Renewed lease price in shopping malls: impact of property tax
Why is it necessary, when setting the price of the renewed lease, to deduct the amount of property tax from the rental value, even in shopping malls?
A practice that has become commonplace at the time of the conclusion of the lease is that of the transfer of property tax to the lessee, such a practice being authorized by Article R. 145-35 of the Commercial Code.
However, it should be borne in mind that, when the lease is renewed, the amount of this property tax may be deducted from the lease rent to be fixed.
If lessors object in most cases, why is it necessary, when setting the price of the renewed lease, to deduct the amount of property tax from the rental value, even in shopping malls?
As we know, the price of the renewed lease is set with regard to the provisions of Article L. 145-33 of the Commercial Code, which provides that:
“The amount of rent for renewed or revised leases must correspond to the rental value.
Failing agreement, this value is determined according to:
1 The characteristics of the premises in question;
2 Purposes of the premises
3 The respective obligations of the parties;
4 Local factors of commerciality;
5 Prices commonly charged in the neighborhood;
A decree in the Council of State specifies the consistency of these elements “.
The decree referred to in this text has been codified in Articles R. 145-2 et seq. of the Commercial Code.
More specifically, the respective obligations of the parties relate to the obligations stipulated in the lease, namely the terms and conditions of the lease.
Are they beneficial to the lessee? Are they beneficial to the lessor?
In the same lease, clauses may be stipulated allowing the lessor to increase the rental value of his premises upon renewal of the commercial lease.
This will be the case, for example, of a clause allowing the lessee to sublet his commercial premises.
For a clause allowing the tenant to reduce the rental value, mention may be made of the deferred accession clause at the end of enjoyment.
More specifically, what about the property tax when, through an express stipulation, its cost is borne by the lessee?
It is therefore necessary to refer to Article R. 145-8 of the Commercial Code, which provides that:
« From the point of view of the respective obligations of the parties, the restrictions on the use of the premises and the obligations normally incumbent on the lessor, which the latter would have discharged on the lessee without consideration, constitute a factor in reducing the rental value. The same applies to obligations imposed on the tenant beyond those imposed by law or custom. Improvements made to the leased premises during the lease to be renewed shall only be taken into consideration if, directly or indirectly, in particular by the acceptance of a reduced rent, the lessor has assumed responsibility for them.
Obligations arising from the law and generating charges for either party since the last fixing of the price may be invoked by the one who is required to assume them.
Account shall also be taken of the manner in which the previously applicable price was originally fixed “.
The payment of the property tax is normally the responsibility of the lessor sinceit is attached to the property.
The implementing decree of the Pinel law, in particular codified in Article R. 145-35 of the Commercial Code also specifies that: ” The tenant may not be charged with taxes, in particular the territorial economic contribution, taxes and fees for which the legal party is the lessor or the owner of the premises or the building; however, may be charged to the tenant the property tax and additional taxes to the property tax as well as taxes, duties and fees related to the use of the premises or the building or to a service from which the tenant benefits directly or indirectly “.
The transfer of the cost of property tax to the lessee is therefore not a principle, even if this use existed before the entry into force of the Pinel law.
In anycase, the courts gladly agree to deduct from the rental value the amount of this tax to fix the rent of the renewed lease.
They follow the position of the position of the Court of Cassation (Cass. 3ème civ., February 1, 2011, No. 09-10808; Cass. 3ème civ., March 24, 2015, No. 13-23553), even if it was able to render a dissenting judgment (Cass. 3ème civ., March 16, 2017, No. 16-11972).
However, in certain circumstances, in particular when it comes to setting the rent of a commercial lease located in a shopping centre, some courts do not apply such an allowance.
They consider that in a shopping centre, all the reference rents of the other shops include a clause transferring property tax to the lessee, which would amount to in short: to apply a double deduction, since in the original determination of the rent of the reference, this element has already been taken into account by the parties.
To rule in this way, they are often influenced by the judicial experts they appoint.
However, it must be remembered that the judge rules in law, and that the text is unambiguous.
“the obligations normally incumbent on the lessor, which the latter would have discharged on the lessee without consideration, constitute a factor in reducing the rental value. The same applies to the obligations imposed on the tenant beyond those arising from the law or custom”.
It is on the basis of this text that most courts rule, deducting the amount of property tax from the rental value .
Various decisions can be cited as an illustration:
- CA Paris, November 30, 2011, RG No. 10/05085:
“Article R. 145-8 of the Commercial Code clearly specifies that all the obligations that the lessor has discharged on his tenant constitute a factor of decrease in rental value.
The property tax weighs in principle on the lessor and the allegation that the use in a shopping centre is to make the lessee bear the burden of the property tax is inoperative as long as such a use, assuming it established, cannot contravene a clear provision of the law… “. - CA Versailles, December 18, 2018, RG No. 17/05522:
« The fact that Benchmark Rents of other shops in the shopping centre include the same charges may not prevent the application of the provisions of the aforementioned Article R. 145-8, it being specified that neighbourhood rents serve only as a reference, the rental value of the premises being fixed according to the legal provisions and its own characteristics.
Property tax, as well as the tax on commercial offices and premises and insurance premiums specific to the building, are charges that in principle weigh on the lessor, so that the clause of the lease transposing these charges to the lessee is an exorbitant clause of common law.
It is therefore necessary to deduct, from the gross rental value, the amount of the property tax, the tax on offices and commercial premises and the insurance premiums of the building “.
- CA Caen, March 31, 2022, No. 20/00859:
« It is wrong that the first judge held that it is customary, in shopping malls, that thehe charges relating to the reimbursement of property tax are imposed on the lessee and that the reference rental values concern premises and leases including the assumption by the lessee of property tax, whereas, unless expressly provided for, the payment of the property tax is the responsibility of the lessor and that the obligations normally incumbent on the lessor, which the latter has discharged on the lessee, constitute a factor of Adjusting value down. ».
The motives of these jurisdictions cannot be more explicit.
To be convinced of this, it suffices to refer to the High Court which, for a few years now, has maintained its position, sometimes by judgments of principle, constantly judging that it is appropriate to deduct from rental value, the amount of the property tax (Cass. 3ème civ., 23 May 2019, No. 18-14917; Cass. 3ème civ., 8 April 2021, No. 19-23183; Cass. 3ème civ., 24 November 2021, No.20-21570; Cass. 3ème civ., 25 January 2023, 21-21.943).
Nicolas Pchibich
Associate Lawyer
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