Reference Decision: cc • No. 17-27.798 • 2018-11-29 • View the decision →
Imagine: you are the owner of a commercial premises in Mont-de-Marsan, Place Charles-de-Gaulle. Your tenant, a florist, pays a rent calculated on his turnover (the variable element) plus a minimum guaranteed rent, set in the lease at the rental value (what the premises would be worth on the market). The lease comes up for renewal. You want to increase this minimum guaranteed rent to follow the market, but your tenant refuses. "The minimum guaranteed rent is a contractual floor, not a ceiling," he tells you. Who is right?
The Court of Cassation answered this question in a judgment of 29 November 2018 (No. 17-27.798). And its answer is clear: yes, the commercial rent judge may, upon renewal, reassess the rental value that serves as the basis for the minimum guaranteed rent, if the contract so provides. In other words, the minimum guaranteed rent is not fixed forever.
But how does this work in practice? And above all, what precautions should be taken to avoid a dispute? That is what we shall see, starting from a typical story that I encountered in my practice at the Mont-de-Marsan office.
The Facts: a Story Like Many Others
Mr. Dupont (name changed) is the owner of an 80 m² commercial premises located on Avenue de la Plage in Mimizan. He leased it to a clothing sales company, "Mimizan Mode". The contract, signed in 2010, provides for a rent consisting of two parts: a variable rent equal to 8% of the annual turnover excluding taxes, and a minimum guaranteed rent of €12,000 per year, corresponding to the rental value (the market price at the time). The clause stipulates that this minimum guaranteed rent is "equivalent to the rental value of the leased premises".
In 2016, the lease comes up for renewal. The commercial property market in Mimizan has risen significantly: the reference rents for similar premises have increased to €15,000 per year. Mr. Dupont therefore asks the commercial rent judge to set the new minimum guaranteed rent at €15,000. But "Mimizan Mode" contests: according to it, the minimum guaranteed rent is a contractual floor that cannot be modified, unless the contract expressly provides otherwise. However, the contract does not say that this minimum may be revised upon renewal.
The dispute goes up to the Court of Cassation. The question is simple: can the commercial rent judge, upon renewal, set the minimum guaranteed rent at the current rental value, when the contract defines it as "the rental value" without further precision?
The lower courts (Court of Appeal) had ruled in favour of the tenant: for them, the minimum guaranteed rent is a fixed rent, and the reference to the rental value is merely an initial calculation method. But the Court of Cassation quashes this judgment. It holds that when the contract provides that the minimum guaranteed rent is "equivalent to the rental value", this implies that this rental value can be updated at each renewal, by the judge if the parties cannot agree.
The Reasoning of the Court — Analysed
The Court of Cassation relies on contractual freedom (Article 1103 of the Civil Code, which provides that contracts lawfully formed have the force of law for those who made them). It recalls that the parties may freely define the rules for determining the renewal rent. Here, they chose to link the minimum guaranteed rent to the rental value, a well-defined legal concept in Article L. 145-33 of the Commercial Code.
What few people know is that the rental value, in the context of a commercial lease, is not an absolute ceiling. Article L. 145-33 lists assessment factors (characteristics of the premises, use, respective obligations of the parties, etc.) but does not set an upper limit. In reality, the rental value is an estimate of the rent that the market would allow. In a lease with variable rent and a minimum guarantee, the judge may therefore, upon renewal, reassess this minimum according to market developments.
But caution: this is not automatic. The Court specifies that this is only possible if the contract "so provides". In this case, the clause stated that the minimum guaranteed rent is "equivalent to the rental value". For the Court, this mention is sufficient to demonstrate the parties' intention to make this minimum evolve with the rental value. In other words, if the contract had simply set an amount in euros without reference to the rental value, the judge would not have been able to modify it.
Thus, the decision confirms that the commercial rent judge does have the role of setting the rent floor at the rental value, which can only be considered as a rent ceiling. This is an important nuance: in a lease with variable rent, the actual rent may exceed the rental value if the turnover allows, but the minimum guaranteed rent cannot be lower than this rental value.
