Commercial Leases/Business Goodwill

Local commercial factors depend mainly, pursuant to Article R. 145-6 of the Commercial Code, “on the interest that the size of the city, neighborhood, or street where it is located presents for the considered business, the location, the distribution of various activities in the vicinity, transportation means, the particular appeal or constraints that the location may present for the considered activity, and the changes these elements undergo in a lasting or temporary manner,” this list not being exhaustive. The text refers not to the destination of the premises, but to the interest for the considered business . Indeed, if the modification of commercial factors, which must be material , does not have a favorable impact on it, the rent increase of the renewed lease is not justified . Such is the case when the material, local, and exceptional modification of local commercial factors, through the restructuring and rehabilitation of the hyper city center, has had no effect on the considered activity, and the creation of a small terrace in front of the store allowing for the installation of barely three tables does not influence customer attendance either . The same applies to the population decrease, alleged by the lessee and acknowledged by the lessor, which constitutes an unfavorable modification for a local business . Conversely, the location of a shoe store in the hyper center, particularly in a street specialized in luxury with significant customer traffic, presents an interest for the business . However, the favorable impact on the considered business must be within a limited radius of four hundred meters . Thus, the increase in constructions within such a radius around the leased premises has a favorable impact on the supermarket activity .

It is up to the trial court to conduct an in concreto  assessment of the impact of changes in local commercial factors and to determine, if necessary ex officio, whether the changes identified are of interest to the business actually conducted on the premises by the tenant . Thus, they cannot exclude the rule of capping due to a significant change in local commercial factors resulting from the development of tourism and winter sports, when the tenant operates a sawmill business on the leased premises , or when the influx of tenants brought about by the restoration of buildings and the renovation of neighborhood housing has no impact on the wholesale and semi-wholesale activity conducted by the tenant . Furthermore, it is not sufficient for the improvement of local commercial factors to be a positive asset for a professional activity sector. The change must also directly concern the tenant's business and be significant .

Local commercial factors are assessed at the date of rent review or at the lease renewal date. Therefore, the planning of new housing or businesses after the lease renewal date, as well as the extension or commissioning of tram lines in the coming years serving the premises, have no effect on the local commercial factors at that date . The setting of the renewed lease rent at the rental value is also not justified when traffic renovation works occurred prior to the conclusion of the commercial lease . Nor does a material modification of local commercial factors occur in favor of competing businesses, which took place between the date of rent setting and the date of the request for revision of agreements to which the landlord and tenant are third parties .

It is incumbent upon the landlord to provide proof of the existence of a change in local commercial factors that has had a favorable impact on the business in question . This is not the case when the landlord does not produce any evidence demonstrating the extent of the increase in traffic to the business in question or establishing that the tenant's business particularly benefited from the opening of the tram line facilitating the influx of customers to an area near the disputed premises in a proportion greater than businesses conducting similar activities in the vicinity .

Justify the removal of the cap, the modifications affecting the commercial environment of the leased premises . This is the case with the commissioning of the metro combined with the expansion of a cinema and the opening of a theater , the opening of a metro station in a very busy and lively neighborhood , the location of a premises in a highly sought-after area, right in the heart of the city center, and in the immediate vicinity of the city's busiest metro station , or the presence of a parking lot and the installation of the tramway, which resulted in a change in the traffic plan allowing favorable access to the tenant's premises and better visibility of their commercial sign .

Finally, a significant change in local commercial factors justifies the removal of the rent cap for the revised or renewed lease, even if a stagnation in the turnover achieved by the lessee is observed . Indeed, the evolution of turnover depends only very partially on local commercial factors and also results from the merchant's management, the nature and quality of the products sold or services performed, the economic situation, the personal qualities of the operator, and their current initiatives . However, such an evolution, when established, is often used by the trial court to confirm the existence of changes in local factors .

Cass. 3e civ., 8 January 1997, LawLex202100006288JBJ; 16 July 1998, LawLex202300006736JBJ, which excludes the rent increase requested by the landlord who asked that the impact of the modification of local commercial factors be measured not by the activity carried out by the tenant in accordance with the lease but by the destination of the premises.

CA Rouen, 20 June 2024, LawLex202400004827JBJ.

Cass. 3e civ., 4 March 1987, LawLex202300006735JBJ.

Cass. 3e civ., 8 January 1997, LawLex202100006288JBJ, op. cit.

Cass. 3e civ., 30 June 2004, LawLex202300006733JBJ, op. cit.

CA Paris, 12 September 2018, LawLex202100006005JBJ.

CA Rennes, 6 July 2022, LawLex202200004043JBJ.

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

CA Paris, 2 May 2018, LawLex202100006352JBJ, préc.

CA Angers, 30 June 2020, LawLex202100006006JBJ.

CA Grenoble, 28 March 2007, LawLex202100006244JBJ: in this case, the local commercial factors were significantly and durably altered by the arrival of a diverse and varied clientele in an area that has become the most sought-after in the city, by the densification of the population using public transport in the agglomeration in question, and by the establishment, in the immediate vicinity, of a major leisure products retailer whose clientele partly overlaps with that of the tenant's activity.

CA Toulouse, 10 March 2010, LawLex202100004663JBJ.

Cass. 3e civ., 15 October 2013, LawLex202300006729JBJ, regarding premises located in the city center.

Cass. 3e civ., 21 November 1995, LawLex202100006286JBJ.

CA Toulouse, 5 June 2019, LawLex202100006245JBJ.

CA Colmar, 28 June 2007, LawLex202100006306JBJ.

Cass. 3e civ., 12 June 2001, LawLex202300006929JBJ. – Also see Cass. 3e civ., 29 March 1995, LawLex202300006734JBJ, for a lessee who argued that local commercial factors can only be considered for determining the rent to the extent that their increase leads to a corresponding growth in the actual results achieved by the “considered business,” and criticized the trial court for admitting at least a relative stagnation of the results of their business.

Cass. 3e civ., 6 November 2001, LawLex202300006930JBJ; CA Paris, 20 June 2024, LawLex202400004836JBJ, according to which the evolution of turnover over the period considered is not in itself indicative of an impact of the evolution of local commercial factors on the business in question but rather pertains to the relevance of the management choices and the evolution of the commercial strategy of the lessee who, by reorganizing their sales space, was able to adapt to customer needs and become more attractive than their direct competitors.

Cass. 3e civ., 1 March 2000, LawLex202100006293JBJ: in this case, the trial court found that the commercial activity of the city of Saint-Malo, having experienced a notable evolution due to a very significant increase in visitors over recent years, particularly benefited the lessee given the privileged location of the rented premises near the most frequented entrance of the city, resulting in an increase of more than 60% in its turnover over seven years.

Cass. 3e civ., 21 January 2014, LawLex202300006731JBJ.

Cass. 3e civ., 13 July 1999, LawLex202100006296JBJ.

CA Douai, 19 April 2018, LawLex202100006243JBJ.

CA Paris, 2 May 2018, LawLex202100006352JBJ, concerning the opening of a metro station and a university hub located beyond this radius and which cannot be considered as having notably altered the local commercial factors.

CA Paris, 26 September 2018, LawLex202100005960JBJ.

Cass. 3e civ., 30 June 2004, LawLex202300006733JBJ.

Cass. 3e civ., 27 January 1999, LawLex202300006728JBJ; 7 April 2004, LawLex202300006732JBJ.

155. Local factors of commerciality