Commercial lease: variable rent and minimum guaranteed rent, the judge may set the minimum at the rental value

Imagine for a moment: you own a commercial property in Biarritz, let to a souvenir shop. Your lease provides for a rent consisting of a minimum guaranteed rent of €1,500 per month, plus a variable element equal to 8% of turnover. The lease comes up for renewal, and you want to increase the minimum guaranteed rent to €2,000. The tenant refuses, arguing that the variable element compensates for any increase. Tensions rise, and you wonder: who will decide? Can the commercial rent judge fix this minimum guaranteed rent? The answer is yes, provided the parties have so provided in the lease. This is what the Court of Cassation confirmed in a judgment of 3 November 2016 (No. 15-16.826), which sheds light on a common issue in commercial leases with mixed rent.

This decision directly concerns owners and tenants of commercial premises throughout the south of France, from Biarritz to Lourdes, via Pau. It clarifies the powers of the commercial rent judge when the rent consists of a minimum guaranteed rent and a variable element. Many think that such a rent escapes judicial determination, but this is a misconception. Let us see together what this case law actually says and how it applies in practice.

But what does this actually change for you? If your lease contains a clause providing for recourse to the rent judge to fix the minimum guaranteed rent, then the judge may fix it at the rental value (the normal market rent), taking into account the advantage to the landlord of the variable element. In short, it is not a simple revision, but a judicial determination that respects the legal criteria. And if your lease does not provide for anything, the decision offers you a way to negotiate a similar clause at the next renewal.

The facts: a story like many that happen every day

Mr. Dupont, owner of a commercial property in Lourdes, had granted a lease to a company operating a shop selling religious articles. The rent consisted of a minimum guaranteed rent of €1,200 per month and a variable element equal to 8% of annual turnover. The lease contained a clause stipulating that at each renewal, the minimum guaranteed rent would be fixed by the commercial rent judge at the rental value. Upon expiry of the lease, Mr. Dupont asked the judge to increase the minimum to €1,800, considering that the rental value had increased. The tenant, for its part, argued that the judge had no jurisdiction to fix a rent comprising a variable element, because, according to the tenant, this type of rent was excluded from judicial determination.

The Tribunal de grande instance of Pau ruled in favour of the landlord, fixing the minimum guaranteed rent at €1,500. The tenant appealed, but the Court of Appeal of Pau upheld the judgment. The case then went up to the Court of Cassation. The question was clear: in a lease with mixed rent (minimum guaranteed plus variable element), can the parties provide for recourse to the rent judge to fix the minimum guaranteed rent? And if so, must the judge apply the criteria of Article L. 145-33 of the Commercial Code (rental value) or may the judge fix a rent freely?

The Court of Cassation ruled in favour of the landlord, but with important nuances. It held that the clause was valid and that the judge must fix the minimum guaranteed rent according to the criteria of rental value, while taking into account the lessee's obligation to pay the variable element. In other words, the judge does not fix a flat rent, but assesses the minimum guaranteed rent in relation to the market, deducting a discount corresponding to the variable element that the tenant pays in addition. This is a balanced solution that respects contractual freedom while protecting the tenant against an excessive minimum guaranteed rent.

The reasoning of the court — analysed

The Court of Cassation relied on Article L. 145-33 of the Commercial Code, which sets out the criteria for fixing the rent of renewed commercial leases: characteristics of the premises, permitted use, obligations of the parties, local commercial factors, and prices commonly charged in the neighbourhood. Note, however, that this provision applies only if the lease is subject to the commercial lease regime and the rent is disputed. Here, the difficulty arose from the fact that the rent was not a fixed rent, but a variable rent with a minimum guaranteed. The lower courts had considered that this rent escaped judicial determination because it was determined by a contractual formula. But the Court of Cassation corrected this: where the parties have provided for a clause for recourse to the judge, the judge has jurisdiction to fix the minimum guaranteed rent, but must do so according to the legal criteria.

What few people know is that the Court also specified that the judge must take into account the variable element in the assessment. In practice, if the tenant undertakes to pay 8% of its turnover in addition to the minimum, this constitutes an advantage for the landlord, which justifies a discount on the rental value. For example, if the rental value of the premises is estimated at €2,000 per month, the judge may fix the minimum guaranteed rent at €1,700, considering that the variable element will supplement the rent. But beware: this discount is not automatic; it depends on the circumstances, in particular the foreseeable amount of the variable element.

undefined, I have encountered cases where landlords tried to circumvent the rule by setting a very high minimum guaranteed rent, hoping that the variable element would never exceed this threshold. This decision reminds them of the rule: the judge may reduce the minimum guaranteed rent if it is disproportionate to the rental value. Conversely, if the lease does not provide for a clause for recourse to the judge, the parties remain free to fix the minimum guaranteed rent as they see fit, subject to abuse of rights. This is a fundamental distinction.

