The bill put forward by Sylvia Pinel could give retailers more room to maneuver

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

Real estate companies in the crosshairs of the Pinel law

The bill introduced by Sylvia Pinel could give retailers some leeway. But negotiations between landlords and tenants over a new distribution of charges and taxes have stalled.

The commercial component of the Pinel law , passed in the National Assembly last month and under discussion in the Senate this week, primarily targets small, city-center retailers. Their rent has increased by 3% in one year and by 8% over the previous four financial years . For some, this expense would exceed personnel costs. To ease this burden and make its evolution more predictable, the text proposes extending the ILC (commercial rent index) used in shopping centers and less volatile than the ICC (construction cost index) to city centers. It also plans to increase the derogatory leases from two to three years, which can allow young brands to test stores.

The law plans to limit annual rent increases to 10% for traditional 3-6-9 leases and to smooth higher increases, such as those related to renovations, over several years. It could also give retailers the option to terminate their leases after three years. The text should also refer to a decree the precise list of charges that can be transferred by the landlord to tenants. For retailers located in shopping centers, the subject is sensitive: Until now, the charges that property companies charge their tenants are rarely justified, the latter claim. Several long-standing demands raised by retailers' advocates may soon be set in stone. But their spokespeople (Procos, Ucv, CGPME) will only declare victory if they conclude with a clear agreement the cycle of meetings initiated with landlord representatives to establish a new distribution of charges and taxes. The subject is sensitive: until now, the expenses that property companies charge their tenants have rarely been justified, the latter claim. "It's off to a bad start," judges a participant in these negotiations, intended to draft an implementing decree. "The property companies are betting on blunders linked to the change of minister." Sylvia Pinel, former Minister of Commerce, changed her portfolio to housing during the cabinet reshuffle on April 2.

Retailers would like to no longer have to pay for major renovations to the buildings in the shopping centers where their stores are located, nor for the taxes passed on to them by landlords. These few margin points can represent several million euros for large commercial real estate companies.

The retail associations are clinging to this position all the more because they were unable to go as far as they had hoped on certain points of the bill. The text currently excludes contracts of more than nine years, which are the rule in many centers, from the new three-year termination option for leases. These leases are also not affected by the limitation on rent increases to 10% per year. Finally, the future provisions relating to the sharing of costs between tenants and owners will only apply from January 1, 2016. Conclusion of the Associated Trade Federation (FCA): "Tenants in city centers and tenants in large shopping centers will not benefit from the same protection."

Landlords are clearly playing on the division among retailers, noting that this new regulation will mainly benefit large retailers like Zara and H&M . While the explanatory statement of the law includes "the revitalization of local commerce, by renovating the commercial lease system, and the diversity of businesses, by modernizing commercial urban planning." Some landlords are already planning new countermeasures, such as rent increases. Others highlight "the risk of cutting off the tap of financing for the heart of medium-sized and small towns, by discouraging investors due to a lack of profitability and revaluation."

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