Capped rent (loyer plafonné)

On renewal of a bail commercial (French commercial lease, typically 3-6-9), the rent should in principle correspond to the rental value. But the legislature wanted to protect the tenant against a sudden jump: save for exceptions, the renewed rent cannot rise faster than the reference index since the initial rent was set. The result of that calculation is the capped rent. It is a ceiling, not the rent itself: if the rental value is lower, the rental value applies.

The capped rent is therefore an arithmetical calculation, with no assessment of the market. It requires neither a visit nor comparables. What calls for expert work is the rental value against which it is compared, and the question whether the cap should be set aside.

Where the rule comes from

Article L. 145-34 of the French Commercial Code provides that, unless there is a material change in the factors listed in 1° to 4° of article L. 145-33, the rate of variation of the rent applicable when the renewed lease takes effect, if its term does not exceed nine years, may not exceed the variation in the quarterly commercial rent index (ILC) or the index of rents for tertiary activities (ILAT) since the rent of the expired lease was first set. The same text removes the cap where, through tacit extension, the term of the lease exceeds twelve years.

In a valuation report

The report sets the two figures side by side. On one side, the capped rent: the original rent multiplied by the ratio between the index for the reference quarter at the renewal date and the index in force when the rent was first set. On the other, the renewal rental value, established according to the criteria of article L. 145-33 and of the Charte de l’expertise en évaluation immobilière (the French property valuation charter, Title III, § 1.6). I then conclude on the rent applicable: the lower of the two if no ground for uncapping is established, the rental value otherwise.

I always check the date of the last rent fixed: after a three-yearly review that brought the rent to the rental value, that new base is the starting point.

Example

A lease signed on 1 April 2015 at a rent of €18,000 a year is renewed on 1 April 2024. The ILC for the first quarter of 2015 is 108.32; that for the first quarter of 2024 is 133.18 (figures given for the purposes of the example). The capped rent comes to 18,000 × 133.18 / 108.32, that is €22,131. The renewal rental value is estimated at €26,000. Absent a material change, the renewed rent is €22,131.

Not to be confused with

The reviewed rent under article L. 145-38, which arises during the lease every three years and is subject to a separate cap. Rent indexed by an escalator clause follows the index each year, with no link to the renewal.