Is the obligation to take out new insurance a reason for uncapping?

If the lessor is required to take out civil liability insurance, this obligation constitutes a significant modification and a reason for de-capping the rent. The fact that the lessor has already taken out such insurance, before it becomes mandatory, does not deprive it of its significant character allowing it to escape the removal of the ceiling.  

A tenant has leased commercial premises located in a building subject to the status of co-ownership.  

By extrajudicial acts of 9 and 10 December 2015, he requested the renewal of the lease, which expires on 30 December 2015.  

The lessor accepted the principle of renewal but requested the application of an uncapped rent, which the tenant refused.  

After notification of a preliminary memorandum, the landlord summoned the tenant to fix the renewal rent. 

The Court of Appeal accepted the de-capping of the rent by retaining, as part of the significant changes, the evolution of the premiums of the non-occupying owner’s liability insurance, mandatory since 2014.  

In this case, the lessor had voluntarily taken out this insurance before it became mandatory and its premiums had increased from €644 in 2007 to €1,046.90 in 2015, an increase of 62.56%.  

The tenant filed an appeal in cassation, on the grounds that the insurance premium was already paid by his landlord even before Law No.2014-266 of 24 March 2014, known as the ALUR Law, made it compulsory to take out such insurance for non-occupying owners of buildings subject to the co-ownership status. 

According to the appellant, the increase in the premiums related to this insurance does not result from a legal obligation, but from the relationship between the lessor and its insurer, the Court of Appeal should not have taken this into account when assessing the reasons for the removal of the ceiling and fixing the amount of the renewal rent.  

The Court of Cassation rejects this argument and thus validates the removal of the ceiling by the trial judges.  

It first recalls that at the time of renewal, the new rent cannot, in principle, exceed the ceiling rent, unless there is a significant change in the elements listed in Article L.145-33 of the Commercial Code.  

These elements include the respective obligations of the parties, which the Court of Cassation defines in this judgment as those arising from the law and generating charges for one of the parties since the last fixing of the price, thus repeating the terms of Article R.145-8 of the Commercial Code.  

The modification of these charges, if it is significant, may justify the de-capping of the rent.  

The Court of Cassation then specifies that the creation, during the expired lease, of a new obligation placed on the lessor by the legislator, falls within the category of charges to be taken into account for the determination of the renewal rent, if its evolution entails a significant modification. 

More specifically, with regard to the obligation to take out civil liability insurance for the lessor of a property located in a condominium, the Court of Cassation carries out a double verification: the legal origin of the latter and the significant nature of its modification.  

In this case, it notes that this is indeed a legal obligation incumbent on the non-occupying lessor, because this insurance obligation was created by Article 58 of the ALUR Law of 24 March 2014.  

It then notes that the trial judges did characterize a significant change in this charge, as the lessor saw its rental income decrease significantly, due to the increase in mandatory charges.  

Above all, the Court of Cassation considers it irrelevant that this insurance was taken out by the lessor before 2014, that is to say before it became mandatory.  

The reasoning of the trial judges is thus confirmed and the appeal dismissed.  

By refusing to take into account the underwriting of the insurance by the lessor before it becomes an obligation imposed by law, the Court of Cassation seems to want to insist on the need to place itself on the effective date of the renewal application, to assess the conditions of a significant modification within the meaning of Article L 145-34 of the Commercial Code. 

Only elements existing on the effective date of the renewal are taken into consideration. 

It does not matter whether the lessor has taken out civil liability insurance as a non-occupying owner before it becomes mandatory. 

This position is consistent with the settled case law of the Court of Cassation, according to which the rental value must be assessed on the effective date of the renewal application.  

Just as the lessee may request the application of corrections or deductions for the rental value, given the exorbitant charges under ordinary law that weigh on him (see Article R.145-8 of the Commercial Code), the lessor is likely to request the de-capping of the rent provided that the legal charges that weigh on him have undergone significant changes.