Three-yearly rent review of commercial leases: step-by-step guide for landlords

Holding a commercial asset means managing the rent over time, not merely collecting it. A landlord who lets a nine-year lease run without ever triggering the three-yearly review risks freezing a rent that has fallen below the market, with no possibility of retroactive catch-up. Conversely, a request that is miscalculated or notified without complying with the formalities of the French Commercial Code is unenforceable against the tenant, with several months of rent lost as a result. This guide sets out, for landlords and institutional investors, the mechanics of the ILC/ILAT cap, the calculation of the three-year period and how to secure the notification.

What the three-yearly review actually covers

The three-yearly review of commercial rent (révision triennale) is a statutory right open to both landlord and tenant under Article L. 145-38 of the French Commercial Code. It allows the rent to be readjusted every three years in line with the movement of a reference index, without waiting for the lease to expire. This mechanism is a matter of public policy (ordre public): a clause purporting to waive it would be deemed unwritten.

Three levers for changing the rent, often confused, must be distinguished from the outset, as they are not subject to the same rules.

• The statutory three-yearly review (Article L. 145-38): it is triggered on request, every three years, and its amount is capped by the change in the ILC or the ILAT.
• Contractual indexation (sliding-scale clause, or clause d'échelle mobile): it applies automatically each year if the lease provides for it, with no request and no statutory cap, according to the frequency and the index set in the contract.
• Fixing of the rent on renewal (Article L. 145-34): it takes place at the end of the nine years and follows its own capping logic, distinct from the three-yearly review.

These three mechanisms may coexist. A lease may contain an annual indexation clause and, despite this, be the subject of a three-yearly review request. A landlord managing a portfolio has an interest in mapping, lease by lease, which of these levers is the most favourable at a given time.

The three-yearly review does not displace the indexation clause

Where a lease contains a sliding-scale clause, Article L. 145-39 opens an additional route: a review may be requested as soon as, through the operation of that clause, the rent has increased or decreased by more than a quarter compared with the price previously fixed, whether by contract or by court. This review under Article L. 145-39 is not subject to the cap in Article L. 145-38: the rent can then be brought to the actual rental value. This is a point often overlooked by landlords who apply indexation mechanically without realising that crossing the 25% threshold gives them a more powerful right. The conditions in which a sliding-scale clause may be deemed unwritten, and its financial consequences, are examined in our article on challenging indexation.

When a review request may be made

The three-year period is the first lock to master, because a premature request is void. Article L. 145-38 sets three possible starting points for counting the three years:

• the date on which the tenant took possession, for the first review of the initial lease;
• the starting point of the renewed lease, where the lease has been renewed;
• the day on which the new revised rent became applicable, for subsequent reviews.

In other words, once the first review has been obtained, later requests may be made only every three years from the effective date of the previous review, and not from an arbitrary anniversary of the lease. A landlord who has obtained a review taking effect, for example, on 1 April of a given year will have to wait until 1 April three years later to make a new request.

The date of taking possession deserves careful checking. It does not always coincide with the date of signature of the lease or with the tax effective date. Where there are preliminary works or a rent-free period, what counts is the actual making available of the premises. An error on this point undermines the whole chain of calculation.

There is no retroactivity

A crucial point for an investor: the review is not retroactive. The revised rent applies from the date of the request, not from the date on which the right to a review arose. A landlord who lets eighteen months elapse after the right to a review arose permanently loses those eighteen months of adjustment. On a portfolio of several dozen leases, administrative inertia translates directly into lost income. Sound management consists in establishing a systematic review of three-yearly deadlines. On the possibilities and limits of catching up a rent increase in a commercial lease, see our analysis devoted to the rights of the landlord and the tenant.

The mechanics of the ILC / ILAT cap

The principle laid down by Article L. 145-38 is that the change in the revised rent may not exceed, upwards or downwards, the change in the reference index since the rent was last fixed. This cap is the core of the calculation.

Since Law No. 2014-626 of 18 June 2014, known as the Pinel Law, the construction cost index (ICC) can no longer serve as the reference for the review of commercial leases. Two indices published quarterly by INSEE (the French national statistics institute) have replaced it. The place of the construction cost index in commercial leases and its relationship with the ILC and the ILAT are dealt with separately in our guide.

Choosing the right index: ILC or ILAT

The choice of index depends on the activity carried on in the premises, and not on the landlord's wishes.

• The ILC (commercial rent index, indice des loyers commerciaux), created by the Law on the Modernisation of the Economy No. 2008-776 of 4 August 2008, applies to commercial and craft activities: retail, catering, services to individuals.
• The ILAT (tertiary activities rent index, indice des loyers des activités tertiaires), established by Decree No. 2011-2028 of 29 December 2011, applies to non-commercial tertiary activities: offices, liberal professions, logistics warehouses, e-commerce platforms.

