Hotel-restaurant-coffee shop-nightclub : Commercial lease agreement : the possibilities for the lessee to reduce the amount of the commercial rent

The commercial lease agreement is a contract to rent commercial spaces between a landlord and tenant.

The Pinel law has brought a lot of changes to the commercial lease, and more specifically to rents, the distribution of expenses or its transfer. It is applicable for commercial leases renewed or concluded from 1 September 2014.

In principle, the rent is set by agreement between the owner of the commercial premises and the tenant, managing the hotel-restaurant-coffeeshop and night-club. The rent of the commercial lease (also called “lease 3-6-9”) can however be reduced every three years (triennial revision) or at the end of nine years (renewal of the commercial lease). Other methods to reduce the rent may be provided from the outset by contractual clauses.
The principle of indexing rent on the ILC

Previously, the rent of a commercial lease was indexed on the Construction Cost Index (ICC), but it was too fluctuating, and often to the detriment of the lessee.

Now, the rent of a commercial lease is in principle indexed on the commercial rent index (CLI).

After each triennial period, the lessee may request a reduction of the rent of the commercial lease if the ILC is decreasing. This request for revision may be sent to the owner of the commercial premises by bailiff or registered letter (with acknowledgment of receipt), the day after the expiry of the triennial period.

v The practice of a deposit ”Doorstep”

Often, the owner of the premises of a hotel-restaurant-coffee shop-nightclub must pay a “doorstep” to the owner of the premises to enter in the commercial premises. The “doorstep” is thus a form of rent supplement paid in advance.  In fact, the goal for the landlord is often to counteract the discrepancy between the indexed amount of rent and the actual rental value of the premises. The commercial lessee can deduce this amount from his profits.

v Changing local business factors

In addition to the decline of the ILC, the operator of a hotel-restaurant-coffee shop-nightclub can also ask for a reduction of the rent of the commercial lease in case of deterioration of the local factors of commerciality. These factors may be deteriorated, for example, following the removal of a public transport line, or a big business or enterprise, or an administrative service close to the concerning premises, or the substantial reduction in the number of inhabitants around the establishment. On the other hand, the one fact that neighboring traders have renegotiated a reduction of their rent with the same lessor does not allow the commercial tenant to obtain a reduction in the rent of the commercial lease.

This deterioration must have a negative impact directly on the activity of the hotel-restaurant-coffee shop-nightclub, so that the tenant can ask to the owner a reduction of his rent of the commercial lease.
Conversely, in the event of improvement of these local factors of commerciality, the lessor may request an increasing of the amount of the rent uncapped at commercial value. This improvement, however, cannot increase, for one year, more than 10% of the rent paid during the previous year. An increase or decrease at the commercial value may also occur when the commercial lease is concluded for a period exceeding 12 years, or in case of despecialization (partial or total changes of the activities of the tenant of the hotel-restaurant-coffee shop-night club).
v The sliding scale clause and the percentage rent clause

Thanks to the sliding scale clause and the percentage rent clause, the rent of the commercial lease can be revised more often than during the triennial review. A revision can take place once the rent has been increased more than 25% compared to the amount previously fixed. In principle, the increase in rent through these clauses is always capped at 10% per year.

The percentage rent clause allows the rent of the commercial lease to be adjusted according to the turnover or revenue of the tenant managing the hotel-restaurant-coffee shop-nightclub.

These clauses are interesting for hotel-restaurant-coffee shop-nightclub, whose activities are undergoing the current economic context, but they can be used against them since they act upward or downward.

The lessor and the commercial tenant may also decide to index the rent of the commercial lease to an index other than the ILC. An indexation clause is illegal if it allows only an upward revision, prohibiting any downward revision (Ccass 3rd January 14, 2016, n ° 14-24.681 recalled by CA Paris, February 7, 2018, n ° 16-07034).

v The specificity of commercial hotel leases

The rent of a commercial hotel lease knows some specific rules. The premises of the hotels are very often described as “monovalent”. This means that an important work in the building would be necessary for the premises to have a different assignment than hotel.

The amount of the renewed rent of a hotel can be calculated according to:

– the hotel method, using the maximum, and then the actual occupancy rate in the hotel, with the rental values;

– or the real estate method, using the turnover and the investment cost for the tenant.

These methods can cause a significant increase of the amount of rents for a hotel manager. It is more interesting for him to qualify the rented local  as a “multipurpose local”.

For example, some premises will be multipurpose when there are several independent activities, when a hotel and a restaurant have two separated entrances and a specific clientele, and the premises can also be used as a bar or a shop (Court of appeal of Aix-en-Provence, April 25, 2019, n ° 15/18290).

The commercial tenant must send his request of renewal at least 6 months before the arrival of the term (that means 8 years and half after the beginning of the contract of lease). This deadline must be respected, otherwise the lessee takes the risk that the commercial lease continues during 3 more years (to reach in total 12 years), that allows the landlord to request an increase of the amount of the rent at the uncapped commercial value (current value).

A lawyer specialized in hotel-restaurant-coffee shop-nightclub is essential when an increase or decrease of the rent of the commercial lease is considered, because of the technical nature of this question and the financial stakes attached to it.
I remain at your disposal for any request for additional information or consultation to my Law office.

SELARL Cabinet d’avocats

Sophie PETROUSSENKO

Avocat à la Cour

72 avenue de WAGRAM 75017 PARIS

Tel : 0156810580 Fax : 0142966492

Email : cabpetroussenko@wanadoo.fr

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