The Pinel Act dated 18 June 2014 and entered into force on 5 November 2014 has significantly modified the matter of retail lease agreements by offering a better protection to the tenant.
Three main modifications can be pointed out: (i) duration of the lease agreement, (ii) maintenance and repair, (iii) services charges.
Duration of the lease agreement
Retail lease agreements are concluded for a minimum duration of 9 years and a maximum duration of 99 years. The tenant is entitled to terminate said lease agreement at the expiry of each three-year term, subject to a 6-months’ notice period.
In the past, the tenant usually agreed to waive the early termination by the tenant (against rent rebates or financial contribution in fitting-out works). The Pinel Act prohibits now such waiver by the tenant unless if lease agreements relates to:
- a fixed term of more than 9 years;
- single use premises;
- building exclusively destined to offices;
- warehouse building (in the meaning of article 231 ter, 3°, III of the General Tax Code).
In addition, it is now allowed to terminate the lease agreement (or request for the renewal thereof) by registered letter with acknowledgement of receipt and not any longer through the intervention of a bailiff.
Maintenance and repair
On the basis of the Pinel Act, it is not allowed any longer to charge tenant for (i) major repairs (as defined in Article 606 of the French Civil code) and the fees relating to those repairs and (ii) major wear and tear repairs and major compliance works.
This principle is applicable to all lease agreements entered into force or renewed as of 5 November 2014.
For any other maintenance and repairs works, the landlord and the tenant are free to determine their respective obligations.
Services charges and taxes
On the basis of the Pinel Act, it is no allowed any longer to charge tenant with (i) taxes including the Territorial Economic Contribution (ECT), where the landlord is personally liable for payment (however, the following taxes may be transferred to the tenant: property taxes and taxes added to the property taxes, i.e. taxes relating to the use of the premises or to a service which benefits the tenant directly or indirectly), (ii) management fees and (iii) services charges and taxes relating to vacant premises or attributable to other tenants.
Beside these three main modifications, various other minor modifications have been promulgated by the Pinal Act such as the putting into place of a preferential right in favor of the tenant or the suppression to the reference of construction cost index.
Given that Pinel Act is quite recent, it remains open to interpretation and will be subject to various decisions by the French courts in the coming next weeks and months.