Revision of Rent in Commercial Leases: The Judge Has Full Power, Even in the Presence of a Sliding Scale Clause

Imagine: you are the owner of commercial premises in Falaise. You have signed a lease with a sliding scale clause (which automatically varies the rent according to an index). For years, the rent has increased as expected. One day, you realise that your neighbour's rent, in the city centre, is much higher for a similar property. You then apply for a judicial revision to obtain a rent in line with the market rental value. But your tenant invokes the sliding scale clause: “The contract is the law of the parties, you cannot go back on it!” Who is right? This question, crucial for thousands of landlords and tenants, was decided by the Court of Cassation in a decision of 6 January 1993 (no. 91-13.182). And the answer is clear: the judge retains full freedom to set the rent at the market rental value, notwithstanding any indexation clause.

In this case, a landlord had applied to the court to have the revised rent set at the market rental value, considering that the contractual indexation no longer reflected the market. The Paris Court of Appeal had rejected his request, holding that Article 28 of the Decree of 30 September 1953 (which governs the triennial revision of commercial leases) did not allow the judge to disregard the sliding scale clause when the market rental value is higher than the indexed rent. The Court of Cassation quashed that judgment, stating that Article 28 does not in any way restrict the judge's power of assessment.

In practical terms, this means that even if your lease provides for automatic indexation, you can apply every three years for a revision of the rent to the market rental value. The judge may then set a rent different from that resulting from the sliding scale clause, whether upwards or downwards. This decision, more than thirty years old, remains relevant and deserves to be known by every property professional.

The Facts: A Common Story

The story begins in Paris, but it could happen tomorrow in Vire or any town in France. A landlord (the lessor) had leased commercial premises to a tenant (the lessee). The contract contained a sliding scale clause: the rent was revised each year according to the building cost index. For several years, the parties applied this clause without difficulty. But the landlord considered that, despite the automatic increases, the rent remained below the actual market rental value (that which a comparable property could obtain on the market).

He therefore sued his tenant before the Paris Tribunal de Grande Instance to have the rent set at the market rental value, on the basis of Article 28 of the Decree of 30 September 1953. This provision allows the landlord to apply for a revision of the rent every three years, provided that a significant change in the rental factors (surface area, use, access, etc.) is demonstrated. In this case, the landlord relied on the increase in market rental value due to the evolution of the neighbourhood.

The tenant resisted, arguing that the sliding scale clause had already allowed an increase in rent, and that this clause constituted the law of the parties. According to him, the judge could not substitute his own assessment for that of the contracting parties. The Paris Court of Appeal agreed with him: it held that Article 28 of the Decree was “without effect when the market rental value is higher than the rent resulting from indexation” and that, even if the request for revision was admissible, the revised rent had to be set judicially and not by reference to the contractual stipulations. In other words, the Court of Appeal effectively deprived the landlord's request of substance by prohibiting the judge from setting a rent higher than that resulting from indexation.

The landlord appealed to the Court of Cassation. The High Court quashed the appellate judgment, holding that the Court of Appeal had violated Article 28 by limiting the judge's power. The case was remitted to another formation of the Paris Court of Appeal.

The Reasoning of the Court — Analysed

The Decree of 30 September 1953, in its Article 28 (now codified in Article L. 145-38 of the Commercial Code), provides that parties may apply for a revision of the rent every three years. No condition is imposed regarding the existence of a sliding scale clause. The Court of Cassation therefore recalled that this article contains “no provision likely to restrict the power of assessment of the court seised”. In other words, the judge retains sovereign power to assess the market rental value and set the revised rent, independently of contractual indexation mechanisms.

The reasoning is simple: the sliding scale clause is a method of adjusting the rent during the term of the lease, but it cannot prevent the triennial revision provided for by law. The law is of public policy (it binds the parties, even if they have agreed otherwise in the contract). Thus, if the market rental value has increased significantly, the landlord can ask the judge to set a rent at that value, even if the indexed rent has already risen.

The Court of Appeal had erred in considering that Article 28 was “without effect” when the market rental value exceeds the indexed rent. In fact, it had interpreted the text restrictively, which amounted to depriving the revision of any practical interest. The Court of Cassation set the record straight: the judge must examine the application on its merits and, if a significant change in the rental factors is found, set the rent at the market rental value, even if that amount is higher than that resulting from indexation.

