Indexation Clause: Stay of Proceedings on Rent Revision Is Not Justified

In the turmoil of commercial lease relationships, a recurring question arises: can a landlord obtain a rent revision when the contract contains an indexation clause (an escalator clause) whose validity is being challenged? The ruling handed down by the Cour de cassation on 1 April 1965, in a Parisian case, provides a clear-cut answer. It recalls that an action for nullity of the clause does not prevent the immediate consideration of the request to adjust the rent to the fair market rent.

In Paris, at 35 rue de Berri, a commercial building crystallised the dispute. The landlord brought proceedings for two purposes: first, to have the escalator clause declared void, and second, to have the rent fixed at its fair rental value. The court of appeal had decided to stay the second request pending the outcome of the first. A reasoning that the high court would quash, on the grounds that it rested on a hypothesis not raised by the parties.

This decision, although dated, remains of considerable practical importance. It teaches us that judges cannot stall a procedure by relying on a possibility that has not even been alleged. For any landlord facing a dilatory tactic by its tenant, this is an essential protection. So, how did this case come about? And, above all, what should we take away from it today?

The facts: a story that happens every day

The owners of a building located in Paris, 35 rue de Berri, granted a commercial lease for commercial use to a couple of tenants, Mr and Mrs Y... The contract provided for an escalator clause—a mechanism for automatic indexation of the rent—stipulating that the amount would be revised in line with variations in a specified index. However, a 10% increase compared to the last revision triggered a floor. The rent could not fall below a certain threshold.

A few years later, the landlords wished to obtain an adjustment of the rent to the fair market rent—that is, to the market price. To do so, they adopted a dual strategy. On the one hand, they brought an action for nullity of the escalator clause, suspecting that it fell foul of a new statutory prohibition. On the other hand, at the same time, they summoned the tenants before the commercial rent judge to have the amount revised. The idea was simple: if the clause was annulled, the rent would no longer be governed by it and should therefore be brought to its real value.

The tenants opposed this. The court of appeal, hearing the dispute, took a surprising decision: it ordered a stay of proceedings on the rent revision, pending the decision on the validity of the clause. To justify this choice, it argued that the last rent fixing was conventional—in other words, that it resulted from an agreement between the parties and not from the operation of the indexation. An assertion that neither party had actually raised.

The reasoning of the court—analysed

The Cour de cassation quashes the appeal decision. It notes a glaring contradiction. The trial judges recognised that the right to a revision, open to the parties by Article 28 of the Decree of 30 September 1953 (relating to commercial leases), remains available even if the escalator clause is subsequently declared void. Clearly, the annulment of this clause does not deprive the landlord of its right to request an adjustment of the rent to the fair market rent. If so, why wait?

The central flaw lies in the ground for the stay. The court of appeal relied on the purely hypothetical existence of a new agreement—an amicable arrangement between landlord and tenant that would have fixed the rent independently of the clause. Yet, this hypothesis was not raised by any of the parties to the proceedings. It is an argument that emerged ex nihilo, with no evidence in the file to support it. The high court brands this reasoning unlawful: a judge cannot rule on the basis of a scenario that he imagines himself.

The ruling thus reaffirms a fundamental principle of civil procedure: the judge must not alter the terms of the dispute. He decides the claims as they are formulated. In this case, the landlord had two distinct but complementary actions; to suspend one pending the other amounted to adding a condition that the law does not provide for. Moreover, Article 28 of the Decree of 30 September 1953 provides that “the landlord or the tenant may, failing agreement between the parties, apply to the rent judge to have the rent fixed at the fair rental value”. The Cour de cassation applies this text strictly: no procedural obstacle should delay the consideration of this request.

A nuance should be noted. The decision does not deny that the escalator clause may infringe a rule of public policy. But it dissociates the two axes: the validity of the clause on the one hand, and the right to a revision on the other. It is a lesson in methodology: never allow one debate to paralyse another when the law makes them autonomous.

What it means for you—in practical terms

For a commercial landlord, this case law is a shield. Do you have an indexation clause in your lease that could be challenged? Do you nonetheless wish to increase the rent because the market has risen? You can perfectly well combine both actions before the rent judge. And, above all, the tribunal cannot require you to wait for the decision on the clause before ruling on the revision. This is a valuable gain in time.