What This Changes for You — Practically
For landlord owners: this decision is good news. If your commercial lease provides for a minimum guaranteed rent indexed to the rental value (or "equivalent to the rental value"), you can ask the judge, upon renewal, to reassess this minimum according to the market. Do not let your tenant oppose an obsolete floor. Example: in Mont-de-Marsan, a 100 m² premises on Rue Maubec had a minimum guaranteed rent of €18,000 in 2010. In 2020, the rental value was €24,000. Thanks to this judgment, the owner was able to obtain a revision.
For tenants: be vigilant about the wording of the lease. If you accept a minimum guaranteed rent "equivalent to the rental value", be aware that this minimum may be increased upon renewal. To protect yourself, negotiate a cap on the increase (for example, no more than 10% every 3 years) or a fixed minimum guaranteed rent in euros, without reference to the rental value.
For developers and investors: when you acquire a premises let under this type of clause, check the date of the last renewal and the current rental value. You may have an interesting upside potential. In Mimizan, an investor bought a premises with a minimum guaranteed rent of €10,000, while the rental value was €14,000. He was able to renegotiate upon renewal.
If you are in this situation, you must act before the end of the current lease. The commercial rent judge can only be seized after a notice to quit or a request for renewal, and within two years following the renewal date. Do not delay.
Four Tips to Avoid This Type of Dispute
- Draft the minimum guaranteed rent clause precisely: clearly indicate whether this minimum is fixed or revisable. If you want it to follow the rental value, write: "minimum guaranteed rent equal to the rental value, as determined at each renewal by agreement or by the commercial rent judge."
- Provide for an indexation clause: even if the minimum is fixed, provide for its adjustment according to an index (e.g., the ILC). This avoids deadlocks and costly court proceedings.
- Have the rental value estimated regularly: every 3 to 5 years, call on a property expert to know the rental value of your property. This will allow you to anticipate a possible revision.
- Negotiate a cap on variation: to secure both parties, set a cap on the increase of the minimum guaranteed rent (e.g., 10% every 3 years). This avoids unpleasant surprises.
Besoin d'un conseil personnalisé ? Contactez Maître Zakine — première consultation 30 min à 45€.
Further Reading: Related Case Law and Developments
This judgment is part of a line favourable to contractual freedom. Already, the Court of Cassation had held, in a judgment of 12 September 2012 (No. 11-22.812), that the parties may freely derogate from the rules on capping the renewal rent provided for in Article L. 145-34 of the Commercial Code. Here, it goes further by specifying that the reference to the rental value in a minimum guarantee clause is not a mere empty formula but an undertaking to update.
On the other hand, another decision (Civ. 3e, 27 March 2013, No. 12-14.514) held that if the contract provides for a fixed minimum guaranteed rent (in euros), the judge cannot modify it. The distinction is therefore crucial: everything depends on the wording of the clause.
For the future, the courts should continue to respect the parties' intention. If you want a fixed minimum guaranteed rent, express it clearly. Otherwise, the judge may update it.
Key Points to Remember
Q: Can I increase the minimum guaranteed rent at each renewal?
A: Yes, if the contract so provides (for example, by stating that it is equal to the rental value). Otherwise, no.
Q: How do I know if my lease allows it?
A: Re-read the clause. If it mentions "rental value", "equivalent to the rental value" or "revisable according to the rental value", you can request a revision.
Q: What is the time limit to act?
A: You must seize the commercial rent judge within two years following the renewal date of the lease.
Q: What if the tenant refuses?
A: Send a registered letter with acknowledgement of receipt to request the revision. In case of refusal, seize the judicial court (formerly the Tribunal de Grande Instance) of the location of the property.
Q: Is there a risk that the variable rent will decrease?
A: No, because the variable rent depends on turnover. The minimum guaranteed rent is a floor, not a ceiling. If the turnover decreases, the variable rent may be lower than the minimum, but the tenant must still pay the minimum.
Are you 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 →
