Subletting in Commercial Leases: The Trap of Increased Rent for the Landlord

Imagine: you own a commercial building in Castelsarrasin, which you lease to a company. That company, in turn, offers equipped offices to third parties, with reception, WiFi, maintenance. You discover that it charges for these spaces much more than the rent it pays you. Article L. 145-31 of the French Commercial Code then allows you to demand an increase in your rent. Logical, isn't it? Yet the French Supreme Court, in a judgment of 27 June 2024, has just put a stop to this mechanism in certain situations. When the service provided by your tenant is not limited to a simple sublease, but constitutes an inseparable global service, the landlord loses this right of adjustment. Analysis of a decision that changes the game for landlords and tenants, from the banks of the Tarn to Beaumont-de-Lomagne.

This case, originating from a dispute in Rennes, is of interest to all owners of commercial premises. The tenant, here the company Modulobox, had signed a commercial lease with its landlord. In parallel, it offered workspaces to clients, for a flat fee including desk, maintenance, reception, security, insurance, and WiFi. The landlord, considering this a sublease, brought the matter to court to obtain an adjustment of its rent. The lower courts ruled in its favour, but the French Supreme Court overturned their reasoning. Why? Because the classification of sublease requires that the provision of the premises be the essential service, not ancillary to a package of services.

This decision is fundamental for both landlords and tenants. It requires close examination of the content of space provision agreements: if the price compensates for a package of services, the landlord cannot demand a supplement. Conversely, if the service is purely leasing (simple provision of an empty space), the sublease is established and the landlord can activate article L. 145-31. So what to do? How to distinguish? Follow the guide.

The Facts: A Story That Happens Every Day

Mr. Dupont (fictitious name), owner of a building in Castelsarrasin, grants a commercial lease to the company "Bureaux & Services" for premises of 200 m² for an annual rent of €24,000. The company, specialised in coworking, offers its clients equipped workspaces: individual or shared desk, meeting room, telephone reception, WiFi, coffee, maintenance. The price? €600 per month for a workstation, i.e. €7,200 per year, well above the rent per square metre paid to the landlord. Mr. Dupont, sensing a good deal, demands an increase in the main rent from his tenant under Article L. 145-31. The company refuses, arguing that it is not a sublease but a global service provision.

The dispute comes before the Tribunal Judiciaire, then the Rennes Court of Appeal. The lower courts rule in favour of the landlord: for them, the essential service is the provision of equipped offices, the other services being merely ancillary. The fee is fixed according to the surface area, proving that the heart of the contract is leasing. The company appeals to the French Supreme Court. The French Supreme Court, in its judgment of 27 June 2024, quashes the appeal judgment. It criticises the judges for not having drawn the consequences from their own findings: the globally fixed fee inseparably compensated for the provision of offices AND the specific service services sought by clients. Consequently, the classification of sublease is excluded.

Twist: the case is referred back to another Court of Appeal. In practice, this means that Mr. Dupont will not be able to obtain an increase in his rent, unless he proves that the service services are fictitious or negligible. An outcome that will surprise many, especially in the coworking sector, which is booming in Beaumont-de-Lomagne as elsewhere.

The Reasoning of the Court – Analysed

The French Supreme Court relies on Article L. 145-31 of the French Commercial Code. This text, in its applicable version, provides that "where the rent of the sublease exceeds the price of the main lease, the landlord has the right to demand an increase in the rent of the main lease". Simple in appearance, but everything depends on the classification of "sublease". The Court recalls that sublease implies that the tenant makes the leased premises available to a third party, for rent, without significant service services. If the provision is accompanied by ancillary services that form an inseparable whole with the lease, there is no sublease but a "space provision agreement" – a contract sui generis (of its own kind) falling outside the regime of Article L. 145-31.

In this case, the Court of Appeal had itself noted that the fee was fixed globally and covered both the provision of equipped offices and services such as maintenance, reception, security, insurance, and WiFi. However, for the French Supreme Court, these services are not ancillary: they are specific and sought by clients. The client does not pay for an empty space, but for a turnkey workspace. Therefore, it is impossible to dissociate the leasing part from the service part. The classification of sublease is thus excluded, and the landlord cannot request an adjustment.