The characterisation of the activity determines the index, and the tenant may raise an error in the index to challenge the review. For a mixed-use building, the index corresponding to the main activity as it appears from the contractual use must be applied. Where there is doubt about offices occupied by a commercial brand, analysis of the permitted use clause prevails.

Calculating the change

The cap formula compares the reference index at two dates: the index in force on the day the rent was last fixed, and the index most recently published on the day of the review request.

Cap rent = Current rent × (Most recent published index / Index at last fixing)

By way of purely illustrative example, if an annual rent stands at a certain amount and the reference ILC has risen, over the three-year period, from a starting value to a value 6% higher, the revised rent may increase by 6% at most. The practical difficulty lies in the choice of the reference quarter: the index for the same quarter must be used for both calculation points or, failing that, the last index published at the date of the initial fixing, otherwise the result will be distorted.

Two reservations frame this cap. First, the cap sets a ceiling, not an automatic floor: if the actual rental value is lower than the cap rent, the revised rent is aligned with the rental value. The landlord therefore cannot mechanically demand the cap rent; it obtains the rental value within the limit of the cap. In practice, in a rising market, the cap rent almost always applies because the rental value exceeds the cap, but the interplay remains legally important in the event of a dispute.

The 3.5% shield from the 2022 law

Law No. 2022-1158 of 16 August 2022 introduced a temporary cap on the change in the ILC of 3.5% per year for the benefit of small and medium-sized enterprises, for indices published over a period defined by the text. This measure, designed as a cyclical protection of the tenant against inflation, concerned only SMEs within the meaning of European regulations and a determined time window. When calculating a review covering the relevant quarters, a landlord must check whether its tenant fell within the scope of this shield, since its application reduces the revisable rent accordingly.

Lifting the cap: moving beyond the index limit

Article L. 145-38 provides for a major exception to the cap. The rent may be fixed at the actual rental value, exceeding the change in the index, where a material modification of local commercial factors has by itself caused a change of more than 10% in the rental value.

This scenario of lifting the cap (déplafonnement) is strategic for a landlord holding assets located in areas undergoing transformation. Local commercial factors cover in particular the arrival of a new transport link, the pedestrianisation of a street, the opening of a neighbouring commercial hub, the transformation of a district. Three cumulative elements must still be demonstrated:

• a material modification, that is, an objective and verifiable change in the environment, not a mere market movement;
• a direct causal link between this modification and the rental value;
• a quantified impact of more than 10% of the rental value, which requires an expert valuation.

The burden of proof lies on the party seeking to lift the cap. A landlord wishing to rely on the opening of a metro station or the creation of a pedestrian zone must build a documented file: plans, municipal orders, footfall data, a comparative rental value study. The courts assess strictly the material nature and the scale of the impact. A general rise in rents in the district is not enough; the local cause and its own effect must be isolated.

Securing the notification of the request

The review request is a procedural act in the strict sense. Its validity determines the opening of the debate and the starting point of the financial effects. A defect of form is paid for in cash.

The form of the request

A review is requested by an act of a commissaire de justice (bailiff, formerly huissier de justice) or by registered letter with acknowledgement of receipt. For an institutional investor managing a large volume of deadlines, an act of a commissaire de justice offers superior evidential security: it fixes the date, the identity of the recipient and the content, elements which become decisive if the tenant denies having received the request or disputes its date. Where the financial stakes are significant, the saving made on a registered letter never offsets the risk of a challenge to receipt.

Mandatory particulars

The request must, on pain of nullity, state the amount of the revised rent claimed. A request that merely sought a review without stating a figure would be irregular. In practical terms, the act must contain:

• an express statement that it is a review request based on Article L. 145-38 of the French Commercial Code;
• the amount of the new rent requested, stated in clear terms;
• the elements of calculation, in particular the index used (ILC or ILAT), the reference values and the period of change;
• where applicable, reliance on the lifting of the cap, with the grounds of modification of local commercial factors.

The rigour of the attached calculation is not merely a matter of courtesy. It reduces the tenant's scope for challenge and prepares both the amicable phase and any litigation. A well-supported request file, with the detail of the index movement, places the landlord in a position of strength from the start of the negotiation.

The starting point of the effects

The revised rent takes effect on the date of the request, that is, the date of service of the act or of the first presentation of the registered letter. This date locks the calculation: it is by reference to it that the last published index serving as the upper limit of the cap is identified. A request sent a few days before the publication of a new quarterly index may thus produce a significantly different result from a request posted a few days after. An informed landlord synchronises the calendar of its requests with the INSEE index publication calendar.

