Commercial Leases/Business Goodwill

Under the terms of Article R. 145-7, para. 1, of the Commercial Code, it is permissible to refer, for the determination of rental value, to the prices commonly practiced in the vicinity, per unit of area, which “concern equivalent premises with regard to all the elements mentioned in Articles R. 145-3 to R. 145-6.” However, the mere observation of a significant change, during the lease, in the prices commonly practiced in the vicinity is not sufficient to authorize the uncapping of the rent . Indeed, Article L. 145-34 of the Commercial Code only refers to a possible significant modification of the elements mentioned in 1° to 4° of Article L. 145-33.

To determine the prices commonly practiced in the vicinity, it is appropriate to consider rents set for businesses that benefit from similar commercial factors. Therefore, premises intended for identical commercial activity and located in the same catchment area should be prioritized . However, when the nearby area includes a very small number of businesses, it may be necessary, to determine a market price with real economic significance, to consider the rents practiced near the concerned business, regardless of the purpose of the premises . When the premises are located in a shopping center, which constitutes its own market unit, only references found within it should be considered . In this regard, the landlord is required, as the owner of all the premises in a shopping center, to provide all reference elements under penalty of being refused the organization of an expert measure, which is not intended to compensate for their deficiency in the administration of proof .

The prices commonly practiced by the neighborhood must concern equivalent premises  with regard to the building's location, available surfaces, their distribution, state of disrepair, characteristics, intended use, as well as local commercial factors . The fact that neighboring premises undergo the same configuration as the premises in question (a deep shop with limited street frontage) is a component to consider for evaluating the commonly practiced prices . While it is possible to exclude extreme rents from all selected references, namely the highest and the lowest , the reference to a neighboring business cannot be excluded solely because its surface is smaller and the store benefits from a better location than the concerned business, since the premises remain a comparison element to consider even though it is on the higher end due to its location . In principle, there is no need to resort to the comparison method based on the criterion of prices commonly practiced by the neighborhood to determine whether or not to deduct property tax from the rental value, as the transfer to the lessee of obligations normally incumbent on the lessor alone constitutes a factor reducing the rental value . However, it is not prohibited for the expert to adjust the selected prices by considering this factor when it influences the reference rent . Conversely, the reference to a business whose rent is binary and partly depends on turnover cannot be retained, as it represents a real difference that prevents a true comparison .

Moreover, if the amounts paid to the transferring owner of the business, corresponding to the acquisition price of the leasehold right, must not under any circumstances be included in the calculation of the rental value , case law considers that it is not illegitimate to capitalize the amounts paid to the landlord in the form of a key money, to assess the actual rental value of the leased premises with this particularity. No logical imperative dictates that only new leases or leases with capitalized key money should be considered , the matter falls under the sovereign assessment of the trial court, which may notably rely on the estimate provided by a judicial expert, which corresponds to a rental value including periodic rents and rents with capitalization of the key money over nine years, the only one likely to approximate a market value by including in the prices practiced in the vicinity the rental cost of a new operator at the reference date . However, the landlord who cites rental value references based on a method integrating the capitalization of the leasehold right, must provide proof that the amount paid corresponds to a rent supplement, which constitutes the consideration for an abnormally low rent in view of the prices commonly practiced in the vicinity .

In no case can the rental value result from the arithmetic average of the selected unit rents . It must be determined from the comparison of elements, analyzed separately, which take into account not only new leases but also amicable renewals and judicial determinations, in addition to other elements referred to by the Commercial Code . Furthermore, while reference to a lease that is no longer in effect may be relevant, it is not sufficient on its own to determine the rent amount, which must result from a panel of references .

In the absence of equivalence, Article R. 145-7, para. 2, of the Commercial Code states that the prices referenced in the vicinity “may, as an indication, be used for the determination of base prices, unless corrected in consideration of the differences observed between the rented premises and the reference premises,” while taking into account the terms under which the previously applicable price was originally set . Para. 3 specifies, in this regard, that if the references proposed by both parties concern several premises and include, for each premises, its address and a brief description, these “are corrected due to the differences that may exist between the dates of price setting and the terms of this setting.”

Finally, Article R. 145-11, para. 1, of the Commercial Code specifies that “the rent for premises used exclusively as offices is set by reference to the prices charged for equivalent premises, unless adjusted in consideration of the differences observed between the rented premises and the reference premises,” and in this case, the provisions of the second and third paragraphs of Article R. 145-7 are applicable (Art. R. 145-11, para. 2, Commercial Code). It is then necessary to examine, in the case of a premises in the nature of a shop, not only the rents of premises that have the same purpose and in which the same activity is carried out but also the rents of shops . Thus, for bank branches, which, unlike offices traditionally located on the upper floors of buildings, conduct their office activity in shops, it is necessary to seek references both among other bank branches in comparable sectors and in the shop market, while taking into account the differences in activity .

Cass. 3e civ., 19 March 2003, LawLex202100006367JBJ.

CA Angers, 30 June 2020, LawLex202100006006JBJ; CA Orléans, 2 April 2020, LawLex202100006467JBJ, which specifies that the rental value must be set by reference to prices commonly practiced in the vicinity for premises where an activity relatively comparable to that of the considered business is conducted.

CA Poitiers, 18 December 2018, LawLex202100006484JBJ.

CA Toulouse, 5 June 2019, LawLex202100006245JBJ.

CA Orléans, 15 April 2021, LawLex202100006482JBJ.

Cass. 3e civ., 5 June 2002, LawLex202100005863JBJ, which quashes the appellate decision that, in assessing the rental value of the part of the premises leased for commercial use, considers as a factor reducing this value the payment of a certain sum as a premium, while noting that this sum was paid to the outgoing owner of the business, and not to the lessor.

CA Paris, 27 June 2007, LawLex202300007055JBJ.

Cass. 3e civ., 11 October 2011, LawLex202100005995JBJ.

Cass. 3e civ., 31 May 2011, LawLex202100006089JBJ.

CA Versailles, 6 October 2015, LawLex202300007057JBJ.

CA Paris, 9 June 2021, LawLex202300007056JBJ.

CA Paris, 29 September 2021, LawLex202100006003JBJ.

CA Grenoble, 8 December 2011, LawLex202300007046JBJ, which indicates that Article R. 145-7 of the Commercial Code, while requiring that the proposed references from both sides concern several premises, does not exclude that they may house businesses of a different nature.

CA Aix-en-Provence, 20 January 2011, LawLex202100004659JBJ.

CA Paris, 12 September 2018, LawLex202100006005JBJ.

CA Paris, 6 April 2011, LawLex202300007053JBJ.

CA Versailles, 25 November 2021, LawLex202300007047JBJ.

CA Paris, 17 June 2015, LawLex202300007048JBJ.

CA Lyon, 4 July 2024, LawLex202400005173JBJ.

Limoges, 14 March 2024, LawLex202400002493JBJ, according to which, to determine the price commonly practiced in the vicinity, it is appropriate to consider the strong point of the premises, which lies in its location in a dynamic commercial and industrial area where customer traffic has significantly developed in recent years, easily accessible by roadways, but also its weak point, which results from the limited impact in terms of customer contribution in the field of vehicle inspection, conducted by the lessee, and its dilapidation, with structural work to be carried out by the lessor.

156. Prices commonly charged in the vicinity