With the reform of 18 June 2014, the question of the single-purpose nature of rented premises is even more important than in the past. The difference is notable both regarding the term of the lease and the renewal rent. Analysis of the impact of this reform on hotel leases.
With the reform brought about by the Pinel law of 18 June 2014 and its implementing decree of 3 November 2014, the question of the single-purpose nature of rented premises is even more important than in the past.
Especially for hotel leases, not everyone is subject to the same rules. Now, the legal framework for hotel leases concerning single-purpose premises is far more favourable to the lessor than that of 9-year hotel leases for multi-purpose premises, both regarding the term and the renewal rent.
What are single-purpose premises?
To date, there is no legal definition of single-purpose. Case law provides an extensive interpretation of article R.145-10 of the French Commercial Code, under the terms of which single-purpose means premises built for a single use. It extended the notion to premises whose conversion to another purpose would be impossible or too costly. An additional criterion of single-purpose was added: the notion of one single operation with the same clientele. In application of this criterion, premises where a hotel and a restaurant are operated for a different clientele and with separate entrances are not considered to be single-purpose.
The consequences on the term of the lease
Premises should be characterised as single-purpose or otherwise prior to writing any hotel lease whatsoever in order to avoid problems.
- Leases signed or renewed from 20 June 2014
For all leases signed or renewed from 20 June 2014, the lessee may no longer waive its right to three-year termination except in some cases, including for leases signed for a term longer than 9 years and leases on single-purpose premises.
Therefore, for hotel leases, the question of their term depends on whether the leases concern single-purpose premises or not. For single-purpose hotels, the parties can always sign a lease for a fixed term of 9 years.
However, for hotels which are not single-purpose, a fixed-term 9-year lease does not allow the lessee to waive its three-year break optionright. Thus, any clause that prevents the lessee from freely terminating its lease at the term of each three-year period is deemed not to have been written. Nevertheless, if the parties use a lease with a term of over 9 years, they are contractually free to write the term clause as they wish. In this case, the lessee is advised to negotiate the insertion of a clause into the lease that provides for capping of the rent when the lease is renewed. Otherwise, the rent for the renewed lease will not be capped due to an initial lease term greater than 9 years.
- Leases signed or renewed from 1 September 2014
For all leases signed or renewed from 1 September 2014, if the renewal rent is capped, the rent increase may not result in increases in one year greater than 10% of the rents paid over the preceding year.
This capping of the uncapping provided in paragraph 4 of article L.145-34 of the French Commercial Code only applies in the two following cases:
- uncapping of the rent due to a significant modification in the elements mentioned in paragraph 1° to paragraph 4° of article L.145-33 of the French Commercial Code.
- if an exception is made to the capping rules as a result of a clause in the lease regarding the term of the lease. This applies to leases signed for a term greater than 9 years, as they are uncapped automatically by operation of law in application of article L.145-34 of the French Commercial Code.
This new law does not affect hotel leases for single-purpose premises, given that they fall under a special scheme for fixing of the renewal rent. The rent for these leases is not subject to the capping rule and the rental value depends on the use observed for the branch considered. Thus, when the lessor obtains an increase in the rent on renewal, it can demand it immediately with no deferment over time.
It should be emphasised that while the deferment over time of the renewal rent increase applies to hotel leases for multi-purpose premises, the provisions of article L.145-34 are not public policy: the parties may therefore waive this rule with an express stipulation in the lease. Finally, it should be noted that the rule for capping the uncapping does not apply when an initial 9-year lease continues through tacit agreement for more than twelve years. Then, it is up to the holder of a hotel lease for multi-purpose premises to terminate the lease before it effectively exceeds the term of 12 years, failing which it shall be obliged to pay the new rent immediately without gradual deferment.