Construction cost index (ICC) and commercial leases: a practical guide

The indexation of a commercial rent often turns on a technical detail that landlord and tenant alike discover too late: the index chosen in the contract. A lease signed before 2014 that still indexes the rent on the construction cost index, a clause that refers to an index unsuited to the activity carried on, a recalculation done wrongly at the time of the three-yearly review, and a dispute arises. These situations come up constantly in commercial lease litigation, where a few hundred euros of annual variation end up before the rent judge (juge des loyers commerciaux). This guide explains how to distinguish the ICC from the ILC and the ILAT according to the type of lease, how to read an INSEE index publication and recalculate the rent, and what the case law holds on the index that actually applies.

ICC, ILC, ILAT: three indices for three logics

The three acronyms refer to indices published every quarter by INSEE (the French national statistics institute), but they do not measure the same thing and do not apply to the same situations. Confusing the three is the most frequent drafting error in commercial leases.

The construction cost index (ICC)

The ICC (indice du coût de la construction) measures the change in the price of constructing new buildings mainly for residential use. It has been calculated by INSEE since the 1950s and is still published today. Its logic is that of a property production cost: materials, labour, the price of building contracts.

For decades, the ICC served as the reference index in almost all commercial leases, both for annual indexation and for the three-yearly review. That is why many old leases still in force continue to mention it. The problem is that the ICC is a volatile index, sensitive to the state of the building sector, with no direct link to the economic health of the shops or services housed in the premises. This disconnect justified the creation of more representative indices, and then the gradual removal of the ICC.

The commercial rent index (ILC)

The ILC (indice des loyers commerciaux) was created by Law No. 2008-776 of 4 August 2008 on the modernisation of the economy (LME) and clarified by Decree No. 2008-1139 of 4 November 2008. It is a composite index: it combines the change in consumer prices and that in retail turnover. In other words, it follows the economic reality of the trader rather than the cost of concrete.

The ILC is aimed at commercial and craft activities: a retail shop, a restaurant, a hairdressing salon, a bakery, a craftsman with premises that include a sales or production area. It is today the default index for the great majority of ordinary commercial leases.

The tertiary activities rent index (ILAT)

The ILAT (indice des loyers des activités tertiaires) was established by Decree No. 2011-2028 of 29 December 2011. It covers tertiary activities that do not fall within the commercial or craft field within the meaning of the ILC: offices, liberal professions, warehouses and logistics platforms, non-commercial service activities. Like the ILC, it is a composite index, built from consumer prices, economic activity measured by gross domestic product and a component linked to the cost of construction.

The dividing line between ILC and ILAT therefore lies in the nature of the activity carried on in the premises. An accountancy firm, a consultancy, a logistics company fall under the ILAT. A convenience store, an optician, a garage fall under the ILC.

Which index for which lease since the Pinel Law

The turning point dates from Law No. 2014-626 of 18 June 2014, known as the Pinel Law, supplemented by Decree No. 2014-1770 of 24 December 2014. That text amended Articles L. 145-34 and L. 145-38 of the French Commercial Code to remove the ICC from the setting of the reviewed rent and the renewal rent.

Since the Law of 18 June 2014, the variation in the rent applicable on the three-yearly review or on renewal of the commercial lease is calculated by reference to the quarterly commercial rent index or the quarterly tertiary activities rent index, to the exclusion of the construction cost index.

In practical terms, a commercial lease whose rent is reviewed or renewed today can no longer have that rent vary by reference to the ICC. The choice is between ILC and ILAT according to the activity. The ICC remains in use for other property contracts (certain professional leases governed by the general law, civil agreements), but it has lost its central place in the commercial lease statute.

This reform creates a major practical distinction between leases signed before and after its entry into force. An old lease may contain an annual indexation clause that still refers to the ICC. That clause continues to produce its effects for contractual indexation as long as it is not challenged, but the ICC can no longer be used for the cap on the three-yearly review or for calculating the renewal rent. Hence hybrid situations in which two mechanisms coexist in the same lease.

How to decide between ILC and ILAT

The criterion is the activity actually carried on, as authorised by the lease's permitted use clause. Where the same premises house a mixed activity, for example a sales area combined with offices, the main activity must be identified. The drafting of the lease benefits from stating expressly the index chosen and justifying it by the permitted use, which avoids later dispute over the applicable index.

Reading and interpreting the INSEE publication

INSEE publishes the value of the three indices every quarter. Three points of interpretation are essential to avoid mistakes.

