Commercial rents index (indice des loyers commerciaux, ILC)

The indice des loyers commerciaux, or ILC (commercial rents index), is the quarterly index that French law designates to measure the movement of rents for commercial premises. It was created by the law of 4 August 2008 on the modernisation of the economy to replace the construction cost index (ICC), judged too volatile, in retail leases. It is calculated and published by INSEE, the French national statistics office, four times a year, with a lag of a few months.

Two indices coexist: the ILC for commercial and craft activities, and the indice des loyers des activités tertiaires (ILAT, tertiary activities rents index) for offices, logistics and the liberal professions. The choice of index depends on the activity carried on in the premises.

Where the rule comes from

Article L. 145-34 of the French Commercial Code makes the ILC and the ILAT the only reference indices for capping the renewed rent: the variation in the rent may not exceed the variation in the index since the rent was initially fixed. Articles L. 145-38 and L. 145-39 also refer to them for the three-yearly revision and for revision where there is an indexation clause. Since the law of 18 June 2014, the ICC can no longer serve as the statutory reference for capping, although it survives in older leases for contractual indexation.

The composition of the ILC is fixed by the regulatory part of the French Monetary and Financial Code; it combines the consumer price index and an index of retail turnover. In the summer of 2022, a law temporarily limited its rise to 3.5 % per year for small and medium-sized businesses.

In a valuation report

The ILC comes into three calculations. The capped rent, first: I identify the reference quarter at the initial fixing and the one applicable at the renewal date, then apply the ratio of the two indices to the original rent. The indexed rent, next, to reconstruct the rent actually paid at the renewal date, which is the basis for smoothing. The revision threshold of article L. 145-39, finally, where the indexed rent has moved by more than a quarter through the operation of the clause.

The report cites the index values used with their quarter, because a wrong quarter changes the result.

Example

A rent fixed at €24,000 on 1 October 2015, on the ILC for the second quarter of 2015 (108.38 for the purposes of the example), is renewed on 1 October 2024 on the ILC for the second quarter of 2024 (134.04 for the purposes of the example). The capped rent comes to 24,000 × 134.04 / 108.38, or €29,682. If the lease provided for annual indexation on the same index, the rent actually paid in 2024 will be close to that amount, the difference coming from the lag between the reference quarters.

Not to be confused with

The indice de référence des loyers (IRL), reserved for residential leases, and the construction cost index (ICC), which remains an index of construction costs and not of rents.