DPE and energy capex in commercial leases: the energy argument in setting rental value

Office and retail leases signed before 2014 are coming up for renewal in a stock of which a significant part will not, as it stands, reach the first threshold of the tertiary eco-energy scheme (dispositif éco énergie tertiaire) set for 2030. The institutional landlord that carries out the works wants to reflect them in the renewed rent; the tenant stuck with an energy-hungry asset wants to obtain a rent reduction from it, or at least to have the capex borne by the owner. The commercial rent judge (juge des loyers commerciaux), for his or her part, has no free-standing energy criterion: there is only the framework of Article L. 145-33 of the French Commercial Code and the regulatory texts that define its content. This analysis deals with the use in litigation of the energy performance certificate (diagnostic de performance énergétique, DPE) and of compliance works, not with the regulatory obligation itself: through which criterion the argument enters the debate, who bears the capex economically, and how that allocation feeds back into the setting of the rent.

The DPE exists in a rent dispute only through the five criteria of Article L. 145-33

The starting point is restrictive and must be stated at the outset. Article L. 145-33 provides that the amount of rent under renewed or revised leases must correspond to the rental value (valeur locative), which, failing agreement, is determined according to:

• 1° The characteristics of the premises in question;
• 2° The intended use of the premises;
• 3° The respective obligations of the parties;
• 4° Local commercial factors;
• 5° The prices commonly charged in the neighbourhood.

Energy performance does not appear there. A written statement (mémoire) that builds its case on the energy performance certificate rating as if it were a sixth criterion condemns itself. The energy argument is admissible only if it is attached to one of these elements, in practice to the 1° and the 3°, incidentally to the 5° where the comparables produced concern assets of uneven performance.

Characteristics of the premises: the condition of the equipment (R. 145-3, 4° and 5°)

Article R. 145-3 lists the elements for assessing the characteristics of the premises. Two heads bear directly on the energy debate: 4° The state of maintenance, dilapidation or salubrity and compliance with the standards required by employment legislation and 5° The nature and condition of the equipment and the means of operation made available to the tenant.

This is the door through which most of the tenant's argument passes. An obsolete air-handling unit, unregulated heating and cooling production, an uninsulated envelope, single-glazed joinery: these are not environmental considerations, they are facts of dilapidation and of the condition of the equipment made available, that is to say elements of the 1° of Article L. 145-33. Put that way, the argument is effective. Put as a climate-related reproach, it remains beside the point.

The practical consequence is significant for the landlord. A poor DPE does not of itself lead to any rent reduction; it is one indication, among others, of dilapidated equipment. Conversely, a landlord who has taken over the technical installations gains nothing by producing an improved rating without describing precisely the equipment delivered: it is the condition of the equipment, not the letter of the rating, that the judge assesses.

Respective obligations of the parties: the decisive text is R. 145-8

Article R. 145-8 is the article most often under-used in written statements on rent-setting. It deals with the respective obligations of the parties and contains, for our purposes, two decisive sentences.

Improvements made to the leased premises during the lease to be renewed are taken into account only if, directly or indirectly, in particular by acceptance of a reduced rent, the landlord has borne their cost. Obligations arising from statute and generating costs for either party since the last setting of the price may be relied upon by the party required to bear them.

The first sentence closes the door on a frequent claim: energy works financed by the tenant do not increase the rental value on renewal. A landlord who has borne the cost of the improvements neither directly nor indirectly cannot capture their value in the renewed rent. The exception is explicit and must be read as such: acceptance of a reduced rent in return for the works amounts to indirect bearing of the cost. A rent-free period or reduced rent agreement granted to finance the replacement of systems is therefore not neutral: it brings the improvements back into the base, and it is for the landlord to document that quid pro quo in the instrument.

The second sentence is the textual basis for energy capex in the debate on price. Obligations arising from statute and generating costs since the last setting of the price may be relied upon by the party required to bear them. The tertiary eco-energy scheme is an obligation arising from statute. It generates costs. It post-dates the last setting of the price in the vast majority of leases being renewed today. What remains to be established is which of the landlord or the tenant is bound by it, and that is where the balance tips.

