Allocation of Commercial Lease Charges: The Landlord/Tenant Table

The question comes back at every lease renewal and every annual service charge demand: must the commercial tenant really pay for the renewal of the roof, the facade renovation or the management fees claimed by the landlord? Since the Pinel Law of 18 June 2014, the answer is no longer left to contractual freedom alone. Certain expenses can no longer, in any case, be passed on to the tenant, and every demand for charges must rest on a precise inventory annexed to the lease. This guide explains how to read a table of allocation of charges in a commercial lease (bail commercial), which charges must remain with the landlord under Article R145-35 of the French Commercial Code, and how to challenge an abusive re-invoicing in practice.

What the Pinel Law changed in the allocation of charges

Before 2014, the allocation of charges was almost entirely a matter of negotiation. The so-called "all taxes, duties and charges" clause allowed the landlord to pass on to the tenant all of the building's expenses, including major repairs and sometimes even property tax (taxe foncière) and management fees. The tenant signed, often without appreciating the scale of what was being accepted, and discovered the bill at the first demand for charges.

Law No. 2014-626 of 18 June 2014, known as the Pinel Law, supplemented by Decree No. 2014-1317 of 3 November 2014, put an end to this practice. It introduced Article L145-40-2 of the French Commercial Code, which requires the landlord to annex to the lease a precise and exhaustive inventory of the categories of charges, taxes, duties and fees relating to the lease, with an indication of how they are allocated. The decree created Article R145-35, which lists the expenses that may no longer be re-invoiced to the tenant, however the contract is worded.

These rules apply to leases entered into or renewed from 5 November 2014. For an older lease that has not been renewed since, the former contractual regime in principle remains applicable, which explains why some tenants in the course of a lease continue to bear charges that a recent lease would spare them. Renewal is therefore a pivotal moment for rebalancing the allocation.

The principle: contractual freedom, now subject to limits

The starting point remains contractual freedom. The parties set out in the lease the allocation of charges, works, taxes and duties. A landlord may therefore pass on to the tenant a large share of running costs: upkeep of the common parts, cleaning, lift, collective heating, caretaking, building insurance premiums, property tax and additional taxes.

But this freedom is now subject to two mandatory limits, that is, limits from which the parties cannot depart by a contrary clause.

The first limit is formal: without a precise and exhaustive inventory annexed to the lease, the landlord may be unable to enforce against the tenant any charges that do not appear in it. The logic is simple: a charge that is not listed has not been accepted. A demand for charges relating to an item absent from the inventory can therefore be challenged in principle.

The second limit is substantive: certain expenses may never be charged to the tenant, even if the lease expressly provides for it. This is the core of Article R145-35, and it is where most abusive re-invoicing is concentrated.

Charges that cannot be passed on to the tenant: the Article R145-35 table

Article R145-35 of the French Commercial Code lists four categories of expenses that cannot be passed on to the tenant. Any lease clause purporting to transfer them is deemed unwritten, which means that it is deprived of effect without any need to have the whole contract annulled.

Here is a summary of the charges that must be borne by the landlord.

Two points deserve a closer look, as they account for most of the disputes.

Major repairs under Article 606 of the French Civil Code

Article 606 of the French Civil Code defines major repairs on an exhaustive basis:

Major repairs are those of the main walls and vaults, the restoration of beams and of entire roofs. Likewise that of dykes and of retaining and boundary walls in their entirety. All other repairs are maintenance repairs.

The distinction is structuring. The complete renewal of a roof, the reworking of the roof frame, the strengthening of a load-bearing wall, the repair of a facade affecting the structural work fall within major repairs and remain with the landlord. Conversely, the replacement of a few tiles, routine maintenance, minor repairs and keeping equipment in working order are maintenance expenses, which can be passed on to the tenant. The scope of Article 606 of the Civil Code and its application to commercial leases are set out in our article on major repairs.

The boundary is not always clear, and the courts are regularly asked to characterise a facade renovation or the renewal of waterproofing. The courts reason case by case, looking at whether the works affect the structure of the building and its durability, or whether they fall within normal maintenance. In practice, a tenant who receives a demand for charges headed "share of roof works" must immediately check whether it concerns a one-off repair or a complete renewal falling within Article 606.

The decree also treats as non-transferable major repairs the expenditure on works intended to remedy obsolescence or to bring the property into compliance with regulations, where those works themselves fall within major repairs. In other words, a landlord cannot get around Article 606 by presenting a structural renewal under the label "bringing up to standard".

Taxes and management fees

Taxes, duties and fees for which the landlord is the legal taxpayer cannot be re-invoiced to the tenant. The local economic contribution relating to the landlord's letting activity is the typical example.