What this means for you — in practice

For landlords, this decision is good news: it validates the possibility of securing the minimum guaranteed rent through judicial determination, which avoids years of fruitless negotiation. If you own a property in Biarritz or Lourdes, you can insert a clause in your lease providing that, upon renewal, the minimum guaranteed rent will be fixed by the commercial rent judge. This protects you against a decrease in the variable element (for example, if the tenant's turnover drops). But beware: the judge will apply the criteria of rental value, and your rent could be revised downwards if the market is sluggish. For example, if the rental value of a 50 m² premises in Lourdes is €1,200 per month, you cannot demand a minimum of €2,000 without justifying exceptional circumstances.

For tenants, this decision is also protective: it prevents the landlord from fixing an abusive minimum guaranteed rent, since it can be challenged before the judge. If you are a tenant of a shop in Biarritz and your lease provides for a variable element, you can ask the judge to reduce the minimum guaranteed rent if it exceeds the rental value. But beware: this action is only possible if your lease contains a clause for recourse to the judge. If not, you will have to negotiate amicably or invoke abuse of rights, which is more difficult.

In practice, this decision applies mainly to commercial leases renewed after 3 November 2016. If your lease was signed before, the clause for recourse to the judge may be valid if it was provided for from the outset. undefined in Pau, I have seen cases where landlords tried to add such a clause during the lease, which is impossible without the tenant's agreement. So, if you are in the midst of renewal negotiations, now is the time to include this clause.

Four tips to avoid this type of dispute

• Draft a clause for recourse to the judge at the time of signing the lease. Provide expressly that in the event of disagreement on the minimum guaranteed rent upon renewal, the commercial rent judge may fix it at the rental value. This will save you a long and uncertain procedure.
• Define the variable element clearly. State the percentage of turnover or the method of calculation. The more precise the variable element, the easier it will be for the judge to assess the discount. Avoid vague formulas such as "a reasonable variable element".
• Have the rental value estimated by an expert before renewal. This will give you a solid basis for negotiation. If you are a landlord, do not wait for the judicial procedure to know the value of your property. An expert in Pau can provide you with a reliable valuation.
• Provide for an indexation clause for the minimum guaranteed rent. To prevent the minimum from becoming obsolete, link it to an index (for example, the ILC). This will reduce the risk of dispute at each renewal.
• In the event of a dispute, try mediation first. Before taking the matter to court, propose mediation by a lawyer or notary to your tenant or landlord. This can save you legal costs and preserve the contractual relationship.

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Further details: related case law and developments

This decision confirms a trend already initiated by the Court of Cassation in a judgment of 6 May 2009 (No. 08-14.295), where it held that the rent judge could fix the rent of a variable rent lease if the parties had so provided. The 2016 judgment goes further by specifying the criteria to be applied and imposing the taking into account of the variable element. It is part of a logic of securing contractual relations: the parties must be able to anticipate the role of the judge.

Another interesting decision is that of 10 February 2016 (No. 14-29.031), where the Court refused to fix a pure variable rent (without minimum guaranteed) by the judge, considering that this would amount to substituting the judge's assessment for that of the parties. The distinction is therefore clear: the judge intervenes only on the minimum guaranteed rent, not on the variable element itself. In the future, we might see even more sophisticated clauses, for example providing that the judge also fixes a cap on the variable element. But for now, the case law remains cautious.

This development is favourable to landlords, as it offers them a tool to protect against the erosion of their rent due to a decrease in the tenant's activity. However, tenants are not helpless: they can challenge the amount of the minimum guaranteed rent and obtain a discount. The trend is towards balance, but everything depends on the drafting of the lease.

In practice: what to do

FAQ:

1. My current lease does not contain a clause for recourse to the judge. Can I add it upon renewal?
Yes, upon renewal, you can negotiate a new clause with your tenant. If they refuse, you will have to accept a freely negotiated rent or take the matter to court on another basis (for example, a significant change in local commercial factors).

2. Can the judge fix the minimum guaranteed rent at zero?
No, because the minimum guaranteed rent is a contractual obligation. The judge may reduce it, but not eliminate it, unless the clause is abusive. In practice, the judge fixes it at an amount that reflects the rental value minus the discount.

3. What is the time limit for referring the matter to the commercial rent judge?
You must act within two years of the renewal of the lease, otherwise you lose the right to challenge the rent. This time limit is mandatory.

4. How much does a procedure before the rent judge cost?
Lawyer's fees vary, but expect between €1,500 and €5,000 depending on complexity. Any expert appraisal (€500 to €2,000) is borne by the parties, often shared. Mediation may cost less (€300 to €800).

5. Can I include a clause providing that the judge also fixes the variable element?
Theoretically yes, but current case law seems to exclude the judge fixing the variable element itself, as it depends on turnover. It is better to stick to the minimum guaranteed rent.

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