Article R. 145-8 adds a third lever, this time one-directional: obligations normally falling on the landlord which the landlord has shifted to the tenant without consideration constitute a factor reducing the rental value, as do obligations imposed on the tenant beyond those arising from statute or custom. A lease clause that transfers a heavy works programme to the tenant without any economic counterpart therefore exposes the landlord to a rent reduction, that is to say exactly the opposite of the intended effect.

What the DPE proves, and what it does not (L. 126-26, L. 126-29, D. 126-19)

The energy performance certificate is defined by Article L. 126-26 of the French Construction and Housing Code: it states the quantity of energy actually consumed or estimated, expressed in primary and final energy, the resulting greenhouse gas emissions, for a standardised use of the building, and a classification allowing performance to be compared. It is accompanied by recommendations intended to improve that performance and by the amount of theoretical expenditure.

Two points call for careful reading in rent-setting litigation. The first is the standardised use: the DPE does not reflect the actual consumption of the tenant's operation. Setting a DPE against actual consumption readings amounts to comparing two different quantities. The second is the nature of the recommendations. Since the Climate and Resilience Law (loi Climat et résilience) of 22 August 2021, Article L. 126-29 states that the certificate is attached to the lease on its conclusion, with the exception of agricultural leases and seasonal lettings, and that the tenant may not rely against the landlord on the recommendations accompanying the energy performance certificate, which are of informative value only.

The 2021 reform has therefore narrowed the scope of the non-enforceability: it is the recommendations, and they alone, that are of informative value only. The earlier wording, which deprived the tenant of any reliance on the information contained in the certificate, is no longer that of the text in force. In practice, a tenant may base a showing of dilapidation on the data in the certificate; it may not demand performance of the works that the assessor suggests.

A last filter, too often overlooked: validity. Article D. 126-19 sets the validity period of the certificate at ten years, certificates issued between 1 January 2013 and 31 December 2017 having been valid until 31 December 2022, and those issued between 1 January 2018 and 30 June 2021 until 31 December 2024. In 2026, therefore, only a certificate issued after 1 July 2021 can usefully be produced. Excluding an expired DPE from the opposing party's written statement is an elementary reflex, and often enough to neutralise the central exhibit of the other side.

Who bears the capex: the dividing line of Article R. 145-35

The debate on rental value is, in reality, a debate on the financing of the capex. Article R. 145-35, resulting from the decree of 3 November 2014, delimits what cannot be charged to the tenant:

1° Expenditure relating to major repairs referred to in Article 606 of the Civil Code and, where applicable, the fees linked to carrying out those works; 2° Expenditure relating to works intended to remedy dilapidation or to bring the leased property or the building in which it is located into compliance with regulations, where they fall within the major repairs referred to in the preceding paragraph.

The final condition is decisive and frequently misread. Not all regulatory compliance works are, as a matter of principle, for the landlord's account: they fall on the landlord imperatively only where they come within major repairs. Yet Article 606 of the Civil Code defines the latter narrowly: major repairs are those of main walls and vaults, the replacement of beams and of entire roofs, as well as that of embankments and of retaining and enclosure walls in their entirety; all other repairs are maintenance.

The typology of energy capex is therefore distributed on either side of a boundary that is not the intuitive one of "green" and "non-green":

• external insulation affecting the main walls, or the renewal of an entire roof incorporating insulation, naturally fall within the scope of Article 606;
• the replacement of a boiler room, a chiller, an air-handling unit, a building management system or lighting calls for a case-by-case analysis, with no automatic attachment to major repairs;
• control, regulation, commissioning and operational optimisation, which carry a real share of the savings required by the tertiary eco-energy scheme, largely fall outside that characterisation.

This division conditions the whole trade-off. The landlord has an interest in the energy programme being built around operational actions and chargeable equipment; the tenant has an interest in showing that the programme stems from structural dilapidation and from compliance works falling within the structure and weatherproofing (clos et couvert). The application over time deserves checking: these provisions apply to contracts concluded or renewed from the publication of Decree No. 2014-1317 of 3 November 2014.

