Commercial lease renewal – Part.2 (2/2)

Lease renewal is an opportunity for the lessor, and sometimes the lessee, to set a new rent.

The principle is that the parties are free to determine the amount of rent.

However, if the parties agree on the principle of renewal, but not on the amount of new rent proposed by either the lessor or the lessee, the more diligent party must apply to the commercial rents judge to set the rent for the renewed lease within two years of the effective date of the notice.

The judge will then set the new rent by applying the rules governing rent capping or de-capping, depending on the circumstances.

Both the rent cap and the rent variation may not exceed the variation in the quarterly index of commercial rents, but in certain cases, the rent for the renewed lease may be set without complying with the rent cap rule.

This is known as de-capping.

There are two reasons for de-capping: de-capping linked to the duration of the lease, i.e. when the lease is entered into or renewed for a term of more than nine years, or when the lease continues beyond a term of twelve years due to inaction on the part of the parties.

Therefore, when neither the lessee nor the lessor has requested renewal of the lease, the second reason for de-capping, and when there have been significant changes during the lease, this may involve a change in the characteristics of the premises in question.

For example, if work has been carried out to change the use of the premises, or if there has been a change in the respective obligations of the lessor and lessee, or a change in local commercial factors.

A change in just one of these elements can justify a rent adjustment, and this change must be significant, i.e. it must be sufficiently important.

The judge will then decide on a case-by-case basis whether such a change has occurred.

The de-capped rent will then be set at the rental value.

To calculate it, we focus mainly on the characteristics of the premises and the prices currently charged in the neighborhood.