If you start your business, you are going to devote considerable effort to developing your customer base. Whether you are opening a retail kiosk in shopping mall or start a inline retail shop, you will need to sign a commercial lease with landlord. In fact, a large part of the value of your business will reside in its location and the access to the catchment area that it will provide.

For you entrepreneur, it is therefore essential to secure your site and the cost of it, and this is the whole point of the commercial lease.

As we will see in this article, the commercial lease was designed to allow the merchant to benefit from the protection of his business.

Be careful; however, although it is protective, the lease contract nevertheless leaves a large margin of manoeuvre to both parties, hence the importance of studying specific essential points in more detail.

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Commercial lease: definition

A commercial lease is a rental contract for premises for commercial, craft, or industrial use concluded between an owner (known as the lessor) and a tenant (known as the lessee).

More remarks here:

First of all, the commercial nature of the lease depends on the administrative status, not on the use of the premises.

Then the status of commercial leases requires the existence of premises. However, it can also apply to bare land on which the lessor has authorized the tenant to build.

Finally, the activity must imperatively be of a commercial, artisanal or industrial nature; the premises of an association, for example, cannot benefit from the status of a commercial lease. In addition, the holder of the lease must be registered in the trade register or the directory of trades. However, registration may occur after the conclusion of the lease.

The duration of the commercial lease

The duration of the commercial lease is, except in special cases (exceptional lease, seasonal rental, precarious lease), of nine years minimum, and in no matter of indefinite duration.

The lease term is subdivided into three-year periods (three years).

The tenant can leave the premises at the end of each three years subject to respecting a six-month notice.

On the other hand, the lessor must wait until the end of the commercial lease term to terminate the contract under the penalty of paying the lessee compensation for eviction.

The termination or renewal of the commercial lease

If the lessor does not wish to renew the lease at the end of the contract term, he must give the lessee leave at least six months in advance.

In the absence of a request for leave from the lessor, the lessee may request the renewal of the lease by sending his appeal to the lessor within the six months preceding the end of the contract.

In the event of opposition to the renewal request, the owner will also have to pay eviction compensation to the tenant (except for legitimate reasons: some instances of work or severe misconduct by the tenant in particular).

The tenant can also, if he wishes, request the termination of the contract at the end of any three years.

In the absence of action on one of the parties, the lease is tacitly renewed. However, the protection is less for the tenant since the lessor will give him leave with six months' notice at the end of the quarter.

Assignment of the commercial lease

The assignment of the commercial lease remains a legitimate right for any tenant. He can assign his right to the commercial lease with or without his business.

The lessor cannot oppose the transfer of the lease to a buyer (same activity and same clientele) insofar as the right to the lease is an integral part of the business. On the other hand, a clause in the contract can prohibit the lease transfer without goodwill.

The commercial lease assignment will be made against the payment of an indemnity to the outgoing tenant by the new occupant.

The new occupant takes over the lease over the remaining term and benefits from the same right to renew the lease as the previous tenant.

The lessor cannot revise the rent upwards on this occasion.

Sub-leasing of a commercial lease is generally possible but requires the agreement of the lessor.

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The rent of the commercial lease

Initial rent

The lessor himself sets the initial amount of the rent. It will consider the condition of the premises, its commercial destination, and the price of real estate, among other parameters.

Rent review

The rental amount of the commercial lease is then revised every three years. The parties can also decide to change the rent amount more often (usually annually) if they wish.

The ceiling of the revision

If the activities permitted in the lease contract are limited, the rent increase is capped and may in no case exceed the variation in the benchmark.

In addition, for contracts concluded or renewed after September 2014, the revision is also limited to an annual increase of 10% of the rental price.

Here again, the commercial lease is therefore very protective of the tenant.

On the other hand, the rent ceiling does not apply if the lease is concluded for all businesses (i.e. without restriction on the activity carried out in the commercial premises).

Rent capping

The lessor may request that the rent from the commercial lease be removed if a modification or change in the lessee's activities.

He can also request the removal of the commercial lease rent ceiling following a change in the local environment that has resulted in both:

  • an increase of more than 10% in the rental value of the premises
  • an increase in the merchant's activity

However, the limit of 10% annual increase for commercial leases concluded or renewed after September 2014 remains applicable in the event of the rent capping.

VAT

Another point not to be overlooked in your financial forecast, the rents of commercial leases are often expressed exclusive of tax and subject to the standard rate of VAT (20%).

Commercial lease security deposits

During a new agreement, a sum known as the commercial lease guarantee deposit may be requested by the lessor to serve as a guarantee for the execution of the commitments, particularly concerning the rent.

At the end of the lease, this amount is to be reimbursed to the tenant.

The amount of the security deposit for the commercial lease varies from three to six months' rent and must bear interest when it exceeds two rental instalments.

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The doorstep

When concluding the commercial lease, the tenant must pay the doorstep before taking possession of the premises.

The doorstep is, in a way, the consideration owed to the lessor and in exchange for the protection offered to the lessee by the statute of commercial leases.

Unlike the security deposit, the doorstep is definitively acquired by the lessor.

The doorstep is only due if the room is vacant. That is to say that taking over a commercial lease does not give rise to the payment of a doorstep.

The amount of the doorstep is freely fixed by the parties to the contract, generally according to the rental value of the premises.

The doorstep can be considered either as an allowance or as a rent supplement. If it is regarded as a rent supplement, the tenant can deduct it from his tax result by depreciating it over a period equal to that of the lease contract.

The distribution of costs between lessor and tenant

The distribution of charges between the lessor and the tenant must be detailed in the rental contract.

As with homes, current expenses are generally the tenant's responsibility, while major repairs are the owner's responsibility.

The state of play

When taking possession of the premises and when returning it, both parties must carry out an inventory.

The inventory of fixtures can be made by written statement between the contracting parties themselves or with the help of a bailiff and must be attached to the contract.

For large surfaces (more than 2,000 m2), an environmental report must also be sent to the tenant by the lessor.

To avoid unpleasant surprises.

In your business plan, also consider budgeting and the rent the cash flow differences due to VAT on rents, maintenance costs, and expenses related to the formality of commercial leases such as, for example, leave or renewal requests which bailiff's deed must carry out.

In addition, although the form of the commercial lease contract is framed, a large margin of manoeuvre exists.

So do not hesitate to negotiate with the lessor before concluding the contract. To be safe, try to put all the terms of the agreement in writing, even the lesser clauses.

BPI France has detailed in this article the main clauses that can be negotiated.

Finally, regarding the various payments, no door, commercial lease security deposit and rent, do not pay anything that is not up to what you receive in return.