Commercial Rent with Percentage of Turnover: Fixing Escapes the Rent Judge

Imagine: you own a commercial property in Castelsarrasin, let to a florist. The rent is fixed, but each year, you also receive 5% of the turnover achieved in the shop. The lease comes up for renewal. The tenant challenges the new fixed rent, claiming it is too high compared to the rental value (the market price for a similar property). Who will decide? Can the commercial rent judge revise this variable rent? This question, which may seem technical, has very concrete consequences for your rental income. The Court of Cassation answered it on 7 March 2001: when the rent is calculated partly in proportion to turnover (what is called a 'variable rent' or 'percentage rent'), this method of fixing escapes the judge's power. Only the will of the parties counts. In other words, if you have provided for this system in your lease, the judge cannot challenge it at renewal, even if the fixed rent seems undervalued. Let us decipher this decision and its implications for landlords and tenants in Tarn-et-Garonne and elsewhere.

The Facts: A Story Like Many Others

Mr X, owner of a commercial property in Beaumont-de-Lomagne, granted a twelve-year lease to the company Milou, operating a ready-to-wear shop. The rent consisted of a fixed part, indexed annually, and a variable part equal to 5% of the turnover achieved in the leased premises, with a minimum guaranteed rent. At the expiry of the lease, Mr X proposed a new fixed rent, but the company Milou contested: according to it, the fixed rent was excessive compared to the rental value. The landlord referred the matter to the commercial rent judge to fix the rent of the renewed lease. The Tribunal de grande instance of Montauban, and then the Court of Appeal of Toulouse, ruled in his favour: they set the rent at a lower amount than requested, based on the rental value. The company Milou appealed to the Court of Cassation. But attention: the appeal did not concern the amount, but the very principle of the judge's intervention. The Court of Cassation would decide a novel question: can the judge modify a rent that includes a variable part linked to turnover?

The Reasoning of the Court — Analysed

The Court of Cassation set aside the appeal judgment. Its reasoning is clear: 'The fixing of the rent of a renewed lease calculated partly in proportion to the turnover achieved in the leased premises escapes the power recognised to the commercial rent judge in this matter and is governed only by the parties' agreement.' In other words, when the parties have freely agreed on a variable rent (indexed to turnover), this contractual mechanism prevails over the legal rules for fixing rent upon renewal. The judge cannot substitute his own assessment of the rental value for this method of calculation. What few people know is that this decision is based on the principle of contractual freedom (Article 1103 of the Civil Code: contracts lawfully formed have the force of law for those who have made them) and on Article L. 145-33 of the Commercial Code (which sets out the rules for determining the rent of commercial leases). But the Court specifies that this text does not apply when the rent is determined by a contractual clause providing for a variable part. The judges considered that the variable rent clause with a minimum guarantee constitutes a 'contractual method of determining rents at regular intervals, valid for the duration of the lease'. Therefore, even at renewal, this method persists. This is a confirmation of the parties' freedom, not a reversal.

What This Changes for You — Concretely

This decision has very practical implications, whether you are a landlord or a tenant.

Landlord: If you have provided for a variable rent (for example, a fixed rent of €10,000 per year + 3% of turnover), you are protected: at renewal, the tenant cannot ask the judge to reduce the fixed part on the grounds that the rental value has fallen. However, if turnover drops, your variable rent will also decrease. Concrete example: in Beaumont-de-Lomagne, a landlord lets a shop of 80 m² with a fixed rent of €12,000/year and a variable of 4% of turnover. If turnover is €200,000, the total rent is €20,000. If the tenant contests, the judge cannot touch this method of calculation. But beware: if you have not provided for a periodic review of the fixed rent, you risk being stuck with an outdated fixed rent. Tenant: You cannot escape the variable rent by invoking the rental value. Your only recourse is to negotiate with the landlord or prove that the clause is abusive (for example, if it is disproportionate). Purchaser of a commercial property: Check the clauses of the current lease carefully. A variable rent can be an asset (if turnover is high) or a risk (if turnover falls). Co-owner: If your unit is let with a variable rent, this can affect the value of your property.

Four Tips to Avoid This Type of Dispute

• Draft the variable rent clause clearly: State the percentage, the basis of turnover (precise definition), the calculation period, and the amount of the minimum guaranteed rent. Avoid ambiguous wording.
• Provide for a periodic review clause for the fixed rent: To prevent the fixed part from becoming disconnected from the market, index it to an index (ILC, ILAT) or provide for a triennial review.
• Anticipate renewal: Six months before expiry, start negotiations with the tenant. In case of disagreement, note that the judge cannot modify the variable method, but may set the fixed rent if the clause so provides.
• Consult a lawyer lawyer: A professional will help you draft clauses compliant with case law and defend your interests in case of dispute. Maître Cécile Zakine operates throughout the South of France, including in Montauban.

Besoin d'un conseil personnalisé ? Contactez Maître Zakine — première consultation 30 min à 45€.

Further Reading: Related Case Law and Developments

This decision is part of a line protecting contractual freedom. We can cite an earlier judgment of the same chamber (Cass. 3e civ., 10 May 1989, No. 87-17.876) which had already ruled that a sliding scale clause (indexation) escaped the judge's power. More recently, the Court of Cassation confirmed this position in a judgment of 10 October 2019 (No. 18-20.348): a variable rent linked to turnover cannot be revised by the judge, even in the event of a significant change in local commerciality factors. The trend is therefore clear: judges respect the parties' will, except in the case of an abusive clause. In the future, it is likely that this solution will be extended to other forms of variable rent (for example, based on profit).

Key Points to Remember

FAQ:

1. Can I ask the judge to reduce my variable rent if my turnover falls? No, the judge cannot modify the clause. You must negotiate with the landlord or prove that the clause is abusive (for example, if it imposes an excessive minimum rent).

2. What if my landlord refuses to renew the lease? The right to renewal is separate from the amount of rent. You can request renewal, but the variable rent will continue to apply.

3. Is a variable rent always valid? Yes, provided it is not contrary to public policy (e.g., a potestative clause) or does not distort the commercial lease.

4. Can I include a variable rent in a 9-year lease? Yes, it is even advisable to align the rent with the tenant's performance.

5. What are the risks for the landlord? If turnover falls, the variable rent decreases. Provide for a minimum guaranteed rent to protect yourself.

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