First, each index has a base of 100 set at a reference date specific to that index. A value of the ICC is therefore never compared with a value of the ILC: the scales are different. The recalculation is always carried out by comparing two values of the same index.

Second, there is a publication lag. The value for a given quarter is released only several months after the end of that quarter. The lease clause must therefore specify which reference index to use, generally the last index published at the date of review or indexation, to avoid any ambiguity as to the value adopted.

Finally, each publication indicates the change over one year and over three years, which makes it possible to check the order of magnitude quickly before any detailed calculation. The consultation is done on the INSEE website, the official source that is authoritative in a dispute. The 2026 values of the indices, their publication calendar and the method of calculating indexation are set out in our article on the commercial lease index in 2026.

Recalculating the rent step by step

The review formula is a simple rule of proportion:

Reviewed rent = current rent × (review index ÷ reference index)

The reference index is the one provided for in the lease as the starting point. The review index is the value of the same index at the date of the review or of the annual indexation date.

Take a worked example, for purely educational purposes, using no real index values. Suppose an annual rent of €24,000, a reference index of 120 and a review index of 126. The calculation gives: 24,000 × (126 ÷ 120) = €25,200. The increase is 5%, exactly the change in the index between the two dates.

Three checks are needed before applying this result. It must be ensured that the two values relate to the same index (an ILC compared with an ILC). It must be verified that the quarters compared correspond to those provided for in the clause, failing which the calculation can be challenged. Finally, it must be checked that the variation obtained does not exceed the statutory caps, which sometimes limit the increase actually applicable.

Caps, three-yearly review and indexation clause

Three mechanisms of variation coexist, and must be distinguished because they are not subject to the same rules.

The statutory three-yearly review

Article L. 145-38 of the French Commercial Code gives each party, at least every three years, the right to request a review of the rent (révision triennale). The reviewed rent is in principle capped at the change in the ILC or the ILAT over the period. This cap may be set aside where a notable change in the factors determining the rental value is demonstrated, which then allows the cap to be lifted (déplafonnement) and the rent aligned on the actual rental value. Lifting the cap nevertheless remains regulated and requires proof of a significant change. The steps, time limits and formalities of the review request are covered in our step-by-step guide to the three-yearly review of commercial rent.

Contractual indexation by indexation clause

Article L. 145-39 of the French Commercial Code allows the parties to insert an indexation clause (clause d'échelle mobile), which automatically varies the rent each year according to the chosen index, without waiting for the three-yearly date. This clause is very common. The same article provides that, where the operation of the clause results in a variation of more than a quarter compared with the price originally set, each party may request a judicial review.

The indexation clause is where the ICC still causes the most difficulty. Many old leases index the rent on the ICC. As long as the clause is not challenged, it continues to operate, but its validity may be questioned, in particular in light of the requirement of a link between the index and the activity laid down by Article L. 112-2 of the French Monetary and Financial Code.

The cap on variation under the Pinel Law

The Law of 18 June 2014 introduced in Article L. 145-34 of the French Commercial Code a smoothing mechanism: where lifting the cap leads to a sharp rent increase, the increase may not exceed, for any one year, 10% of the rent paid in the previous year. This limit spreads the most sudden increases over time and protects the tenant from an immediate rent shock.

A temporary measure was added to this mechanism: Law No. 2022-1158 of 16 August 2022 on emergency measures to protect purchasing power capped the increase in the ILC applicable to small and medium-sized enterprises, to limit the impact of inflation on commercial rents. This temporary measure illustrates the attention the legislature pays to the index chosen and to its effect on tenants.

Case law: applicable index and validity of clauses

Indexation litigation has been structured around a few principles that the courts apply consistently.

First principle, an indexation clause that creates a distortion between the period of variation of the index and the time elapsing between two rent reviews is irregular. The Cour de cassation holds consistently that a clause distorting this proportionality is deemed unwritten, under Article L. 112-1 of the French Monetary and Financial Code. In practice, the clause must make the rent vary over a period consistent with the period over which the index is measured, failing which it is neutralised.

Second principle, an indexation clause that allows only an increase in the rent, excluding a decrease when the index falls, is also penalised. The courts consider that such a stipulation distorts the indexation mechanism, which presupposes variation upwards as well as downwards. A one-way unilateral clause risks being set aside.

