PINEL ACT
Act No. 2014-626 of 18/06/2014 concerning local craftsmen, trade and very small companies, referred to as the Pinel Act, was passed on 19/06/2014 and came into force on 1 September 2014.
This Act restricts the freedom of contract, principally in terms of recoverable expenses. It does this in such a way that it creates a limited protection for the tenant. This Act affects all leases entered into after 1 September 2014.
Decree of application No. 2014 - 1317 of 3 November 2014 listed the expenses for which landlords are now completely liable. This impacts the economic viability of a lease. It is no longer possible for landlords to receive a net income. This Decree is applicable to all commercial leases entered into or renewed after 5 November 2014 (the date of its publication).
A landlord is now fully liable for the following expenses:
- Major repairs under Article 606 of the Civil Code and fees related to this work;
- Dilapidation: Fees falling within the jurisdiction of Article 606 of the Civil Code may no longer be shared;
- Compliance: Fees falling within the jurisdiction of Article 606 of the Civil Code may no longer be shared;
- The regional economic contribution tax;
- Fees related to managing rent;
- In a property complex: Charges, taxes, usage fees and costs relating to vacant premises or other tenants;
The main amendments to the Act impacting the rental value are as follows:
Fixed Term Leases
These are prohibited, with the following exceptions:
- Leases for a contractual term of more than nine years
- Single-use premises
- Offices
- Storage premises in the Ile de France region
Nine-year contracts are compulsory in the case of lease renewal.
Where the renewed contractual term was greater than nine years, the rent cap used to become permanent.
A tenant may no longer enter into a renewal with a contractual period of more than nine years. This is not a fundamental change brought about by the Pinel Act, but rather an alignment based on the case law of the Court of Cassation (order of 18 June 2013).
MEANS OF CONTROLLING RENTS: In the Case of Renewals or Revisions
Cap on uncapped rent increases: In the case of the rent cap being lifted, the rent increase must not exceed 10% of the rent settled during the previous year.
Does “rent settled” refer to the rent billed or the rent paid? The wording of the Act raises a legal uncertainty, which is not without consequences.
The text only deals with rent increases; there are no levels for rent decreases.
All shops are affected regardless of the contractual term or the reason for removing the rent cap.
When lifting the rent cap, increasing the rent by increments of 10% is not applicable in the following three cases:
1/ Lease terms of more than 12 years
2/ The lease stipulates that the market rental value will be applied if the lease is renewed
3/ The lease stipulates that the rental value will be applied if the lease is renewed (this is most often the case with shopping centers where the rent is partially based on the tenant’s sales revenue), derogating from the principle of smoothing rent increases. If the lease stipulates that the rental value will be applied without any specification, then the value in the Code of Commerce will be applied.
In this case, subject to the interpretation of the case law, an express waiver of the smoothing rule is necessary for it not to be applied.
Exclusion from the 10% increments rule
The cap on uncapped rent increases established by the Pinel Act is not applicable to:
- Bare land (Article R 145-9 of the Code of Commerce)
- Single-use premises (Articles R 145-10)
- Offices (Articles R 145-11)
- Shops which are used for business similar to that typical of offices: the question of capping uncapped rent increases does not seem to be applicable to shops which are used for business similar to that typical of offices (intellectual work where no goods are transferred). This applies to banks, travel agencies, insurance providers, etc.). This will be resolved through case law.
Short-term leases: Their term has been extended from two to three years, with no provision for renewal (rule of public policy).
Inventory of the premises: Mandatory at the start of a lease or upon its renewal.
Commitment of the assignor in the case of transfer of the lease: Limited to three years(this rule is not from the public policy).
ILC and ILAT indexes: Mandatory for calculating the revised rent where a cap applies; application of common law in the case of renewal.
The ILC index is applicable to commercial and crafts business. ILAT is applicable to the service industry.
The ICC index remains applicable during the course of the lease for the indexation of rents; this is a separate legal mechanism from that of the cap and is contract based.
Accurate inventory limiting categories of charges, taxes, levies and fees related to the lease: Mandatory; a decree in Council of State should establish the rules of application.
Preferential rights in favor of the tenant: In the case of sale of the property.
Clauses contrary to the rules of public policy: They are no longer "null" but "deemed unwritten”.