What to do in the event of disagreement on the revised rent

The tenant may challenge the amount claimed. Review litigation then follows a well-marked path.

The first step remains direct negotiation. Many reviews are settled by an amicable agreement formalised in an amendment (avenant), which has the advantage of fixing the rent by agreement and of starting a new three-year period from the agreed effective date.

Failing that, the departmental commission for conciliation in commercial leases (commission départementale de conciliation des baux commerciaux), provided for in Article L. 145-35 of the French Commercial Code, may be seized. Referral to it is not always a mandatory prerequisite for a review, but it offers a framework for bringing positions closer and issues an opinion. If conciliation fails, the commercial rent judge (juge des loyers commerciaux), who is the president of the judicial court (tribunal judiciaire) of the place where the building is located sitting under a specific procedure, decides the amount. The judge relies on comparison evidence and expert valuation and, where appropriate, appoints a court-appointed expert to assess the rental value and verify the conditions for lifting the cap.

During the proceedings, the tenant continues to pay the current rent. Once the revised rent has been fixed by the court, it takes effect retroactively from the date of the request, with the difference being settled. This is a further reason to take care over the date and form of the initial request: it determines the basis of the settlement.

Conclusion

The three-yearly review is not an administrative formality but a lever for managing the profitability of a commercial asset. Three errors cost landlords dearly: letting the period pass without acting, for lack of monitoring of three-yearly deadlines, since the review is never retroactive to before the request; choosing the wrong index or calculation points, which gives the tenant grounds to challenge; and giving notice without complying with the formalities of Article L. 145-38, which destroys the request. In a market where the rental value durably exceeds the index cap, the three-yearly review secures a regular catch-up, without waiting for renewal.

The position that should guide an investor is clear: industrialise the monitoring of effective dates and systematise the calculation of the cap rent at each deadline, while reserving the analysis of lifting the cap for assets located in areas undergoing transformation. Before each request, have counsel verify the date of taking possession, the applicable index and the consistency of the reference quarters, then favour an act of a commissaire de justice whenever the financial stakes justify it. A properly dated and properly calculated request is worth several months of rent.

Frequently asked questions

Is a three-yearly review possible if the lease already contains an annual indexation clause? Yes. The sliding-scale clause and the three-yearly review under Article L. 145-38 are two distinct mechanisms which coexist. In addition, Article L. 145-39 opens a specific review where, through the operation of the indexation clause, the rent has changed by more than a quarter compared with the price previously fixed. This review under Article L. 145-39 is not subject to the index cap and allows a return to the rental value.

Which index applies, the ILC or the ILAT? The choice depends on the activity carried on in the premises, not on the wishes of the parties. The ILC covers commercial and craft activities; the ILAT covers tertiary activities such as offices, liberal professions and logistics. For mixed-use premises, the index corresponding to the main activity resulting from the permitted use clause of the lease is applied. An error in the index exposes the request to challenge.

Can the three-yearly review apply retroactively? No. The revised rent takes effect on the date of the request, evidenced by the act of the commissaire de justice or the first presentation of the registered letter. No catch-up is possible for the period before the request, even if the right to a review had been open for several months. This is why rigorous monitoring of three-yearly deadlines is decisive for a landlord.

In what cases can the ILC/ILAT cap be exceeded? Article L. 145-38 allows the cap to be lifted where a material modification of local commercial factors has by itself caused a change of more than 10% in the rental value. It must be proved that there has been an objective change in the environment (new transport link, pedestrianisation, neighbouring commercial hub), a direct causal link and a quantified impact of more than 10%. The burden of proof lies on the landlord, which requires a documented expert valuation.

How can a review request be validly notified? The request is made by an act of a commissaire de justice or by registered letter with acknowledgement of receipt. It must state, on pain of nullity, the precise amount of the revised rent claimed, refer to Article L. 145-38 of the French Commercial Code and detail the calculation of the index movement. An act of a commissaire de justice is recommended where the stakes are significant, because it secures the date and the proof of receipt.

What happens if the tenant challenges the revised rent? Direct negotiation often leads to an amendment fixing the rent by agreement. Failing that, the departmental conciliation commission provided for in Article L. 145-35 may be seized, followed by the commercial rent judge, who is the president of the judicial court of the place where the building is located. During the proceedings, the tenant pays the current rent; the revised rent fixed by the judge takes effect retroactively from the date of the request, with the difference being settled.

Every three years from what date can the request be renewed? After a first review, later requests may be made only every three years from the day on which the revised rent became applicable, and not from an anniversary of the lease. If a review took effect on a given date, three years must elapse from that effective date before a new request is made.