This decision aligns with consistent case law. Already in a judgment of 28 November 1995 (no. 93-15.296), the Court of Cassation had held that the sliding scale clause does not prevent triennial revision. More recently, the Court confirmed this principle in a judgment of 8 July 2020 (no. 19-10.420). The trend is therefore stable: the judge's power prevails over contractual will in matters of triennial revision.

What This Means for You — In Practice

If you are the owner of commercial premises leased with a sliding scale clause, you can rest easy: nothing prevents you from applying for a judicial revision of the rent every three years. Provided, of course, that you demonstrate a significant change in the rental factors. For example, if the street where your premises in Vire are located has become more commercial, the surface area has been enlarged, or access has been improved, you may be entitled to a higher rent, even if indexation has already operated.

Let us take a numerical example: you rent a 80 m² property in Falaise for a rent of €800 per month, indexed annually to the ICC index. After three years, the indexed rent reaches €900. But the market rental value of a comparable property is €1,200. You can apply to the court to obtain a revised rent of €1,200. The judge may grant your request, without the sliding scale clause preventing it.

For the tenant, this decision is a warning: even if you have agreed to an indexation clause, you are not safe from a request for an upward revision. Conversely, if the market rental value falls (for example due to an economic crisis), the tenant can also apply for a downward revision, and the judge may set a rent lower than that resulting from indexation. It is a double-edged sword.

A practical tip: if you are a landlord, do not neglect the triennial revision. Many owners rely solely on automatic indexation and miss out on a significant increase. Conversely, if you are a tenant, be vigilant: if the indexed rent becomes higher than the market rental value, you can apply for a reduction. In both cases, the assistance of a specialist lawyer is strongly recommended to build a solid case.

Four Tips to Avoid This Type of Dispute

• Insert a clear triennial revision clause in your lease: even if the law requires it, a precisely drafted clause will avoid divergent interpretations. Mention that revision may be requested every three years, independently of annual indexation.
• Have a detailed inventory of fixtures and an assessment of the market rental value carried out at the time of signing: keep photos, plans, and any objective evidence (e.g., rent of a similar property in Vire). This will serve as a reference in case of dispute.
• Do not delay in acting: the triennial revision must be requested within two years following the revision date (Article L. 145-38 of the Commercial Code). After this period, you lose your right for the period elapsed.
• Prefer an amicable solution before taking the matter to court: propose mediation or an agreement on a new rent to your counterparty. If agreement is impossible, initiate proceedings, but be aware that the judge will have the final say.

Further Reading: Related Case Law and Developments

The 1993 decision has been confirmed on several occasions. For example, the Court of Cassation, in a judgment of 28 November 1995 (no. 93-15.296), held that “the sliding scale clause does not prevent the triennial revision provided for by Article 28 of the Decree of 30 September 1953”. More recently, in a judgment of 8 July 2020 (no. 19-10.420), the Court reaffirmed this principle, specifying that the judge must set the rent at the market rental value, without being bound by the indexation clause.

The trend is therefore constant: the courts protect the right to triennial revision as a mechanism of public policy, guaranteeing the economic balance of the lease. This means that, even if the law were to evolve, it is unlikely that the legislature would reverse this principle. For the future, it can be expected that judges will continue to give precedence to the market rental value over contractual stipulations, unless the parties expressly waive the triennial revision in the lease (which is rare and often contested).

Note: if the sliding scale clause is combined with an annual revision clause, the Court of Cassation has held that the latter cannot prevent triennial revision either (Civ. 3e, 14 Nov. 2019, no. 18-19.315). The rule is therefore robust.

What You Absolutely Must Remember

FAQ:

• Can I apply for a revision of the rent if my lease contains a sliding scale clause? Yes, every three years, you can ask the judge to set a new rent at the market rental value, even if indexation has already operated.
• Can the judge set a rent higher than that resulting from indexation? Yes, the Court of Cassation has allowed this since 1993. The judge has full power to determine the market rental value.
• What deadlines must I meet to apply for revision? You must act within two years following the revision date (generally the anniversary date of the lease or the date of the last judicial determination).
• What should I do if my tenant refuses a revision? Apply to the competent judicial court (the one of the location of the property) with the help of a lawyer. The procedure may last several months, but the judge can set a rent retroactive to the date of the request.
• Does this rule also apply in the event of a decrease in market rental value? Yes, the tenant can also apply for a downward revision. The judge will then set a lower rent, even if indexation provides for an increase.

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