Catching up a commercial lease rent increase

The commercial lease (bail commercial) is one of the essential levers of the economic performance of a shop or business. Where a landlord has not applied the indexation clause provided for in the lease, it may find itself in a position where its property assets are undervalued. Conversely, the tenant may discover a catch-up claim that abruptly affects its cash flow. This issue of catching up a rent increase raises precise legal questions as to its basis, its time limits and its conditions of application, which differ depending on whether the statutory three-yearly review or contractual indexation is at stake. This article sets out how catch-up works, the rights and obligations of each party, and the remedies available.

The legal principle of catching up a rent increase

Statutory basis of the three-yearly review

The commercial lease statute, codified in Articles L145-1 et seq. of the French Commercial Code, establishes a mechanism of three-yearly review of the rent. This review allows the rent to be adjusted according to changes in the commercial rents index (indice des loyers commerciaux, ILC) or the tertiary activities rents index (indice des loyers des activités tertiaires, ILAT), depending on the nature of the activity carried on.

The landlord has a right of review that it may exercise every three years from the date the lease takes effect or from the last review. This option is not automatic and requires a voluntary step by the landlord by way of notification. The steps, time limits and formalities of this process are set out in our step-by-step guide to the three-yearly review of commercial rent.

Three-yearly review and indexation: only indexation can be caught up

The three-yearly review is not retroactive: Article L. 145-38 of the Commercial Code provides that the rent review takes effect from the date of the request for review. A landlord who has allowed one or more three-year periods to pass without making a request cannot claim the rent difference for the period that has elapsed. Article L. 145-11 of the same code, sometimes relied on, concerns the price of the renewed lease and not review during the term of the lease.

Catching up a rent increase is possible only where the lease contains an indexation clause, known as a sliding-scale clause (clause d'échelle mobile), which makes the rent vary on the dates it provides for according to the chosen index. If the landlord has not applied that clause, it may claim payment of the difference between the rent actually received and the indexed rent, within the limitation period. This claim represents a significant financial stake, particularly in a context of sustained inflation.

Conditions for applying catch-up

Compliance with the limitation period

Catching up a commercial rent increase is subject to the ordinary five-year limitation period provided for in Article 2224 of the Civil Code. This period runs from each unpaid instalment, and not globally from the start of the catch-up period. The starting point of this period and the acts that interrupt it are detailed in our article on the limitation of unpaid rent.

In concrete terms, if a landlord claims in January 2024 the application of an annual indexation omitted since January 2017, it can obtain only the sums that have fallen due since January 2019. Earlier instalments are time-barred.

Mandatory prior notification

The request for catch-up of indexation is addressed to the tenant in writing; it specifies the period concerned, the indices used and the amount claimed. The request for three-yearly review follows its own formalities: it is made by extrajudicial act (acte extrajudiciaire) or by registered letter with acknowledgment of receipt and must state, on pain of nullity, the amount of rent requested (Article R. 145-20 of the Commercial Code).

Calculating the increase according to the applicable index

Catch-up is carried out by applying retroactively the variation of the index applicable to the tenant's activity. For commercial activities, the ILC is the reference, while the ILAT applies to tertiary activities such as offices, liberal professions or services. The choice between the various indices and how to read them are covered in our article on the application of the commercial lease index.

The calculation is made according to the formula: Revised rent = Base rent × (New index ÷ Reference index). The difference between this revised rent and the rent actually paid constitutes the amount of the catch-up for each quarter concerned.

Rights and obligations of the landlord

The owner's power of initiative

The landlord keeps the initiative of the request for three-yearly review, but any waiting is detrimental to it, since the review takes effect only from the date of the request. As regards indexation, it may claim the sums not called for within the limit of the five-year limitation period.

However, this waiting carries risks. The longer the delay, the larger the amount of the catch-up becomes, which may create recovery difficulties or lead to disputes.

Payment terms

The judge may also grant time to pay or a spreading of the debt where the catch-up represents a substantial amount in relation to the tenant's turnover.

Documentation and justification of calculations

The owner must be able to justify its calculations precisely by reference to the official indices published by INSEE (the French national statistics institute). Any calculation error may lead to a reduction of the amount claimed or to rejection of the claim.

Keeping the documents relating to the indices and to the rents paid becomes crucial to establish the catch-up claim over several years.

The tenant's rights of defence

Checking the calculations and challenging them

The tenant has the right to check the calculations presented by the landlord and to challenge any error. It may in particular check the accuracy of the indices used, the reference period and the correct application of the review formula.

This check must be carried out promptly after receipt of the request. The tenant's silence does not, in itself, amount to acceptance of the amounts claimed (Article 1120 of the Civil Code).

Raising limitation

The tenant may raise the five-year limitation period to defeat catch-up claims relating to old instalments. This defence must be raised expressly, as the judge cannot raise of his own motion the plea arising from limitation (Article 2247 of the Civil Code).

Interruption of the limitation period may result from an acknowledgment of debt, a claim brought in court, a protective measure taken under the Code of Civil Enforcement Procedures or an act of enforcement (Articles 2240, 2241 and 2244 of the Civil Code).

Request for spreading or time to pay

Faced with a large catch-up claim, the tenant may request a spreading of the debt or time to pay. The request may be made either amicably to the owner or before the judge in the event of a dispute.

The courts examine the tenant's financial situation, the impact of the catch-up on the operation of the business (fonds) and the real possibilities of settlement in order to grant or refuse these payment facilities.

Procedure for implementing catch-up

Amicable notification and negotiation

The first step generally consists of an amicable notification from the owner claiming the catch-up. This phase allows a negotiation to be opened on the amounts, the payment arrangements and any staggering of the debt.

