Commercial lease: unilateral upward-only indexation clause annulled by the Court of Cassation

You are the owner of a commercial premises in Saint-Paul-lès-Dax, and your lease provides that the rent is revised each year according to the commercial rent index. But a clause specifies that the rent can never decrease, only increase. You think: 'That's normal, I'm protecting myself against inflation.' But your tenant is furious: why should they pay an artificially high rent when the index falls? This question was put to the Court of Cassation by the company Tahiti, which ruled: an indexation clause that excludes reciprocal variation (i.e., which only allows increases) is void. In other words, the rent must be able to move in both directions, like a yo-yo, not just upwards. Analysis of this decision that changes the game for commercial leases, from Biscarrosse to Mont-de-Marsan.

The facts: a story that happens every day

Imagine: Mr. X, owner of a commercial premises in Biscarrosse, leases it to the company Tahiti for a business. The lease, signed in 2005, contains a standard indexation clause: the rent is revised each year according to the construction cost index. But a small added sentence stipulates that 'the revised rent cannot be lower than the base rent preceding the revision'. In other words, if the index falls, the rent stays the same; if it rises, the rent increases. For several years, the company Tahiti pays without complaint. But in 2008, the index drops. The tenant asks for a rent reduction. Refusal from the owner, who invokes the clause. The company Tahiti then sues Mr. X to have this unilateral clause annulled. The High Court (tribunal de grande instance) of Mont-de-Marsan rules in favour of the tenant: the clause is unfair. The owner appeals. The Court of Appeal of Pau confirms the judgment in 2013. Mr. X appeals to the Court of Cassation. In its judgment of 14 January 2016, the Court of Cassation dismisses the appeal and confirms the nullity of the clause. The owner must repay the overpayments since 2008, several thousand euros.

The reasoning of the court — dissected

The judges relied on Article L. 112-1 of the Monetary and Financial Code (which requires that the indexation be directly related to the object of the contract) and on the general principle of reciprocity of variations. But above all, they applied Article 1171 of the Civil Code (from the 2016 reform, but in its earlier version, the principle was already established by case law): any clause that creates a significant imbalance between the rights and obligations of the parties is deemed unwritten. In other words, a clause that only benefits the landlord is unfair. The Court considered that the disputed clause deprived the tenant of any decrease, which breaks the contractual balance. It rejected the owner's argument that it was a simple calculation method. No, said the Court: it is a potestative clause (depending solely on the will of the landlord) because it only works upwards. This is not a reversal: the case law was already established in a 2010 decision (Civ. 3e, 9 March 2010, No. 08-20.288). But this decision confirms and strengthens it. However, note: nullity is not automatic for all indexation clauses, only those that exclude decreases.

What this changes for you — practically

If you are a tenant of a commercial lease: check your indexation clause. If it provides for a 'floor' (the rent cannot decrease), you can request the nullity of that clause and claim reimbursement of overpayments for the last 5 years (five-year limitation period). Example in Biscarrosse: a rent of €10,000 per year, with an index that falls by 2% in 2020, you should have paid €9,800. If the clause locked you at €10,000, you can recover €200 per year, i.e., €1,000 over 5 years. If you are a landlord: this decision requires you to revise the clauses of your leases. If you have an 'upward-only revision' clause, it is void. You must propose a reciprocal clause, where the rent follows the index both up and down. undefined, I have seen cases where landlords had to repay several thousand euros to their tenant, plus statutory interest. If you are a buyer of a commercial premises: during due diligence, insist on seeing the lease and the indexation clause. If it is disputed, you could inherit a legal dispute.

Four tips to avoid this type of dispute

• Draft a reciprocal indexation clause: provide that the rent is revised each year upwards or downwards, according to the variation of the chosen index (ILC, ILAT, etc.). Example: 'The rent shall be revised on 1 January each year according to the ILC index, both upwards and downwards.'
• Avoid 'floor' or 'cap' clauses: do not stipulate that the rent cannot fall below the initial rent or the previous rent. These clauses are systematically annulled.
• Have your lease reviewed by a lawyer lawyer: before signing, a professional can detect unfair clauses and advise you. The cost of a review (a few hundred euros) is negligible compared to a dispute.
• In case of a dispute, act quickly: the limitation period is 5 years from the date the tenant became aware of the clause. If you are a tenant, do not delay consulting a lawyer.

Further reading: related case law and developments

This decision is part of a consistent line of the Court of Cassation. Already in 2010 (Civ. 3e, 9 March 2010, No. 08-20.288), it annulled a similar clause. More recently, a judgment of 27 February 2020 (No. 18-26.372) confirmed that the indexation clause must be reciprocal, even in the absence of a specific text. The trend of the courts is clear: they protect the tenant against unconscionable clauses. For the future, commercial leases must imperatively respect this principle. Landlords who do not comply risk actions for nullity and repayment. What few people know: this rule also applies to professional leases and residential leases (1989 law), although case law is less abundant.

What you absolutely must remember

FAQ:

• Can I challenge an indexation clause that only provides for increases? Yes, you can request the nullity of the clause and reimbursement of rent overpaid for the last 5 years.
• What should I do if my lease contains such a clause? Consult a lawyer specialising in property law. They will advise you on the procedure to follow (filing a claim in court).
• What are the time limits for taking action? You have 5 years from the date of the lease or the disputed revision. Do not delay.
• Can the landlord defend themselves by invoking freedom of contract? No, case law considers that freedom of contract does not allow creating a significant imbalance.

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