Rent decapping: the three clauses to reread before renewal

The outcome of a renewal is settled in the lease signed nine years earlier, far more than in the negotiation of the moment. Three clauses carry most of the discussion.

The rent under a renewed lease is in principle capped at the movement in the index since the previous lease. Decapping is the exception — but an exception whose conditions are prepared, or neutralised, as early as the original drafting. Here is what we reread first when a renewal file comes in.

The permitted use clause

It is the first to examine, and the most decisive. A widely drafted permitted use — “all trades” — deprives the landlord of the argument based on change of use and leaves the tenant free to develop its activity. A narrow permitted use protects the landlord, but exposes it to an application for partial or full change of use, the acceptance of which may itself justify a review.

In both cases the question to ask is the same: does the activity actually carried on today fall within the terms of the lease? A discrepancy, even a long-standing and tolerated one, becomes a weapon at the time of renewal.

The term of the lease and tacit continuation

Where the effective term of the lease exceeds twelve years, the cap falls away as of right. The point deserves attention because that term is assessed taking tacit continuation into account: a nine-year lease left to run for three further years without a deed crosses the threshold. It is a frequent ground for decapping, and yet regularly discovered too late — often by the tenant, who has let the date slip by thinking it stood to gain.

The clauses on charges and works

Since the Pinel Act, the allocation of charges, taxes and works must appear in a precise and exhaustive schedule annexed to the lease, and certain expenses can no longer be passed on to the tenant — in particular the major repairs under article 606 of the Civil Code. A lease predating it, or postdating it but badly drafted, often contains unenforceable clauses.

The interest goes beyond the question of charges alone. A substantial change in the respective obligations of the parties is one of the factors whose material variation can justify decapping. The discussion about charges therefore feeds the discussion about rent.

What remains to be negotiated

Where decapping is established, the increase is still spread: the rise cannot exceed 10% of the rent paid during the preceding year, which smooths the effect over several financial years and radically changes the present value of the operation for the landlord. That mechanism is as much a negotiating lever as a protection.

Our recommendation, on both sides of the table, is to deal with the renewal eighteen months before the expiry date and not three. At that stage everything is still negotiable; once notice to quit or the request for renewal has been served, positions harden and the procedural timetable takes precedence over economic interest.

This article sets out the law as it stood at the date of publication and does not constitute legal advice. Every situation calls for individual examination: let us take thirty minutes to check yours.