Commercial leases: when “simplification” leads to greater complexity and legal uncertainty
Following a lengthy legislative process, the Economic Life Simplification Act was enacted and published in the French Official Journal on 27 May 2026. Articles 61 and 63 introduce significant changes to the legal framework governing commercial leases. Adopted without meaningful consultation with the stakeholders concerned, several provisions raise numerous questions of interpretation and may have practical consequences that run counter to the stated objective of simplification.
A variable-geometry concept of “commercial premises”
Even before considering the substantive measures introduced by the Act, an analysis of the scope of each provision suggests that the objective of “simplification” has already been missed. Far from adopting a uniform concept of “commercial premises”, the Act instead creates several distinct scopes of application.
Accordingly, monthly rent payments and the cap on lease security apply to premises intended for retail or wholesale activities or for commercial or craft service activities; the transfer and lapse of security would apply to all commercial leases; “tunnel” indexation clauses concern premises “used for commercial purposes”; and the statutory pre-emption right is based on a specific definition that expressly excludes offices and warehouses.
The difficulty is compounded by the removal, from the final version of the Act, of the reference initially contemplated to Article 231 ter of the French Tax Code (concerning the annual tax on office premises, commercial premises, storage premises and parking areas in the Paris region): while that reference would have limited the geographical scope of the measure to that of the relevant tax provision, it would also have provided a well-established interpretative framework that practitioners already know how to apply. By reproducing the wording of that provision without referring to it, Parliament has left practitioners and market participants facing uncertainty that will probably take several years of case law to resolve, just as practice remained uncertain for years following the introduction of the pre-emption right under the so-called “Pinel” Act.
A right to monthly rent payments with uncertain boundaries
The Act gives tenants of premises “intended for retail or wholesale activities, or for commercial or craft service activities” the right to pay rent monthly, provided that they have no uncontested arrears of rent or service charges. Eligible tenants may make the request at any time, including under existing leases, and it takes effect from the next payment date under the lease. No contractual provision may prevent the exercise of this right, which is a mandatory rule of law.
Beyond the far from insignificant impact of this measure on landlords’ cash flow across a real estate portfolio, particularly where their bank repayment dates remain quarterly, its drafting gives rise to several significant grey areas. In the absence of any clarification in the Act, may rent still be invoiced quarterly even if it has become payable monthly? Nor does the Act specify how service charge payments on account are to be invoiced and paid.
Cap on rental guarantees: three months or six months? That is the question
This is undoubtedly the most consequential measure, yet also the most uncertain.
For leases of the same types of premises as those eligible for monthly rent payments, and therefore subject to the same uncertainties as to scope, the Act provides that “amounts paid by the tenant by way of security […] may not exceed an amount equal to three months’ rent” and that “the same applies to the value of any assets, securities, undertakings and guarantees of any kind” required to secure proper performance of the lease.
This wording leaves open a major question that will need to be resolved by the courts: may the landlord combine a security deposit capped at three months’ rent with another form of security also capped at three months, or does a single three-month cap apply to all security taken together? Most commentators appear to favor the first interpretation, but the risk that the courts may adopt the second cannot be entirely ruled out in view of the legislative history, since an earlier version clearly provided for a single overall cap.
The treatment of take-possession guarantees given under forward leases (baux en l’état futur d’achèvement – BEFAs) also remains uncertain, although it would seem logical for them to fall outside the cap where they cover the period before the lease takes effect, during which the commercial lease regime does not apply.
Beyond the legal difficulties, the cap may prove to be a double-edged sword for certain tenants. This includes less financially robust tenants, who may be denied access to certain premises by landlords that consider the risk of rent default too high, and tenants experiencing a temporary payment default, whose landlords may prefer to enforce the termination clause promptly given the limited level of lease security available to them.
Transfer of rental guarantees: how to create a problem where none existed
More puzzling still, the Act lays down two contradictory rules governing the fate of the security deposit when the leased premises are sold.