The validity of clauses transferring to the tenant the works required by the tertiary eco-energy scheme, in so-called green leases, is not settled by the texts. The boundary between compliance works that fall within Article 606 and those that do not is a matter for the assessment of the lower courts. Drafting a blanket transfer clause with no breakdown by type of works runs the risk that it will be partly deprived of effect and, by application of R. 145-8, that it will found a reduction in rental value if it is accompanied by no consideration. The allocation of energy capex between landlord and tenant in the environmental annex to the green lease is dealt with in our article devoted to that subject.

Tertiary decree: a statutory obligation that the lease, not the law, allocates

Article L. 174-1 of the French Construction and Housing Code sets the objective: a reduction in final energy consumption of at least 40% in 2030, 50% in 2040 and 60% in 2050, compared with 2010, or a consumption level set in absolute value by reference to the consumption of new buildings of the category concerned. The scope is defined by Article R. 174-22: owners and, where applicable, tenants are subject to it for any building housing exclusively tertiary activities over a floor area of 1,000 m² or more, parts of a mixed-use building housing tertiary activities over a cumulative area of 1,000 m² or more, or any group of buildings on the same plot or the same site reaching that cumulative figure. The obligation continues to apply even if the tertiary areas subsequently fall below 1,000 m². This threshold must not be confused with that of the environmental annex, set at more than 2,000 square metres of offices or retail premises by Article L. 125-9 of the French Environmental Code.

Section II of Article L. 174-1 is the text that governs the landlord/tenant trade-off:

The owners of buildings or parts of buildings and, where applicable, the tenants are subject to the obligation provided for in I for the actions that fall within their respective responsibilities by reason of the contractual provisions governing their relations.

The law does not settle the allocation: it refers to the lease. It adds that the parties jointly define the actions intended to meet the obligation and that each ensures the annual transmission of the consumption figures concerning it. Finally, it provides that the assessment of compliance with the obligation is annexed to the lease for information purposes. That qualification is worth retaining: no text that we have read gives this annex any particular evidential value before the commercial rent judge, and a party that made it the centrepiece of its written statement would risk having its weight played down. On the allocation between landlord and tenant of the obligations arising from the DPE and the tertiary decree in commercial leases, see our overview of that scheme.

Modulation for disproportionate costs as a negotiating tool

Article L. 174-1 allows the objectives to be modulated according to technical, architectural or heritage constraints, a change of activity or of its volume, and manifestly disproportionate costs of the actions relative to the expected benefits in terms of final energy consumption. Article R. 174-26 specifies that this last form of modulation is implemented on the basis of technical and financial argument, an order determining the payback periods beyond which costs are disproportionate, and that the modulation is the subject of a technical file drawn up under the responsibility of the owner and, where applicable, the tenant.

This technical file has a twofold function. It secures the position of the person subject to the scheme. It also constitutes, in the renewal negotiation, an economic document that can be relied on against the other side: it quantifies the capex, it objectifies the return on investment, it documents the constraints of the building. For a landlord who intends to argue that the programme undertaken exceeds what the rental market can absorb, or for a tenant who intends to show that the asset is structurally degraded, it is the most substantial document in the file.

Unlocking the cap: the energy argument tested against the "notable modification"

Article L. 145-34 provides that, unless there is a notable modification of the elements mentioned in 1° to 4° of Article L. 145-33, the rate of variation of the rent applicable on the effective date of the lease to be renewed, if its term does not exceed nine years, may not exceed the variation of the quarterly commercial rent index or of the quarterly tertiary activities rent index referred to in the first and second paragraphs of Article L. 112-2 of the French Monetary and Financial Code. The construction cost index is no longer referred to in the text in force: referring to it in a written statement is an error that is immediately penalised.

Two observations shape the landlord's strategy. First, the notable modification must concern the elements of 1° to 4°. An energy works programme financed by the landlord, transforming the condition of the equipment within the meaning of R. 145-3 5°, is argued on the ground of the 1°. But no text establishes that a poor certificate, or energy compliance works, constitutes of itself a notable modification. It is a question for the sovereign assessment of the lower courts, decided in light of the physical scale of the works and their impact on the characteristics of the premises, not in light of a rating.