A successful negotiation avoids the costs and uncertainties of court proceedings. It also preserves the commercial relationship between the parties, an important element in managing a property portfolio.

Referral to the commercial rents judge

In the event of disagreement, the dispute falls within the jurisdiction of the tribunal judiciaire, and more specifically of the commercial rents judge (juge des loyers commerciaux) in certain courts. The procedure follows the ordinary rules, with the possibility of summary proceedings (référé) in urgent cases.

The claimant must prove its allegations by producing the leases, the rent receipts and the official indices. The burden of proof lies on the owner claiming the catch-up.

Enforcement and protective measures

Once an enforceable title (jugement or approved settlement) has been obtained, the creditor may start the ordinary enforcement procedures. It may in particular seize the tenant's movable property or carry out an attachment of bank accounts (saisie-attribution).

Protective measures may also be requested during the proceedings to preserve the creditor's rights, particularly where the debtor's solvency is uncertain.

Specific points depending on the type of activity

Commercial leases in the strict sense

For retail, craft or restaurant activities falling within the commercial lease statute, the reference index is the ILC. This index, less volatile than the former construction cost index, offers better predictability of reviews.

Catch-up in these sectors must take into account the economic characteristics of the activity, notably the seasonality of receipts or the operating cycles specific to certain businesses.

Leases for tertiary activities

Leases of offices, for liberal professions or for service activities fall under the ILAT. This index, generally less favourable to landlords than the ILC, directly affects the amount of catch-up that is possible.

Tertiary activities often show greater financial stability, which may make it easier to recover catch-up sums but may also justify stricter requirements as to time to pay.

Special cases and mixed activities

Some activities are of a mixed nature (shop and office, restaurant and accommodation), which may create difficulties of interpretation as to the applicable index. Case law tends to retain the main activity or the one carried on in the largest part of the leased premises.

This characterisation directly determines the amount of catch-up that is possible and justifies a precise analysis of the activity actually carried on by the tenant.

Prevention and management strategies

For the landlord-owner

Proactive management of reviews avoids the build-up of large catch-up sums. It is recommended to schedule the three-yearly reviews and to follow the movement of the indices in order to optimise rental yield.

Putting in place a review calendar and automated tracking of the indices avoids costly oversights and maintains a balanced relationship with tenants.

For the tenant

The tenant has an interest in providing for foreseeable rent increases by following the movement of the indices applicable to its lease. This anticipation avoids cash-flow difficulties linked to catch-up claims.

Negotiating capping or cap-and-collar clauses when the lease is signed may also limit the impact of index variations on the rent.

Recourse to legal advice

The complexity of the review and indexation mechanisms justifies seeking advice, for owners and tenants alike. A legal analysis at the outset avoids procedural errors.

The involvement of a lawyer is particularly useful where the amounts at stake are significant or the situation presents difficulties of interpretation.

Case law and recent developments

The movement of the indices since the 2014 reform has considerably changed the economics of commercial leases. The ILC and the ILAT, less volatile than the former construction cost index, have generally reduced the amplitude of reviews and, consequently, the size of catch-up sums.

The courts show growing attention to the economic impact of catch-up claims on the survival of tenant businesses, particularly in the post-Covid context in which many shops saw their financial situation weakened.

The digitalisation of procedures and the dematerialisation of notifications open up new prospects for the management of rent reviews, while raising questions about the validity of electronic service.

Practical recommendations

Before any catch-up of a commercial rent increase, check that the claim rests on an indexation clause, the three-yearly review giving rise to no catch-up, verify the calculations against the official INSEE indices and make sure the limitation periods have been observed. For owners, preventive management of reviews and indexation avoids the build-up of large claims. For tenants, following the indices and setting up provisions make it possible to absorb the financial impact without compromising the operation of the business. In the event of disagreement or a substantial amount, instructing a lawyer helps to secure the procedure.

Frequently asked questions

How long can an owner claim a catch-up of a commercial rent increase?

For an indexation that has not been applied, the owner has five years to claim the sums due. This limitation period runs from each instalment. In concrete terms, in 2024 it can claim the sums due since 2019, but no further back. The three-yearly review, which takes effect only from the date of the request, gives rise to no catch-up.

Can the tenant refuse to pay a correctly calculated catch-up?

No, if the calculation is correct and meets the legal conditions. The tenant may, however, challenge the amounts, request time to pay or raise limitation for the oldest instalments.

How is the amount of a commercial rent catch-up calculated exactly?

The calculation is made according to the formula: Revised rent = Base rent × (New index ÷ Reference index). This increase is then applied retroactively over the period concerned, quarter by quarter.

Which index should be used for catch-up depending on the tenant's activity?

The ILC (commercial rents index) applies to commercial, craft and restaurant activities. The ILAT (tertiary activities rents index) concerns offices, liberal professions and services.

Can an owner demand immediate payment of several years of catch-up?

Legally yes, but the judge may grant time to pay or a spreading of the debt if the amount jeopardises the survival of the tenant business. An amicable negotiation is often preferable.

Is the rent review automatic every three years?

No. The three-yearly review requires a request from one or other of the parties (Article L. 145-37 of the Commercial Code) and takes effect only from the date of that request; it gives rise to no catch-up. Only an indexation clause makes the rent vary without a request, on the dates it provides for.

Can a catch-up be challenged if the lease does not expressly mention this possibility?

Yes. The commercial lease statute provides for no catch-up: the three-yearly review takes effect only from the date of the request. Catch-up requires an indexation clause stipulated in the lease; in its absence, no sum can be claimed for the past period.