Commercial lease: the clauses that should not be overlooked to avoid any disputes

The drafting of commercial lease clauses requires careful attention.

A poorly drafted lease can lead to disputes, hinder business operations or result in additional costs for both the landlord and the tenant.

Here are the essential clauses that require particular attention when drafting your lease.

Clauses that should not be overlooked

The allocation of charges and works:
Since the Pinel Law of 18 June 2014, Article L. 145-40-2 of the French Commercial Code requires the lease to include a precise and exhaustive inventory of charges, taxes and duties, together with their allocation between the parties. This includes major repairs referred to in Article 606 of the French Civil Code.

Careful drafting of this clause is essential. Without a precise and exhaustive inventory, the landlord will not be able to pass certain charges on to the tenant.

The purpose of the premises:
A purpose clause that is too restrictive may prevent the tenant from developing their business. Conversely, a clause that is too broad may affect the landlord’s interests, particularly in the event of a change of use or lease renewal, potentially preventing the landlord from obtaining a rent increase beyond the statutory cap and resulting in significant financial losses.

Rent and rent indexation:
The rent review clause allows the parties to determine how rent will be indexed, affecting the evolution of the rent amount throughout the lease term. Commercial rent is generally indexed to the Commercial Rent Index (ILC) or the Tertiary Activities Rent Index (ILAT). Choosing an unsuitable index or providing for an upward-only indexation mechanism may result in the clause being deemed unwritten.

It is also possible to include a turnover-based rent clause, which links rent to the tenant’s revenue. This may result in a significant rent increase if the tenant’s business grows.

The choice of rent review mechanism may have a substantial impact on rent evolution over several years.

The termination clause:
Although the law provides that a termination clause can only take effect one month after an unsuccessful formal demand for payment, the parties may include other breaches than mere non-payment of rent within this clause.

It may cover any breach that the parties wish to include: non-payment of rent and charges, failure to maintain insurance, unauthorised subletting, failure to comply with the purpose of the premises, etc. A precise and comprehensive clause is therefore in the landlord’s interest, as it provides an automatic termination mechanism.

Assignment of the leasehold rights and subletting:
Although the assignment of leasehold rights together with the business is a tenant’s right protected by law, the conditions of such an assignment may be regulated. The lease may therefore require the landlord’s approval, allowing the landlord to retain control over the arrival of a new tenant.

Other clauses may also be drafted by the parties and have a significant impact, including those relating to the tenant’s three-year termination right, lease renewal, changes of use, and more.

Contact Maître CRÉPIN, partner at LEXSTONE AVOCATS, located in Puget-sur-Argens and Rocbaron (Var)

Drafting a commercial lease requires personalised legal support.

LEXSTONE AVOCATS assists you with:

• Drafting or negotiating your commercial lease,
• Reviewing an existing lease and identifying unfavourable clauses,
• Advising you during your lease renewal,
• Defending you in the event of a dispute with your landlord or tenant.