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3 May 2024
When can the rental price be revised?
A commercial lease typically runs for at least nine years, but often either the tenant or landlord may wish to revise the rent after several years. If no mutual agreement can be reached, the statutory rent revision applies. What are the conditions for such a revision, and how can CC Experts support your case with a solid, well-documented file? You’ll find the answers in our blog.
Would you like a comprehensive report prepared to support a unilateral rent revision? Rely on CC Experts as your independent valuer and real estate advisor.
Unilateral or legal revision of commercial lease rent
When entering into a commercial lease agreement, the tenant and landlord are free to set the rental price of the property. Since a commercial lease has a minimum term of nine years, it is quite likely that, at some point during the lease, either party may wish to have the rent revised.
There are two ways this can happen: the rent can be revised by mutual agreement, or it can be revised unilaterally under Article 6 of the Commercial Lease Act, a process commonly referred to as the legal revision of commercial lease rent.
Legal rent revision: three conditions
A unilateral or legal revision of rent is only possible if three conditions are met: periodicity, new circumstances, and a 15% threshold requirement. These safeguards are designed to provide both landlord and tenant with stability and predictability during the lease term.
1. Periodicity
A unilateral or legal revision of commercial lease rent cannot be requested at any moment. It is only permitted at the end of each three-year period of the lease. Specifically, the request must be submitted within the final three months of the ongoing three-year term.
2. New Circumstances
Article 6 of the Commercial Lease Act allows either party to request a rent revision from the Justice of the Peace if there are new circumstances that significantly affect the normal rental value of the property.
The Court of Cassation defines new circumstances as: “Objective conditions that have a lasting impact on rental value, but which did not exist at the time the rent was set and have arisen since, and therefore could not have been considered when the rent was originally determined.”
To qualify, the new circumstances must meet three criteria:
1. New
“New” refers to factors that did not exist when the rent was set and the lease agreement was signed. These circumstances must therefore have arisen after the conclusion of the lease.
2. Objective
The new circumstances must be objective, meaning they are outside the control of either party. For instance, renovation works carried out by the landlord or tenant are not considered new circumstances that would justify a rent revision.
3. Durable
The new circumstances must also be lasting enough to justify setting a new rental price for the entire three-year period. Situations that are unlikely to affect the rental value of the property for at least three years are not eligible.
Establishing such circumstances requires specialized expertise, both to gather the right supporting arguments and to understand relevant case law in this context. Below are some examples of circumstances that courts have accepted, or rejected, as grounds for a rent revision:
Circumstances accepted by the courts as valid grounds for rent revision:
- Public works and the construction of parking facilities, as well as the general modernization of nearby shops;
- Loss of clientele for neighboring businesses caused by roadworks or by the departure of large office tenants;
- Renovation works carried out by the landlord after damage, where the works result in a significant improvement to the property;
- Unforeseeable changes in the rental prices of neighboring properties.
Circumstances not accepted by the courts:
- Routine maintenance works that any prudent landlord is expected to perform, such as a complete roof replacement;
- Renovation works carried out by the tenant at their own expense during the lease;
- Works on the corridors of a shopping complex, as they do not meet the durability criterion required to justify a rent revision for a full three-year period;
- Tenant works during the lease term, as well as increases in rental value caused solely by inflation when the parties have already agreed to an indexation clause.
It is important to note that these circumstances do not automatically lead to a rent revision. The Justice of the Peace will always evaluate the specific circumstances of each case before making a decision. Strong and well-substantiated arguments are therefore essential to support the request.
3. The 15% threshold requirement
The mere existence of new circumstances is not sufficient to justify a rent revision. The rental value of the property must have changed by at least 15% as a result of those circumstances. In other words, it must be proven that the normal rental value is at least 15% higher or lower than the rent set in the lease agreement or at the last revision.
Building a strong case
The party requesting the rent revision must demonstrate that all three conditions of Article 6 of the Commercial Lease Act are met. The opposing party will generally seek to challenge this. A well-prepared case is therefore crucial. A request for a revision of commercial lease rent must appear to have a prima facie basis. First, the request must include evidence suggesting a potential 15% change in rental value, for example by providing comparable market data. Without such comparables to demonstrate the 15% threshold, the court is not obliged to appoint an expert to support the claimant’s arguments. Therefore, a claimant cannot first request the appointment of a court expert and then use that expert’s findings as the sole basis for seeking a rent revision.
Second, the request must include information that at least suggests the presence of new circumstances affecting the rental value.
Trust CC experts to support your case
We advise the party requesting a revision of commercial lease rent to prepare a comprehensive file before submitting the claim. The real estate advisors at CC Experts can assist by preparing a valuation report of the rental value and, simultaneously, by assessing the three statutory conditions in an advisory note. This enables the claimant to gather sufficient evidence and evaluate the likelihood that their case will be considered well-founded and admissible.
How is the rental value estimated?
The valuation report determines the rental value of the commercial property, particularly to demonstrate compliance with the 15% threshold requirement. The rental value is preferably estimated using the comparative valuation method.
Using this method, a detailed and critical study of the property is conducted first. Comparable properties are then identified and selected to be included in the report. Preference is given to comparables that are geographically closest to the subject property. These comparables are then objectified using various adjustment techniques to account for differences in location, land, and building quality, aligning them as closely as possible with the property being valued. The final result is an estimated rental value for the commercial property
An advisory note assessing the three legal conditions
In the advisory note, the case is evaluated against the three statutory conditions: periodicity, new circumstances, and the 15% threshold requirement. Would you like to receive a sample advisory note? Contact one of our experts for more information.
The judge decides fairly
Once the court determines that the three statutory conditions have been met, the next question is how the judge will set the new rental price. The judge must decide “according to equity.” However, the law does not define what this means in practice. It is therefore up to the Justice of the Peace to set the new rent fairly, often with the assistance of a court-appointed expert. In all cases handled by CC Experts, where we prepared a valuation report and advisory note to support the claim, the judge appointed a court expert. In practice, the court expert plays a crucial role and can significantly influence the outcome of rulings on commercial rent revisions.
Want to learn more about commercial rent revisions?
Every case is unique, and we tailor our services to your specific needs. Contact us for more information.