment, illicit but punctual, relating to the commencement of the lease during the calendar year, while the subsequent reference periods have the same duration, cannot be deemed unwritten.

Cass. 3e civ., 13 September 2018, LawLex202100004781JBJ.

Cass. 3e civ., 9 February 2017, LawLex202100004789JBJ.

Cass. 3e civ., 7 May 2014, LawLex202100004794JBJ. – See also Cass. 3e civ., 25 February 2016, LawLex202100004790JBJ: when the amendment reproduces the indexation clause contained in the initial lease and uses the reference index related to the signing of the initial lease, the subsequent application made to calculate the subsequent annual indexations results in a distortion between the index variation interval and the period between two annual revisions insofar as the base rent considered is that applicable at the date of the amendment.

Cass. 3e civ., 14 September 2017, LawLex202100004787JBJ: in this case, the variation period was twenty-seven months while the lease term was only nine months and twenty-eight days.

Cass. 3e civ., 17 May 2018, LawLex202100004783JBJ: in this case, no distortion was found between the fixed base index and the multiplier index, which was, during successive revisions, that of the 4th quarter preceding the revision date.

Commercial Leases/Business Goodwill

141. Frequency of indexation

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Les notions juridiques connexes

141. Frequency of indexation

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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