The Guaranteed 1.5% a Year Was Never Yours: France Voids the Fixed Annual Rent Increase

This article is provided for general information only and does not constitute legal, tax or investment advice. Rules change and individual situations differ. Always confirm the current position with a qualified professional before acting.

A couple bought a room in a care home, let it to the operator on a commercial lease, and were told the rent would rise by a guaranteed 1.5 per cent every January. The brochure called it security. The operator, years later, called it unlawful, sued to have the clause struck out and asked for five years of increases back. On 3 September 2026 the Cour de cassation agreed with the operator and reversed its own position of 2022. A fixed annual rent increase with no ceiling and no end date, it held, is a one-way revision clause that defeats the public-order rules on commercial rent review, and is therefore deemed never to have been written. The case is Civ. 3e, 3 September 2026, n° 25-14.904, published in the Bulletin. If you own a room, a shop or an office in France let on a bail commercial, the paragraph about rent in your lease has just changed meaning.

Why a care-home room is the reader’s problem

The bail commercial is not only for shops. It is the contract behind almost every managed-residence investment sold to foreign buyers over the last twenty years: the care-home room, the student studio in a résidence gérée, the flat in a tourist residence, the serviced flat let to an operator who sublets to the public. The investor owns the walls, the operator holds a commercial lease of nine, eleven or twelve years, pays a rent whatever the occupancy, and the sales deck promises a yield with an automatic annual increase built in, typically 1 to 2 per cent a year, sometimes an index with a floor. The room is let furnished, so the investor is taxed as a non-professional furnished landlord under the LMNP regime, but the contract with the operator is a bail commercial, because the operator runs a business in the building. That contract is what the court has just examined, and it is the part of the package most investors never read. We wrote in June about what happens when a managed scheme underperforms and the buyer sues the adviser. This is the other half of the story: what happens when the scheme performs exactly as promised and the promise itself was unlawful.

The facts are ordinary. M. and Mme I. let a room in an établissement d’hébergement pour personnes âgées dépendantes, an EHPAD, to the company running the home. The lease said that from the end of the second full year the rent would be revised each 1 January “with a guaranteed net rate of increase of 1.5 per cent a year”. The operator paid it, then sued for a declaration that the clause was deemed unwritten and for repayment of the rent unduly paid over the previous five years. The lease had no indexation clause, so the only question was whether the fixed annual increase defeated the triennial review. The Cour d’appel de Lyon sided with the landlords in March 2025: the clause depended on no index and no variable, it fixed the price of occupation for the whole lease, and it was a lawful flat-rate increase outside the rules on review and indexation. The Cour de cassation quashed that judgment in full and sent the case back to Lyon, with the landlords paying costs and €3,000 towards the operator’s fees.

The four lawful ways a French commercial rent can move

To see why the clause fell, you need the frame the court set out in its own reasons. The initial rent of a commercial lease is a matter of contract, and the parties may agree any figure. Once the lease is running, its movement belongs to the statute, and articles L. 145-37 to L. 145-39 of the code de commerce are public order: under article L. 145-15 any clause, stipulation or arrangement that has the effect of defeating them is deemed unwritten, whatever its form. Within that frame the case law recognises four mechanisms.

What the court decided, and why it changed its mind

The question, as the court framed it, was whether a flat-rate periodic increase with no limit of amount or duration is a way of fixing the initial rent, which the parties are free to do. The alternative is that it is a clause for revising the rent during the lease, which they are not free to do outside the statute. It answered by contrast with the stepped rent. A loyer par paliers writes the future rents into the contract at signature, up to a ceiling fixed in advance, and then stops. The 1.5 per cent clause does something different. It stipulates, as an accessory to the rent, that the rent will rise periodically, automatically and at a flat rate, with no ceiling and no end, in a contract that does not end at its contractual term because a commercial lease runs on by tacit prolongation until someone serves notice. That, the court said, is not a determination of the initial price. It organises an automatic revision in one direction only, capable of exceeding the movement of the indices. It defeats the public-order rules of rent review, and it is deemed unwritten.

This is a reversal, and the court cites the cases on both sides of the line so that nobody can miss it. In June 2022 the same chamber had let stand a clause raising the rent by a flat 4.5 per cent every 1 January. The practitioners’ commentary reconstructs the reasoning as follows: the contractual increase would apply until one party asked for a statutory review, and the statutory rent would then displace it. The clause did not defeat the review, the review defeated the clause. The practitioners’ commentary calls that reasoning a little complicated, which is a polite way of saying the court has now abandoned it. Older decisions frame the new rule. A clause allowing a review after one year rather than three was deemed unwritten in November 2020, a clause allowing an immediate review whenever the lease was assigned fell in 1983, and so did a clause fixing the reviewed rent at full rental value in defiance of the cap. A clause indexing the rent only when the index rose was deemed unwritten in January 2022. The fixed annual increase joins them because it shares their defect: it moves the rent by a mechanism the statute does not provide, and only upwards.

Two distinctions in the judgment matter for anyone reading their own lease. First, a flat percentage is not an indexation clause. An indexation clause tracks an index, and the law, in article L. 112-2 of the code monétaire et financier, names the indices a commercial lease may track. A number chosen by the parties is not an index, just as the court held in 1983 that a tenant’s turnover is not one. Second, the fixed annual increase is not a stepped rent, a form the court has accepted since 1980 and again in 2002 for a shopping-centre lease, and the commentators note how thin that line is. A stepped lease can also run on by tacit prolongation, but when it does the last step stays where it is. Under a percentage clause the rent keeps climbing every year for as long as the lease survives, which in a care home can be a very long time.

