Sylvia Pinel's bill could give retailers more room to manoeuvre

Article by Vincent Lepercq, published in les echos.fr on 16/04/2014

Real estate companies in the crosshairs of the Pinel law

Sylvia Pinel's bill could give retailers some room to maneuver. But negotiations between landlords and tenants on a new distribution of charges and taxes are at a standstill.

The commercial component of the Pinel law, passed by the French National Assembly last month and under discussion in the Senate this week, is aimed primarily at small downtown retailers. Their rent has risen by 3% in one year, and by 8% over the last four years. For some, this expense exceeds their personnel costs. To lighten this burden and make its evolution more predictable, the text proposes extending to city centers the ILC (commercial rent index) used in shopping malls, which is less volatile than the ICC (construction cost index). It also plans to extend the period of derogatory leases from two to three years, which can enable young brands to test stores.

The law envisages limiting annual rent rises for standard 3-6-9 leases to 10% , and smoothing out higher rises, due to works for example, over several years. It could also give retailers the option of terminating their leases after three years. Finally, the text should refer to a decree the precise list of charges that can be transferred by landlords to tenants. This is a sensitive issue for retailers located in shopping centers: to date, they claim that the charges levied by real estate companies on their tenants are rarely justified. A number of long-standing demands by retailer advocates may soon be set in stone. But their spokespersons (Procos, Ucv, CGPME) will only be able to claim victory if they conclude with a clear agreement the cycle of meetings they have begun with landlord representatives, to establish a new breakdown of charges and taxes. The subject is a sensitive one: to date, landlords have rarely justified the expenses they charge their tenants. "We' re off to a bad start", says a participant in these negotiations, which are aimed at drafting an implementing decree. "The real-estate companies are betting on the change of minister causing a mix-up. Sylvia Pinel, ex-Minister of Commerce, changed her portfolio to housing during the ministerial reshuffle of April 2.

Retailers would like to be spared the cost of major building renovation work in the shopping centers where their stores are located, as well as the taxes passed on to them by landlords. These few margin points can represent several million euros for the major retailproperty companies.

Retailers' associations are all the more clinging to this position as they have not been able to go as far as they would have liked on certain points of the bill. For the time being, the text excludes from the new option to terminate leases every three years contracts of more than nine years, which are the rule in many shopping centers. Nor are these leases affected by the 10% annual cap on rent increases. Last but not least, future provisions relating to the apportionment of charges between tenants and owners will only apply from January 1, 2016. The Fédération du commerce associé (Fca) concludes: "Tenants in city centers and tenants in large shopping malls will not benefit from the same protection."

Landlords are clearly playing up the division among retailers, pointing out that the new regulations will mainly benefit the big names like Zara and H&M. Yet the law's explanatory memorandum refers to "stimulating local commerce, by revamping the commercial lease regime, and promoting retail diversity, by modernizing commercial urban planning". Some lessors are already planning new countermeasures, such as rent increases. Others point to "the risk of cutting off the tap of financing for theheart of medium-sized and small towns, by discouraging investors in the absence of profitability and value enhancement".

Vincent LEPERCQ, Les Echos, 16/04/2014.