This decision confirms a line of case law favourable to service providers (coworking, business centres). It follows a judgment of the French Supreme Court of 9 September 2021 (No. 20-16.248) which had already excluded the classification of sublease for furnished offices with services. However, caution: if the services are invoiced separately or if the space is rented unfurnished, sublease may be established. Everything is a question of inseparability.

What This Changes for You – Practically

For the landlord: you will no longer be able to automatically claim an increase in rent when your tenant offers equipped workspaces with services. You must examine the contract entered into by your tenant with its clients. If the price is global and includes service services (maintenance, reception, WiFi, etc.), you are unfortunately debarred (you lose your right). Concrete example: in Beaumont-de-Lomagne, a landlord leases 100 m² to a coworking company for €12,000/year. The company offers 10 workstations at €500/month each, i.e. €60,000/year. The landlord thought he would obtain an additional €48,000, but he will get nothing if the service is global.

For the tenant (apparent sublessor): you are protected. You can continue to offer service packages without fear that your landlord will increase your rent. However, ensure you structure your offer properly: a single contract with a flat fee including services and provision of space. If you invoice rent and services separately, you risk reclassification as sublease.

For the occupant (end client): you are simply a client of a service, not a subtenant. You do not benefit from the status of commercial leases (right to renewal, etc.). If you wish for leasing protection, sign a commercial lease directly with the landlord.

Four Tips to Avoid This Type of Dispute

• Draft a precise space provision agreement: clearly state that the global price covers service services (reception, cleaning, WiFi, security) and the provision of the desk. Avoid any reference to a rent per square metre.
• Invoice your services separately? No, especially not! Separate invoicing of rent and services would tip the balance towards sublease. A single flat price is your best defence.
• Landlord, check your tenant's contract: ask to see the model contract offered to clients. If it is a simple office lease without services, you can act. If there is a package, refrain.
• When in doubt, consult a specialised lawyer: the line is thin. A poorly drafted clause may cause you to lose your right to adjustment or, conversely, expose you to reclassification. In Castelsarrasin as elsewhere, prevention is better than cure.

Further Reading: Related Case Law and Developments

This decision is part of a trend by the French Supreme Court to protect innovative business models (coworking, shared workspaces). In a judgment of 9 September 2021 (No. 20-16.248), it had already held that the provision of furnished offices with exclusive services (reception, telephone switchboard, meeting room) was not a sublease. The present decision goes further by specifying that even "ancillary" services (maintenance, WiFi) may suffice to exclude the classification, provided they are inseparable.

Conversely, earlier case law (Civ. 3e, 15 December 2016, No. 15-27.259) had found a sublease for premises made available with cleaning and maintenance services, but invoiced separately. Separate invoicing is therefore important. The trend is thus favourable to operators of business centres and coworking spaces, but caution: if the business model changes (e.g., if the tenant merely sublets empty offices), the landlord regains his rights.

Frequently Asked Questions

• As a landlord, can I demand an increase in rent if my tenant sublets equipped offices with WiFi and reception? No, if the price is global and includes these services inseparably. You cannot. Only a pure sublease (without services) gives this right.
• What should I do if I discover that my tenant is offering workspaces to third parties? Ask to see the standard contract. If it is a service package, you cannot claim anything. If it is a simple lease, you can apply to the court to obtain an adjustment of the main rent.
• What is the time limit for bringing an action for rent adjustment? The action is barred after 5 years from the sublease. But it is better to act promptly upon discovery of the facts.
• Can a client occupying a desk in a coworking space rely on the status of commercial leases? No, because he is not a tenant but simply a client of a service. He benefits neither from the right to renewal nor from protection against rent increases.
• Does this decision apply to standard furnished lettings? Indirectly. For furnished lettings, the same reasoning may apply if the rent includes services (cleaning, linen, etc.). The line is blurred; consult a lawyer.

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