What happens to the rent, and to the money already paid

Deemed unwritten is a stronger remedy than void. The clause is treated as if it had never been in the contract, the rest of the lease stands, and since a 2020 ruling of the same chamber the action to have a commercial-lease clause declared unwritten is not subject to any limitation period at all. The tenant can raise it in year twelve of a lease signed in 2014, and the regime applies to leases that were already running when the loi Pinel introduced it in June 2014. What the tenant gets back is a separate question, governed by the ordinary five-year limitation on claims for money paid that was not due, which is why the operator in this case asked for five years of increases rather than all of them. On the figures in the judgment we cannot say what that comes to, but the arithmetic is simple for any owner: 1.5 per cent compounded over five years is 7.7 per cent of the rent, and over the ten years many of these leases have now run, 16 per cent.

What the landlord keeps is the statute. With the clause gone the rent is the initial rent, and either side may ask for the triennial review under article L. 145-38, which moves the rent in line with the ILC or the ILAT since the last fixing, in either direction, unless a material change in local commercial factors has shifted the rental value by more than 10 per cent. That is not always worse than 1.5 per cent. The ILC rose 6.69 per cent in the year to the first quarter of 2023, and a landlord who asked for a review at the right moment in that cycle did better than any brochure percentage. It is, however, a right that has to be exercised, by a formal request that takes effect from the date it is made, rather than an increase that arrives by itself each January.

Reading your own lease this week

Find the clause headed loyer, révision or indexation, and place it in one of four boxes. If it says the rent rises by a stated percentage each year, with no ceiling and no end date, assume it is unwritten and that the operator’s lawyers know it. Do not wait for a letter: the operator may already be netting the difference against the next quarter’s rent, and you will want your own figure for what five years of increases amount to before that conversation. If it tracks the ILC or the ILAT, check that it moves both ways. A clause that says the index applies “à la hausse uniquement” or that the rent “ne pourra être inférieur au loyer de l’année précédente” is the January 2022 problem and is equally unwritten. If it sets out a schedule of rents by year up to a stated maximum, it is a stepped rent and it stands. The commentators warn that stepped leases raise their own problems at review time, since the index is applied to the rent last fixed rather than to an intermediate step. And if it says nothing, the statute applies and you have the triennial review and nothing else.

For a landlord holding a void percentage clause there are two routes. The first is to accept the initial rent, diarise the triennial dates and use them. The second is to offer the operator an amendment replacing the percentage with a lawful two-way ILC clause, which most operators will sign because it is the clause they use in their own newer leases and because an indexed rent is one the statute lets them challenge at 25 per cent. What no landlord should do is rely on the 2022 decision. Case law in France applies at once to pending disputes and to existing contracts, and the court gave no transitional protection to landlords who drafted, or accepted, a clause it had itself approved four years ago.

Our view: right on the law, and the wrong people pay for it

On the text, the court is right. A rent that climbs every year by a number the parties invented, with no reference to anything and no stopping point, is a revision mechanism, and the statute says the revision mechanism is not for the parties to invent. The 2022 reasoning, under which the clause lived until a review killed it, asked a tenant to trigger a statutory procedure in order to escape a contractual term, which is the wrong way round for rules the legislator made public order. The reversal is cleaner, and the commentators accept it.

What the judgment does not see, because it is not asked to, is who wrote the clause. In the managed-residence market the lease is drafted by the operator or the promoter and handed to the investor with the sales brochure, and the guaranteed annual increase is the selling point, not the landlord’s demand. The public-order review regime exists to protect a shopkeeper from a landlord. Here it will be used by a national care-home group against a retired couple, to recover money the group’s own document promised them, and the same argument is now available to every operator in France against every small investor who took the brochure at its word. The owners should have been protected by transitional wording and were not, because case law does not work that way. If parliament wants managed residences to keep attracting private money, the fix is simple to write: a statutory cap on restitution where the tenant drafted the clause. Until then, the lesson for the buyer is the one this site keeps repeating. The yield in the brochure is a contractual promise, and a contractual promise in a French commercial lease is only as good as the statute allows it to be.

FAQ: fixed rent increases in French commercial leases

Does the ruling apply to a lease signed before September 2026?

Yes. A court decision states what the law is, and it applies to existing contracts and pending disputes. The deemed-unwritten regime itself has applied to leases in force since June 2014, and the action to invoke it has no limitation period.

Is a clause indexing the rent on the ILC also void?

No, provided it moves both ways. An indexation clause on a permitted index is expressly contemplated by article L. 145-39. What is deemed unwritten is a clause that applies the index only when it rises, or a fixed percentage that tracks no index at all.

How much can the tenant claim back?

The difference between the rent actually paid and the rent without the clause, for the five years before the claim, under the ordinary limitation period for money paid that was not due. The action to have the clause declared unwritten itself is not time-barred.

Can the landlord still increase the rent at all?

Yes, through the triennial review under article L. 145-38, which either party may request three years after the lease began or was last reviewed, capped at the movement of the ILC or ILAT since the last fixing unless local commercial factors have changed materially. The increase takes effect from the date of the request.

Are stepped rents affected?

No. A lease that sets out rent levels for fixed dates up to a ceiling agreed at signature is a way of fixing the initial rent and remains lawful. The court drew the line at clauses with no ceiling and no end date.