First, the obligation to return the security deposit passes automatically to the purchaser. This departs from previous case law, under which, unless the parties had expressly provided for its transfer, the seller had to return the deposit to the tenant, who then had to pay a new one to the purchaser. It does not, however, raise any major practical difficulty.
Second, the transfer of ownership causes any other rental guarantees to lapse automatically “where applicable”, and the outgoing landlord must return the related documents and arrange for their release within six months. On a “reassuring” reading, this would apply only to security arrangements that are not intended to pass to the purchaser. On a broad literal reading, however, every rental guarantee other than the security deposit would lapse automatically, even where the parties have expressly provided for its transfer.
The latter reading, which cannot be ruled out at this stade, would undermine the autonomy of autonomous first demand guarantees under Article 2321 of the French Civil Code (garanties autonomes à première demande), and would require new guarantees to be put in place on every sale. The seller and purchaser would then have to make contractual arrangements, including conditions precedent, post-closing undertakings and purchase price escrows, for each tenant to furnish a new guarantee. For a portfolio of properties or a shopping center with dozens of leases, this could prove a considerable burden, even though the real estate industry never asked for such a change.
Here again, the measure could paradoxically work against the tenants it purports to protect. Some could find themselves in default solely because of a sale over which they had no control, for example where their financial position has deteriorated since the lease was signed and they are unable to obtain a new bank guarantee in favor of the new landlord.
Non-recovery of property tax: a measure set aside… for now
The proposal to prohibit landlords from recovering the property tax (taxe foncière) payable in respect of the leased premises from tenants was ultimately removed from the final version of the Act. For the time being, the French concept of the “investor lease” (bail investisseur), under which the rent is net of all costs and taxes, therefore appears to have been preserved, notwithstanding the significant limitations already imposed by the so-called “Pinel” Act of 2014, which prohibits landlords from recovering certain costs from tenants.
The issue has not, however, been definitively settled. A separate bill[1] seeks to revive the measure by limiting recovery to 50% of the tax. For several months, uncertainty surrounding its possible adoption led some sellers and purchasers to include price-adjustment mechanisms in their transaction documents in anticipation of a future prohibition, thereby impairing transactional efficiency. The same situation could arise again if, far from a hypothetical prospect, Parliament were to consider such a measure. This episode alone illustrates the harmful effects of erratic legislative activity on investors’ decision-making.
Moreover, if such a prohibition were to apply to existing leases or upon their renewal, it could materially disturb the economic balance of the agreements, even if that impact were considered when determining the rental value of the leased premises under Article L. 145-33 of the French Commercial Code.
Some welcome clarifications
Finally, the Act introduces two technical clarifications that practitioners had been awaiting.
First, for leases of premises “used for commercial purposes,” the Act expressly validates “tunnel” indexation clauses, which cap annual changes in the Commercial Rent Index (indice des loyers commerciaux, ILC) symmetrically, i.e., by the same percentage upwards and downwards. Clauses based on the Tertiary Activities Rent Index (indice des loyers des activités tertiaires, ILAT) or the Construction Cost Index (indice du coût de la construction, ICC) do not benefit from this regime.
Second, it excludes premises used exclusively as offices and warehouses from the “Pinel” pre-emption right under Article L. 145-46-1 of the French Commercial Code. Although useful, these two developments do not resolve every case, such as coworking premises, and cannot offset the difficulties created by the Act’s other provisions.
Regrettable measures for the commercial real estate market
At a time when the real estate investment market is already struggling to regain momentum, one may legitimately question the merits of legislation that, far from simplifying economic life, unsettles established contractual practice, complicates landlord-and-tenant relationships and creates legal uncertainty that French and international market participants could well have done without.
By multiplying rules without ensuring that they are intelligible, Parliament risks sending a negative signal to investors just as competition between European markets is intensifying.
This is all the more regrettable given that, by making transactions more costly and complex, the Act may paradoxically harm the very retailers it is intended to protect.