Second, the economic gain from unlocking the cap is limited. Since the Pinel Law of 18 June 2014, in the event of a notable modification of the elements mentioned in 1° to 4° of Article L. 145-33, the resulting variation in rent may not lead to increases of more than 10% in any one year of the rent paid in the preceding year. These provisions apply to contracts concluded or renewed from 1 September 2014. A landlord who undertakes heavy capex expecting immediate recovery through the renewed rent must therefore model a staggered catch-up, not a jump in value.

On the three-yearly revision, the route is practically closed

Article L. 145-38 rules out the argument even more clearly. Unlocking the cap there requires proof of a material modification of local commercial factors having in itself caused a variation of more than 10% in the rental value. Energy works on the building are not a local commercial factor. The text adds that in no case are the tenant's investments, nor the gains or losses resulting from its management during the term of the current lease, taken into account in calculating the rental value. A tenant who has financed the renovation of its installations during the lease therefore risks nothing on revision; symmetrically, a landlord who has invested has no useful lever by this route. The relevant point in time for reflecting energy capex is the renewal, not the revision.

Conducting the case before the commercial rent judge

Jurisdiction is fixed by Article R. 145-23: disputes concerning the setting of the price of a revised or renewed lease are brought, whatever the amount of the rent, before the president of the judicial court (tribunal judiciaire) or the judge who replaces him or her, who rules on written statements, the court with territorial jurisdiction being that of the place where the building is situated. The procedure on written statements imposes evidential discipline: the energy case must be structured by statutory criterion, exhibit by exhibit, and not set out as a technical narrative. The construction of the written statement and the conduct of the proceedings are dealt with separately in our article on the judicial setting of rental value on renewal.

Three sets of documents carry most of the case. The first is the works information required by Article L. 145-40-2: on conclusion of the contract, then every three years, the landlord provides each tenant with a forecast statement of the works it envisages carrying out over the following three years, accompanied by a forecast budget and a summary statement of the works it has carried out over the preceding three years, stating their cost, in addition to the precise and exhaustive inventory of the categories of charges and their allocation. These documents establish who has borne the cost within the meaning of R. 145-8, with amounts. A landlord who has not delivered them deprives itself of its own means of proof.

The second is the environmental annex, where the lease concerns premises of more than 2,000 square metres used as offices or for retail. Article D. 174-19 of the French Construction and Housing Code requires the landlord to provide the list, the full description and the energy characteristics of the existing equipment relating to waste treatment, heating, cooling, ventilation and lighting, as well as the actual annual consumption of the equipment it operates. Article D. 174-20 requires the tenant to provide a symmetrical inventory of the equipment it has installed and the consumption of the systems it operates. It is the best documentation available on the condition of the equipment within the meaning of R. 145-3 5°, and it is adversarial by construction. Section 2 of Article L. 125-9 of the French Environmental Code adds that the parties provide each other with all useful information relating to energy consumption and that the tenant gives the landlord access to the leased premises for the carrying out of works to improve energy performance: a documented refusal of access durably weakens the position of a tenant who then relies on dilapidation.

The third is the technical modulation file under Article R. 174-26, where one exists, and the corresponding works quotes and contracts.

That leaves the amicable route. Article L. 145-35 provides that disputes arising from the application of Articles L. 145-34 and L. 145-38, as well as those relating to charges and works, may be referred to a departmental conciliation commission, which gives an opinion and is relieved of the matter if it has not ruled within three months. This wording expressly covers works: for a dispute concerning the allocation of an energy programme, this is a useful step, but the three-month period must be built into the procedural timetable, since a court seised in parallel cannot rule until the opinion has been given.

Conclusion: energy capex is negotiated at signing, not before the judge

Positive law leads to an asymmetry that investors underestimate. The tenant has a solid, textual counter-lever: the dilapidation of the equipment under R. 145-3, obligations transferred without consideration under R. 145-8, the prohibition on charging under R. 145-35 for what falls within Article 606. The landlord has only a conditional lever, subject to proof that it bore the cost of the improvements, to the physical scale of the works, to the characterisation as a notable modification and, if successful, to the 10% per year smoothing of Article L. 145-34. The economics of energy capex are therefore not recovered before the commercial rent judge: they are built upstream, in the contractual allocation of the actions under the tertiary eco-energy scheme, in the traceability of the consideration granted and in the rigour of the three-yearly works information.