The text does, however, provide for two important exceptions in favour of the landlord. The following may be passed on to the tenant: property tax and the additional taxes to property tax, as well as taxes, duties and fees linked to the use of the premises or the building, or to a service from which the tenant benefits directly. Thus the household waste collection tax, which corresponds to a service from which the occupier benefits, may legitimately appear in the demand for charges. The legal principle and the allocation clause applicable to property tax in a commercial lease are dealt with separately in our dedicated article.

Finally, the fees paid by the landlord for managing the rents of its premises or building remain permanently with the landlord. This is an item frequently re-invoiced abusively, under various headings such as "management costs" or "property manager's fees" when it is in fact the remuneration of the landlord's manager.

How to read and build a table of allocation of charges

A table of allocation of charges in a commercial lease is useful only if it is precise and complete. It must allow the tenant to know, item by item, what it pays and why. A well-built table distinguishes at least three columns: the nature of the expense, the share borne by the landlord, and the share borne by the tenant.

A readable table must cover all the expense items that may actually arise in the building.

• Routine upkeep of the common parts, cleaning, green spaces
• Consumption: water, electricity, collective heating, air conditioning
• Operation and upkeep of equipment: lifts, automatic doors, security systems
• Caretaking, surveillance, remote monitoring
• Building insurance
• Property tax, additional taxes, household waste collection tax
• Major works and major repairs under Article 606, necessarily borne by the landlord
• Management fees, necessarily borne by the landlord

For a building with several tenants, the lease must specify the allocation key between the occupiers, generally calculated according to the area occupied by each in proportion to the total area. Article L145-40-2 moreover requires the landlord to inform the tenant of the allocation of charges between the tenants. A shopkeeper occupying a small unit in an arcade should not bear the same share as a large retailer occupying several hundred square metres.

Beyond the inventory, the landlord has other information obligations under the Pinel Law. It must send an annual summary statement of charges, within a reasonable time after they are settled. It must also, when the lease is entered into and then every three years, provide a forecast statement of the works it envisages over the following three years with a budget, together with a summary of the works carried out over the previous three years with their cost. These documents allow the tenant to anticipate demands and to check the consistency between what is announced and what is invoiced. On the consequences of a landlord's delay in the annual settlement of charges, see our commentary on recent case law devoted to this question.

Spotting an abusive re-invoicing

A re-invoicing is abusive where it charges to the tenant an expense which, in law, must remain with the landlord, or where it does not comply with the transparency obligations. Several signs should alert the tenant on receiving its demand for charges.

The first reflex is to compare each line of the demand for charges with the inventory annexed to the lease. A charge that does not appear in the inventory has not been contractually accepted and may be disregarded. This is frequent where the manager adds a new item in the course of the lease without an amendment.

The second reflex concerns the nature of the expense. A generic heading such as "building works", "share of renewal" or "major maintenance provision" may conceal a major repair under Article 606. The tenant is entitled to ask for the details of the works, the quotations and the invoices in order to check whether it is transferable maintenance or non-transferable major repairs.

Take the case of a shopkeeper running a clothing boutique in an old building. The landlord sends a demand for charges with a line "share of facade renovation and reworking of roof frame". The reworking of the roof frame falls unambiguously within Article 606 and cannot be charged to the tenant. The facade renovation, depending on its scale, may fall either within maintenance or within major repairs if it affects the structural work. The tenant cannot decide without obtaining the technical description of the works.

The other classic signs of abusive re-invoicing are the presence of items prohibited by Article R145-35: the landlord's rent management fees, the landlord's local economic contribution, or compliance works that in fact fall within major repairs. A demand for charges that adds up "management costs" representing a percentage of the rent must be examined closely, as these fees remain with the landlord.

Finally, the absence of an annual summary statement, the absence of supporting documents or the landlord's refusal to provide the documents are in themselves grounds for challenge, as they deprive the tenant of its right to information.

Challenging an abusive re-invoicing: the steps to follow

The challenge of an abusive re-invoicing follows a logical progression, from an amicable approach to legal action. It is rarely wise to pay under pressure without reservation, as this may be interpreted as tacit acceptance. It is better to pay, where appropriate, while stating written reservations, or to deposit the disputed sums.

Gathering the documents and questioning the landlord

The first step is to assemble the lease and its annexes, in particular the inventory of charges, the demands for charges for the years concerned, the annual summary statements and, if they were provided, the forecast statements of works. The tenant then sends the landlord or its manager a written request for supporting documents: item-by-item breakdown, quotations, paid invoices, allocation key applied. Article L145-40-2 underpins this right to information and makes it possible to demand transparency.

Formalising the challenge by registered letter

If the supporting documents reveal non-transferable items or charges outside the inventory, the tenant formalises its challenge by registered letter with acknowledgement of receipt. This letter identifies precisely each line challenged, recalls the applicable legal basis (Article R145-35 for non-transferable charges, Article L145-40-2 for the absence of an inventory or of information) and requests regularisation, that is, the withdrawal of the sums not due and their reimbursement if they have already been paid.

