Real estate investment in France: legislative inflation as a source of legal uncertainty

Governmental or parliamentary initiatives aimed at amending the law governing commercial and residential leases are multiplying, often without consultation with the economic stakeholders concerned and without their consistency or appropriateness always being demonstrated.

From the recently adopted law on simplifying economic life to the bill on local retail businesses, including the bill seeking to make rent control permanent, several texts concerning real estate law currently being voted by or submitted to French Parliament reflect a worrying lack of understanding of the legal and economic mechanisms at stake, and fuel increasing legal uncertainty. In their current form, they prompt investors to adopt a wait-and-see attitude and lead certain funding providers to be overly cautious, while at the same time risking, paradoxically, undermining the tenants they purport to protect and the public policy objectives they proclaim.

The few examples developed below, drawn from these laws and bills, are intended to illustrate this trend, which is sufficiently detrimental to the formation of investment decisions to justify that real estate market players – and, hopefully, the French lawmakers – pay particular attention to it.

Law on simplifying economic life: measures with counterproductive effects?

The law on simplifying economic life, presented by the Government in April 2024, was finally adopted by Parliament on 15 April 2026. This text has not yet been promulgated at the time of writing and may still be referred to the Constitutional Council for a preliminary constitutional review. In particular, it contains several measures concerning the French commercial leases that are posing already significant legal and practical difficulties.

Prohibition on passing on property tax: the measure has been abandoned but its specter remains

Among these measures, a former provision was intended to prohibit the landlord from recharging property tax to the tenant under commercial leases, a practice expressly permitted by Article R.145-35 of the French Commercial Code and fundamental to any “investor lease”. The suggestion of offsetting this prohibition by increasing the initial rent, to neutralize the economic impact of this measure and preserve the very notion of “net” rent, is not persuasive, since contractual indexation of the rent (whether based on the ICC, the ILC or the ILAT) is uncorrelated with changes in property tax.

Furthermore, the landlord’s inability to recharge the property tax could legitimately constitute grounds for a request to lift the rent cap upon renewal of the lease, on the basis of a “material change in the parties’ respective obligations” (Article L.145-33 of the French Commercial Code) and the resulting economic imbalance.

For several months, the uncertainty surrounding the adoption of this measure may have led certain sellers and purchasers to incorporate into their instruments contractual price adjustment mechanisms intended to address the scenario of a future prohibition on re-invoicing, thereby adversely affecting the smooth execution of transactions.

The law adopter – in line with the text drawn up by the joint parity committee (“commission mixte paritaire“) that met on 20 January 2026 – has finally ruled out this this provision. Its specter and the questions it raises nevertheless remain: several other private members’ bills seek to reintroduce this principle, some providing for a prohibition on re‑invoicing limited to one half of the property tax.

The lapse of leasehold guarantees in the event of a sale: an incomprehensible legal innovation

The text adopted by the joint committee provides in particular that, for certain premises intended for commercial activities, leasehold guarantees — sureties, first-demand independent guarantees (“GAPD”), etc. — would not only be capped at three months’ rent, but would also automatically lapse in the event of a sale of the leased premises.

This provision could therefore infringe the autonomy of GAPD and significantly reduce their value for investors. From an operational standpoint, any asset transfer structured as an asset deal will likely require the seller and the purchaser to contractually organize (condition precedent, post-closing undertaking, escrow of part of the price, etc.) the provision of new guarantees by each tenant — a considerable burden for portfolios comprising a large number of tenants (shopping centers, business parks).

Certain tenants might even default on their obligations solely as a result of a sale they did not choose, if, at that time, they are no longer in a position to obtain from their guarantor a new substitute guarantee. It is paradoxical and regrettable that a statute dedicated to the “simplification of economic life” should so substantially complicate real-estate investment transactions and create issues where none previously existed…

Bill on the extension of rent control for residential leases: the death of managed real estate?

