Law No. 2014-626 of June 18, 2014, concerning crafts, commerce, and very small businesses, known as the "Pinel Law," amended the allocation of expenses between landlords and tenants. These new provisions have now been clarified by Decree No. 2014-1317 of November 3, 2014, relating to commercial leases (Official Journal of November 5, 2014, p. 18638), which introduces Articles R 145-35 to R 145-37 into the Commercial Code.
The new system applies to leases entered into and renewed on or after November 5, 2014.
I. Background
Before the adoption of the Pinel Law, the Commercial Code contained no provisions specifically governing the allocation of expenses between landlords and tenants. The matter was therefore governed by reference to the provisions of the Civil Code, which were themselves rather vague, and primarily by the agreement between the parties.
It was indeed accepted that the parties had complete freedom to agree on the definition and allocation of expenses.
Case law thus validated "exceptional clauses" that placed the following on the tenant:
- of the entire property tax;
- major repairs as defined by Article 606 of the Civil Code;
- work to bring the premises into compliance;
- work made necessary due to the dilapidated state of the premises;
- of all condominium fees, without exception.
Following this line of case law, many leases contain clauses stipulating a rent "net of charges," which tend to place the burden of all charges on the tenant, charges which, in the absence of specific provisions, should be borne by the landlord.
These clauses demonstrate the landlords' position of power in contract negotiations. The legislature sought to combat the abuses arising from this situation.
II. New device
A. Allocation of costs
1. Principle: precise and exhaustive inventory of expenses
The principle established by the new law is that the lease must include a precise and exhaustive inventory of the categories of charges, taxes, and fees related to the lease and their allocation between the landlord and the tenant (French Commercial Code, Article L 145-40-2, paragraph 1).
It is also specified that in buildings with multiple tenants (including, in particular, condominiums), the lease agreement must specify the allocation of charges or the cost of work among the various tenants occupying the building. This allocation is based on the area occupied. The amount of taxes, duties, and fees that can be charged to the tenant corresponds strictly to the premises occupied by each tenant and to their share of the common areas necessary for the operation of the leased property (French Commercial Code, Article L 145-40-2, paragraph 3).
The law also refers to a decree of the Council of State for the definition of charges, taxes, duties, and fees that, due to their nature, cannot be charged to the tenant.
2. Applications
This long-awaited decree was adopted on November 3rd. It creates a new article R 145-35 within the Commercial Code, according to which the following cannot be charged to the tenant:
1° Expenses relating to major repairs mentioned in Article 606 of the Civil Code, as well as, where applicable, fees related to carrying out these works;
It should be noted that the major repairs referred to in this text are those concerning load-bearing walls and vaults, the replacement of beams and entire roofs, and the complete reconstruction of dikes, retaining walls, and fences. However, case law adopts a broader definition: major repairs affect the building's structure and overall solidity, whereas maintenance work is that which is necessary for the building's ongoing preservation in good condition (Cass. 3rd Civ . July 13, 2005, No. 04-13764 – FS-PB).
2. Expenses related to work intended to remedy obsolescence or bring into compliance with regulations , provided that such work falls under the major repairs mentioned in the preceding paragraph;
It is traditionally accepted that, in the absence of a contrary stipulation, work to bring the property into compliance and work related to obsolescence should be borne by the landlord. However, the scope of this provision is questionable, since the prohibition only applies to the extent that the work falls under major repairs. It thus appears redundant with point 1.
3. Taxes , including the territorial economic contribution, taxes, and fees for which the landlord or owner of the premises or building is legally liable; however, property tax and additional property taxes, as well as taxes, fees, and fees related to the use of the premises or building or to a service from which the tenant benefits directly or indirectly,
may be passed on to the tenant. The wording of the Pinel Law had raised hopes among tenants that the possibility of having property tax and other taxes related to the use of the property, including the TEOM (household waste collection tax), passed on to them would be definitively eliminated. They will be disappointed. The exception expressly provided for property tax, its additional taxes, and other taxes related to the use of the premises effectively reverses the principle established by the text.
4° The landlord's fees related to the management of rents for the premises or building covered by the lease;
This provision targets property companies and shopping center landlords who systematically passed on management costs to tenants.
5. In a building complex, the charges, taxes, fees, and costs of work relating to vacant units or attributable to other tenants.
The allocation among tenants of charges, taxes, fees, and the cost of work relating to the building complex may be weighted by agreement. These weightings are communicated to the tenants.
This possibility of contractual weighting appears to contradict the very wording of Article L 145-40-2, paragraph 3 of the French Commercial Code, which stipulates that the amount of taxes, fees, and charges that may be allocated to the tenant corresponds strictly to the unit occupied by each tenant and to their share of the common areas necessary for the operation of the leased property.
improvements exceeding the cost of replacement with identical materials are not included in the expenses mentioned in points 1 and 2.
B. Information relating to charges
1. Upon conclusion of the contract
A precise and exhaustive list of charges, taxes, and their allocation between the landlord and tenant must be stipulated in the contract.
Furthermore, the landlord must provide each tenant with:
- A preliminary statement of the work he plans to carry out in the following three years, accompanied by a preliminary budget;
- A summary of the work he has carried out in the previous three years, specifying its cost.
2. During lease
- each year :
- every three years :
- A preliminary statement of the work he plans to carry out in the following three years, accompanied by a preliminary budget;
- A summary statement of the work he has carried out in the previous three years, specifying their cost (C. com. art. L 145-40-2).
This information is communicated within 2 months of each three-year deadline.
- as soon as possible : information on new charges, taxes, duties and fees (Commercial Code art. L 145-40-2).