It is useful to recall that a lease clause transferring a prohibited charge is deemed unwritten. The tenant therefore does not have to obtain the annulment of the lease: it is enough to have it established that the clause in dispute is deprived of effect.

Going to court in the event of deadlock

Failing agreement, the dispute falls to the judicial court (tribunal judiciaire), more precisely to the commercial lease judge (juge des baux commerciaux). The tenant may seek the return of sums wrongly collected and have clauses deemed unwritten set aside. The question of limitation deserves attention: an action for the recovery of charges wrongly paid is in principle time-barred after five years from payment, under the ordinary-law rules, which makes it possible to go back over several years where the abusive re-invoicing has been repeated.

Prior mediation or conciliation may be considered, in particular where the letting relationship is to continue. In buildings run by a property manager (syndic) or a manager, a significant share of disputes is resolved by producing supporting documents and correcting the disputed items, without recourse to the court.

Conclusion

The allocation of charges in a commercial lease is no longer an area in which the landlord dictates terms. Since the Pinel Law, Article R145-35 of the French Commercial Code protects the tenant by prohibiting the transfer to it of the major repairs under Article 606 of the French Civil Code, the taxes for which the landlord is the legal taxpayer and the rent management fees. Any contrary clause is deemed unwritten, and every demand for charges must be tied to a precise inventory annexed to the lease.

The position of this guide is clear: a tenant should never pay a demand for charges without having compared it, line by line, with the lease inventory and with the list of non-transferable charges. A landlord, for its part, has every interest in building an irreproachable allocation table from signature, failing which its demands for charges may be challenged and its provisions called into question.

Before paying a demand for charges that seems excessive to you, require the landlord to provide the breakdown of items, the quotations and the invoices, then check that each expense does appear in the inventory and does not fall within Article R145-35. Have your lease and your latest demand for charges reviewed by a real estate lawyer: an abusive re-invoicing repeated over several years often represents sums that can be recovered over five years.

Frequently asked questions

Which charges can never be charged to the tenant of a commercial lease?

Article R145-35 of the French Commercial Code prohibits the transfer to the tenant of four categories of expenses: major repairs under Article 606 of the French Civil Code, works for obsolescence or compliance that fall within those major repairs, taxes for which the landlord is the legal taxpayer (excluding property tax and taxes linked to the use of the premises), and fees relating to the management of rents. Any lease clause purporting to place them on the tenant is deemed unwritten, and therefore deprived of effect.

Can property tax be re-invoiced to the tenant of a commercial lease?

Yes. Article R145-35 expressly authorises the transfer to the tenant of property tax and the additional taxes to property tax, as well as taxes and fees linked to the use of the premises or to a service from which the tenant benefits, such as the household waste collection tax. This transfer must nevertheless be provided for in the lease and appear in the annexed inventory, failing which it cannot be enforced against the tenant.

Is a commercial lease signed before 2014 subject to Article R145-35?

Article R145-35 applies to leases entered into or renewed from 5 November 2014, the date of entry into force of the decree of 3 November 2014. An older lease that has not been renewed since remains in principle governed by its original terms, which may maintain transfers of charges that are now prohibited. Renewal of the lease is therefore the opportunity to have the protective rules of the Pinel Law applied.

Who pays for renewing the roof in a commercial lease?

The complete renewal of the roof or the roof frame falls within the major repairs under Article 606 of the French Civil Code and remains with the landlord, which cannot re-invoice it to the tenant. By contrast, routine maintenance and minor repairs, such as the replacement of a few tiles, may be placed on the tenant if the lease so provides. The exact characterisation depends on the scale of the works and on whether they are structural or maintenance in nature.

How can a commercial lease demand for charges considered abusive be challenged?

One must first compare each line of the demand for charges with the inventory annexed to the lease and ask the landlord for the supporting documents (breakdown, quotations, invoices) on the basis of Article L145-40-2. If non-transferable items or items outside the inventory appear, a challenge formalised by registered letter with acknowledgement of receipt makes it possible to demand the withdrawal and reimbursement of the sums not due. Failing agreement, the commercial lease judge of the judicial court may be seised.

Within what period can charges wrongly paid to the landlord be recovered?

An action for the return of charges wrongly paid is in principle time-barred after five years from payment, under the ordinary-law rules. A tenant can therefore claim reimbursement of abusive re-invoicing over several years, which often represents significant amounts where the disputed item was demanded every year. It is prudent to act without delay so that the oldest years do not become time-barred.

Is the landlord required to provide an annual summary statement of charges?

Yes. Article L145-40-2 of the French Commercial Code requires the landlord to send the tenant, each year, a summary statement of charges, taxes, duties and fees. It must also provide, when the lease is entered into and then every three years, a forecast statement of the works envisaged with their budget and a summary of the works carried out with their cost. The absence of these documents weakens the landlord's position and is in itself a ground for challenge.