Third principle, the question of the index that actually applies arises where the lease refers to an index that has become unsuitable or has fallen outside its field of application. Where an old lease mentions the ICC for indexation, it is accepted that the clause in principle retains its binding force for contractual indexation as long as it is not held to be irregular, but that the ICC can no longer found the cap on the three-yearly review or the renewal rent since the Pinel Law. The combination of these rules requires the practitioner to read each clause in light of its date and its purpose.

These solutions converge on a drafting recommendation: refer to an index suited to the activity, align the period of variation of the index with the frequency of review, and draft the clause reciprocally. A poorly calibrated clause does not merely expose the parties to a dispute over one quarter; it may be deemed unwritten in its entirety, which retroactively restores the original rent and gives rise to a right to repayment of sums wrongly indexed. On challenging an indexation clause deemed unwritten and recovering the indexation paid, see our analysis devoted to this question.

What to remember and where to start

The hierarchy is clear: since the Pinel Law of 18 June 2014, the ICC is no longer meant to set the reviewed or renewed rent of a commercial lease. The ILC governs commercial and craft activities, the ILAT tertiary activities. The ICC survives only in certain indexation clauses of old leases, where it is a point of legal weakness rather than a safeguard. The choice of index is not a formality: it determines the trajectory of the rent over the whole term of the lease and the solidity of the clause in the event of a dispute.

A practical piece of advice for landlord and tenant alike: before any signature or renewal, have three points checked by a commercial lease practitioner. Does the index chosen correspond to the activity actually carried on? Is the period of variation of the index consistent with the frequency of review provided for? Does the clause operate upwards as well as downwards? For an existing lease indexed on the ICC, an audit of the clause makes it possible to anticipate the risk that it will one day be deemed unwritten, with the financial consequences that entails.

Frequently asked questions

Can the ICC still be used to index a commercial lease in 2026?

For the three-yearly review and for renewal, no: since the Pinel Law of 18 June 2014, Articles L. 145-34 and L. 145-38 of the French Commercial Code require the ILC or the ILAT and exclude the ICC. For an annual indexation clause in an old lease, the ICC may continue to operate as long as the clause is not held to be irregular, but its validity is fragile and it is strongly advisable to secure it at the next renewal.

How do I know whether my lease falls under the ILC or the ILAT?

The criterion is the activity actually carried on in the premises, as authorised by the permitted use clause. Commercial and craft activities (retail, catering, crafts) fall under the ILC. Non-commercial tertiary activities (offices, liberal professions, logistics) fall under the ILAT. In the case of a mixed activity, the main activity is used, and the lease should state expressly the index chosen.

How do I recalculate a commercial rent using the index?

A rule of proportion is applied: reviewed rent equals current rent multiplied by the ratio between the review index and the reference index. The reference index is the one provided for in the lease as the starting point, and the review index is the value of the same index at the date of review. Two values of the same index must be compared, and it must be checked that the result respects the applicable statutory caps.

What happens if the indexation clause is held to be irregular?

An indexation clause that creates a distortion between the period of variation of the index and the frequency of review, or that operates only upwards, may be deemed unwritten under Article L. 112-1 of the French Monetary and Financial Code. The consequence is serious: the rent reverts to its original amount and the tenant may request repayment of the sums wrongly received as indexation, within the limits of the applicable limitation period.

Does the 10% cap apply to all rent increases?

No. The cap of 10% of the previous year's rent, introduced by the Pinel Law and codified in Article L. 145-34 of the French Commercial Code, applies to the smoothing of increases resulting from lifting the cap on renewal or review. It does not have the same purpose as annual indexation by indexation clause. A specific temporary cap also applied to the ILC for small and medium-sized enterprises under the Law of 16 August 2022.

Where can I find the official value of the ICC, ILC and ILAT indices?

The three indices are published every quarter by INSEE, the only official source that is authoritative. Each publication gives the value of the index, its reference base and the changes over one year and over three years. Because of the release lag, the value for a quarter is known only several months after it closes, which must be anticipated in drafting the review clause.

Must a lease signed before 2014 be amended to comply with the Pinel Law?

The Pinel Law does not automatically render the clauses of earlier leases void, but it deprives the ICC of effect for the forthcoming three-yearly review and renewal. Without redrafting, an old lease indexed on the ICC creates uncertainty at the first review or renewal event. Regularisation takes place naturally on renewal, when it is appropriate to switch to the ILC or the ILAT and to check the drafting of the indexation clause.