Three decisions to take before the next renewal date. Have the allocation of the planned works audited between what falls within Article 606 and what does not, item by item, before finalising the programme. Document in writing any consideration granted to a tenant who finances improvements, failing which you will not be able to rely on R. 145-8 at renewal. Lastly, check that the forecast statement and the summary statement of works under Article L. 145-40-2 have in fact been delivered: a landlord who has not issued them for three years comes to the dispute without the document that carries its own case.

Frequently asked questions

Does an F or G rated DPE allow the tenant to obtain a rent reduction on renewal? Not of itself. The energy performance certificate is not a criterion of rental value within the meaning of Article L. 145-33 of the French Commercial Code. It can be relied on only in support of a showing concerning the characteristics of the premises, in particular the state of maintenance and dilapidation and the nature and condition of the equipment made available (Article R. 145-3, 4° and 5°), or concerning the respective obligations of the parties (Article R. 145-8). The DPE is an evidential indication, never a free-standing basis.

Do energy works paid for by the tenant increase the rent of the renewed lease? No. Article R. 145-8 provides that improvements made to the leased premises during the lease to be renewed are taken into account only if, directly or indirectly, in particular by acceptance of a reduced rent, the landlord has borne their cost. An investment borne entirely by the tenant remains outside the base. By contrast, if the landlord has granted a rent-free period or a reduced rent in return, indirect bearing of the cost is established and the improvements come back into the debate.

Can the works required by the tertiary decree be placed on the tenant by a lease clause? Section II of Article L. 174-1 of the French Construction and Housing Code subjects owners and, where applicable, tenants to the obligation "for the actions that fall within their respective responsibilities by reason of the contractual provisions governing their relations": it is therefore the lease that allocates. But that freedom is bounded by Article R. 145-35, which prohibits charging to the tenant expenditure on compliance with regulations "where they fall within the major repairs" of Article 606 of the Civil Code. The validity of a blanket transfer clause is not settled by the texts and is a matter for the assessment of the lower courts; an item-by-item breakdown is essential.

What is the threshold for being subject to the tertiary eco-energy scheme? Article R. 174-22 of the French Construction and Housing Code refers to a floor area of 1,000 m² or more, whether for a building housing exclusively tertiary activities, for parts of a mixed-use building taken cumulatively, or for a group of buildings on the same plot or the same site. The obligation is maintained if the tertiary areas subsequently fall below that threshold. This threshold must not be confused with that of the environmental annex, set at more than 2,000 square metres of offices or retail premises by Article L. 125-9 of the French Environmental Code.

Can the rent cap be lifted thanks to a major energy renovation? Article L. 145-34 permits the cap to be lifted in the event of a "notable modification of the elements mentioned in 1° to 4° of Article L. 145-33". Works financed by the landlord which transform the condition of the equipment made available are argued on that ground, but no text establishes that an energy renovation constitutes in itself a notable modification: it is a question of fact for the judge's assessment. Assuming the cap is lifted, the resulting variation in rent may not lead to increases of more than 10% in any one year of the rent paid in the preceding year.

Can a 2019 DPE still be used in a written statement in 2026? No. Article D. 126-19 of the French Construction and Housing Code sets the validity period of the certificate at ten years, but provides for a transitional regime: certificates issued between 1 January 2018 and 30 June 2021 were valid only until 31 December 2024, and those issued between 1 January 2013 and 31 December 2017 until 31 December 2022. In 2026, only a certificate issued after 1 July 2021 can usefully be produced.

Before which court is the setting of the renewed rent argued? Since 1 January 2020, Article R. 145-23 of the French Commercial Code has given disputes concerning the setting of the price of a revised or renewed lease, whatever the amount of the rent, to the president of the judicial court or the judge who replaces him or her, ruling on written statements, in the district where the building is situated. Disputes arising from the application of Articles L. 145-34 and L. 145-38, as well as those relating to charges and works, may first be referred to the departmental conciliation commission, which is relieved of the matter if it has not ruled within three months.