A lot has been written about French commercial leases. Notaires can help clients and develop good knowledge of commercial leases.

Lawyers can do the same work, and usually develop full French legal services in English.  Moreover, lawyers would hardly defend their client’s interests whereas notaires are more neutral at the drafting stage.  However, much can be done in favor of the tenant or the owner, and everything can change because of only few sentences!

The recent law of June 2014 (also called the “Pinel law” as from the name of the minister in charge) was enacted to rebalance the obligations between tenants and landlords.

Despite the legal improvements, tenants still have to be very careful when signing a commercial lease. We have summarized below some (and not all!) of important clauses that tenants need to consider seriously when signing the said contract.

1. Clauses Concerning the Premises’ Designation, Authorized Activities and Leasing Period

The commercial lease must clearly and precisely identify the office’s designation, the authorized activities as well as the leasing period.

• Premises’ Designation and Authorized Activities

Let’s imagine a restaurant’s owner who discovers at a later stage that his restaurant was built on a courtyard which encroaches on the common areas of a condominium building. The syndicate of co-owner could ask for the office’s destruction and that would be a real disaster for the tenant of the said premises of would lose the premises of his business.

To avoid such disappointment, it is strongly recommended to:

• precisely mention the activities that can be pursued by the tenant,
• mention a complete description of the premises.

Determine whether the lease provides an option for additional space. Is the lessee given a right of first refusal when additional space becomes available?

• Leasing Period

Determine the term of the lease, and when the lessee is entitled to possession.  A commercial lease subject to French law usually lasts 9 years. Under the new Pinel Law, the tenant’s right to terminate the contract at the end of each three-year period is no longer an option for 9-years lease but an obligation except for leases over 9 years and leases rented for office use only.

2. Clauses Concerning Rent Prices and Workload Allocation

• Rent Prices (think about the rent when the lease is renewed!)

In the contract, make sure that the amount of rent and when and how it is payable is stated.  Since most French commercial leases contain a rent escalation clause, determine whether the escalation is keyed to actual increases in operating costs or if it is keyed to some index.

There are usually two common clauses to regulate rent’s modifications in a commercial lease that should be seriously considered:

• a law-regulated clause which is subject to an important formalism.
• a sliding-scale clause which is yearly and automatic without any formalism for the landlord.

Moreover, when a lease is renewed, the new rent is fixed according to the market value of the premise set by an expert. Thanks to the “Pinel” law and to avoid the brutal increase of the rent, the increase between the initial price and the actual market value cannot exceed 10 % of the rent paid the previous year.

• Compensation for Works to be Performed by the Landlord

Some clauses of a commercial lease may also deprive the tenant from remedy against the landlord while suffering from a commercial damage based on the work carried out by the landlord. This can be dangerous for the tenant.

Thus, we strongly recommend to negotiate compensation, for instance, when the works shall exceed 40 days as per the following example (to be adjusted): « However, if the works last more than 40 days and prevent the tenant from exploiting the premises, the rent will be impacted for a 10 % discount each month from the 41th day ».

Moroever, tenants should be very careful about premises compliance: does the lessor warrant that the building conforms to all local laws and codes, and will the lessor reimburse the lessee for correcting any code violations?   Compliance of premises for disabled persons can be very expensive, be careful that you do not have to pay for it!

3. Understand where you rent and who are your neighbors!   

These are also few examples of clauses that you may consider depending on the location of your premises:

• Tenant “going dark” rights. A fear of many small tenants in a shopping center is that a major tenant will go out of business or not renew its lease (“going dark”). In an economic climate in which major department stores are filing for bankruptcy and closing stores, going dark is a real problem. One remedy is to negotiate a clause that gives a tenant the right to close its store or get a substantial rent reduction if a major tenant or several other tenants go dark. Defining “major tenant” is usually a simple matter; defining “other tenants” may be in terms of a percentage of the total square feet occupied by all other tenants.
• Zoning. What zoning applies to the building, and is lessee’s intended use permitted? Are there covenants or restrictions on the property? Easements? How about easements the lessee must have on adjacent property in order to fully utilize the leased property?