Let us imagine a landlord in Paris, on rue du Faubourg Saint-Honoré, who owns a commercial premises let at €30,000 per year. An escalator clause indexed to the commercial rent index sets the rent. The landlord now learns that a new regulation could render this type of clause illegal. At the same time, he notes that neighbouring premises are let at €45,000. He brings an action for nullity of the clause and for revision of the rent. The tenant tries to block the second claim by arguing that it is first necessary to know whether the clause is valid. Thanks to the ruling of 1 April 1965, the judge will reject this tactic and rule on the merits of the revision without delay.

If you are a tenant, beware. Believing that challenging the indexation clause automatically suspends any revision is a mistake. You could be ordered, where applicable, to pay a revised rent retroactively to the date of the claim, with default interest. A payment demand issued during the proceedings may worsen your situation.

For a purchaser of a commercial building, finally, this decision secures the asset. In the event of nascent litigation, you will know that the seller or you yourself can act quickly, without fearing procedural stasis. The rental risk is thus better assessed.

Four tips to avoid this type of dispute

Prevention remains the best weapon. Here are four concrete actions to anticipate these conflicts.

• Draft impeccable indexation clauses. Have them reviewed by a lawyer specialising in real estate law. A clause based on a legally authorised index and not abusively capped reduces the risks of nullity.
• Split your actions if necessary. Do not be afraid to introduce in parallel a claim for revision and a challenge to the clause. Case law permits this. Explain clearly to the judge that these two points are independent.
• Build a solid file on the rental value. To obtain the rent adjustment, you must produce convincing evidence: comparable leases, expert reports, market data. In Paris, prices can vary by a factor of two from one street to another. An expert report is often decisive.
• Anticipate the opposing party's arguments. If you fear that your tenant will invoke the invalidity of the clause to stymie the increase, cite the 1965 decision from the outset of your summons to show that this argument is ineffective.

Finally, never forget that dialogue may lead to an amicable agreement fixing a new rent. A trial is costly and lasts on average 18 months at first instance. A settlement signed privately will avoid many travails.

Further reading: related case law and developments

The ruling of 1 April 1965 is not isolated. As early as 1963, the Cour de cassation had already laid down the principle that the action for revision of rent provided for by Article 28 of the Decree of 30 September 1953 is distinct from that concerning the validity of a contractual clause. The constant trend of the courts is to refuse abusive stays. A more recent ruling, handed down on 18 January 1989 by the same commercial chamber, recalls that the rent judge cannot make the revision conditional on the outcome of a dispute concerning the interpretation of the lease, without disregarding his duty.

This jurisprudential line is easily understood. Commercial leases enjoy a protective status, but also a desire for expedition. Rents must be able to adapt to economic realities without being held hostage by incidental quarrels. Today, the mechanism for three-yearly revision or at the time of lease renewal, codified in Articles L. 145-37 et seq. of the Commercial Code, takes up the spirit of the 1953 Decree. The solution of 1965 therefore retains all its vigour.

Key takeaways

Here are the key points to remember:

• What is an escalator clause? It is a stipulation that automatically adjusts the rent in line with variations in an index (generally the commercial rent index or the construction cost index). It is regulated by law to avoid excessive increases.
• Can I request a rent revision even if the clause is challenged? Yes, absolutely. The request for revision based on market rent is independent of the validity of the clause. The judge must consider it without waiting.
• Is a stay of proceedings possible in this case? No, save in very particular circumstances justified by a serious reason that does not rest on pure conjecture. The Cour de cassation penalises any abusive stay.
• What risk does a landlord run by delaying too long before acting? The limitation period for revision of commercial rent is two years from the day on which the right holder knew the facts allowing him to act. Once this period has expired, the action is inadmissible. It is therefore better not to procrastinate.
• Is this 1965 case law still relevant? Yes, because it illustrates a timeless procedural principle: the judge must not delay the course of justice by basing his decision on unargued hypotheses. The Codes have changed, but the spirit remains.

Do you find yourself in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings—and often much more. Book an appointment →