A bill intended to make permanent and extend the rent control for residential leases, although presented under the title “restoring confidence and balance in landlord‑tenant relations” and adopted at first reading in November 2025 by the French National Assembly, gives rise to several serious difficulties, independently of the political question relating to the continuation of this mechanism.

At least three of the envisaged provisions require particular attention:

• The outright abolition of the exception currently benefiting “furnished dwellings located in a managed residence with services”, whereas the French lawmakers had specifically excluded the application of rent control to such residences (for students, seniors, service residences, etc.) in order to account for of the particular characteristics of this sector (which is subject to VAT and to higher operating costs, notably due to the provision of those services); as it currently stands, this measure could structurally undermine their financial balance and deter investment in a sector whose social utility is nevertheless recognised;
• The capping of the rent supplement (“complément de loyer“) at 20% of the increased reference rent and its restriction to dwellings of more than 14 sq. m, would significantly reduce the lessor’s ability, where applicable, to reflect the locational or comfort advantages of the property in the rent, which could in turn call into question the compatibility of such a measure with the constitutional protection of the right to property under French law;
• The strengthening of the powers of the préfet — who could require residential leases to be brought into compliance with the rules on rent control, and order the reimbursement of rents unduly received without a prior judicial decision — raises fundamental questions regarding respect for the right to judicial review and the separation of powers.

Bill concerning local retail businesses: towards the end of the commercial lease regime?

A bill “aimed at supporting and enhancing local retail businesses” could, by virtue of the nature and scope of the mechanisms it intends to introduce, call into question fundamental balances of the French commercial lease framework resulting from the Decree of 30 September 1953.

The regulation of commercial rents or the challenge to market rental value

The bill provides for the introduction of a mechanism for regulating commercial rents modelled on that applicable to residential leases. This transposition would eliminate the freedom to set the initial rent, thereby depriving the parties, in their financial agreement, of the ability to take into account the characteristics of the leased premises or of the lease (authorised uses, fixed term, recharged costs, incentives, etc.).

It would likewise undermine the legal mechanisms enabling the parties, subject to certain conditions, to request that the rent be set at the market rental value, in particular where it has significantly changed, whether during the term of the lease (statutory review provided for by Articles L. 145-37 to L. 145-39 of the French Commercial Code) or at the time of renewal (removal of the rent cap provided for by Article L. 145-34 of the French Commercial Code). The option right (“droit d’option“) and the right of withdrawal (“droit de repentir“), enabling the lessor to choose between renewal at market value and payment of an eviction indemnity, would likewise be affected.

The valuation models of institutional investors, often based on assumptions of rental reversion, would thus be directly called into question – in an investment market that is already depressed.

A new “right of pre-emption” over vacant commercial premises: a disguised expropriation

The bill furthermore provides for granting municipalities, subject to certain conditions, a right of “pre-emption” over commercial premises that have remained vacant for more than twelve months “without any reason of force majeure or any judicial, administrative or insolvency proceedings being capable of being invoked in opposition thereto, in areas with a high level of commercial vacancy”.

The owner’s refusal to “re-let the commercial premises” within a period of two months following a formal notice issued by the mayor shall be deemed to constitute a declaration of intent to dispose of the property, the acquisition price being “that resulting from the valuation carried out by a professional” subject to the French Hoguet Act (i.e. a licensed real estate agent).

While the bill provides that the implementing arrangements are to be specified by decree, this mechanism, in its current form, does not reflect an actual pre-emption right, which would presuppose a decision by the owner to sell and the existence of a third-party purchaser. In reality, it sets out an expropriation procedure, which must be subject to the corresponding constitutional requirements: public interest, adversarial procedure, prior and fair compensation, etc.

Beyond the legal issue, the signal sent to real estate investors is a matter of concern: commercial vacancy — a cyclical phenomenon often suffered by owners in a context of changing consumption patterns — would become a direct factor of asset risk.

To be continued.