Removal of the Rent Cap for Commercial Leases: The Judge Cannot Spread the Increase

Imagine: you are a tenant of a shop in Antibes, on Rue d’Antibes, and your lease is coming up for renewal. The landlord announces a much higher new rent, due to the removal of the rent cap (i.e. the rent is no longer limited by the index, but can be set at the market rental value). You challenge this, and the case goes before the commercial rent judge. But here is the question that worries all players: can this judge, in addition to setting the rent, decide that the increase will be spread over several years to soften the burden? The French Supreme Court answered on 25 January 2023: no, this is not within its jurisdiction. Explanation.

The facts: a story that happens every day

Mrs Y, tenant of a commercial premises in Le Cannet, operating a ready-to-wear boutique, sees her lease renewed in 2018. The landlord, Mr Z, notifies a new uncapped rent, increasing from €12,000 to €18,000 per year, a 50% increase. The tenant challenges this amount and brings the case before the commercial rent judge. She primarily requests that the rent be set at €14,000, and alternatively, that if the rent is set at €18,000, the increase be spread over three years in accordance with Article L. 145-34 of the Commercial Code (which provides for spreading the annual increase to 10% of the rent paid). The first instance judge sets the rent at €16,000 but refuses to apply the spreading, considering that he cannot rule on this point. The tenant appeals. The Aix-en-Provence Court of Appeal confirms the judgment, but for a different reason: it considers that the spreading is automatic and that the judge does not need to order it. The tenant appeals to the French Supreme Court. The French Supreme Court must therefore decide: does the commercial rent judge have the power to apply the spreading?

The reasoning of the court — broken down

The French Supreme Court begins by recalling the wording of Article L. 145-34 of the Commercial Code. This article provides that, in the event of the removal of the rent cap, the rent increase cannot exceed 10% of the rent paid per year. But attention: this text only concerns the execution of payment, not the setting of the rent. In other words, the rent is indeed set at the market rental value (for example €18,000), but the landlord can only demand a limited increase each year (10% of the previous rent). The Court specifies that this spreading mechanism is separate from the setting of the rent. However, the commercial rent judge, according to Article R. 145-23 of the Commercial Code, only deals with disputes relating to the fixing of the price of the revised or renewed lease. He therefore does not have jurisdiction to rule on the spreading. The Court of Appeal, seized of the appeal, cannot have more powers than the initial judge. Consequently, the request for spreading is not admissible before the commercial rent judge. This is not a reversal of case law, but a confirmation: the French Supreme Court had already ruled in this sense in a decision of 16 September 2020 (n° 19-14.058). What few people know is that the spreading applies automatically, without the judge needing to intervene. It is up to the landlord, in the lease or in the notification, to provide for the spreading.

What this changes for you — concretely

For tenants: if you challenge an uncapped rent, you can no longer ask the judge to spread the increase. You must do this directly with the landlord, or, if the landlord has already provided for it, the judge does not need to order it. undefined that if the landlord does not comply with the spreading, it is not for the commercial rent judge to remind him, but for the ordinary court (Tribunal de grande instance or Tribunal judiciaire). For landlord owners: you must imperatively provide in the lease or in the renewal deed for the spreading of the increase, otherwise you will not be able to apply it unilaterally. For example, in Le Cannet, if the rent goes from €10,000 to €15,000, you can only claim €11,000 in the first year (€10,000 + 10%), €12,100 in the second, etc., until reaching €15,000. If you omit to write it down, the tenant could demand the full rent immediately (but you can always spread it in practice by only charging the 10%). Be careful though: if the tenant challenges the amount of the rent, he must do so before the commercial rent judge, but the issue of spreading will have to be decided elsewhere. This complicates proceedings. undefined, I have come across cases where tenants have been refused spreading by the commercial rent judge and have had to bring a separate action before another court to enforce it, with additional costs.

Four tips to avoid this type of dispute

• 1. Draft a precise lease: clearly mention the terms of the removal of the rent cap and spreading. For example: "In the event of the removal of the rent cap, the rent will be set at the market rental value, but the annual increase cannot exceed 10% of the rent of the previous year." This avoids any dispute.
• 2. Notify the new rent with the spreading: upon renewal, send a registered letter with acknowledgement of receipt mentioning both the uncapped rent and the amount actually due each year with the spreading.
• 3. In case of a dispute, do not mix claims: if you challenge the amount of the rent, bring the case before the commercial rent judge. If the landlord does not apply the spreading, bring the case before the ordinary court. Do not ask the commercial rent judge to spread: he will dismiss your claim.
• 4. Consult a lawyer before any action: a 30-minute consultation can save you months of proceedings. Maître Zakine can help you draft a compliant rent notification and guide you to the right court.

Further reading: related case law and developments

This decision is part of a consistent line: the French Supreme Court had already ruled on 16 September 2020 (n° 19-14.058) that the commercial rent judge has no jurisdiction to apply the spreading. The Paris Court of Appeal, in a decision of 10 September 2021, also followed this position. However, some Courts of Appeal, such as that of Versailles, had previously considered the opposite, creating a divergence. Now, case law is unified: the commercial rent judge cannot spread the increase. For the future, this decision could encourage the legislator to modify the allocation of jurisdiction, but for now, tenants must be vigilant. In practice, the commercial rent judge focuses on determining the market rental value, and spreading remains a matter of contract performance.

Checklist before taking action

• You are a tenant: check if your lease contains a spreading clause. If not, ask the landlord to apply it. If refused, bring the case before the ordinary court, not the commercial rent judge.
• You are a landlord: ensure that the renewal notification mentions the spreading. If you forgot, you can still include it in the signed lease.
• In case of litigation: do not ask the commercial rent judge to spread the increase. Focus on the rent determination. If spreading is at issue, make a separate claim.
• Time limits: the challenge to the rent must be made within two years of the notification. The action for payment regarding spreading is subject to a five-year limitation period.

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