Commercial Lease: Setting and Revising Rent

Verified 27 January 2025 - Directorate of Legal and Administrative Information (Prime Minister), Ministry of Justice

At the conclusion of the commercial lease, the price of the rent is freely fixed by the parties. During the lease, the rent is revised according to various mechanisms. The review may take place every 3 years at the request of the owner, or automatically by means of a sliding scale clause. The revenue clause also allows the rent to be increased on the basis of a percentage of the tenant's turnover.

The amount initial rent is not regulated. He is fixed freely by the parties to the contract. The owner (called lessor) is not bound by the rent of the previous tenant or by reference rents.

On the other hand, when the lease is reviewed or renewed, the amount of the rent is regulated.

The terms of rent payment are free (payment at the beginning or end of the month, monthly or quarterly payment).

If the lease is for all businesses, the rent is in principle higher than that of a lease that allows only a defined activity.

The lease contract may provide for the payment by the tenant of other sums in addition to the rent:

The door step corresponds to the payment of an entrance fee paid by the tenant (called lessee) to the owner (called lessor) upon entering the premises.

It is not mandatory and applies to vacant premises.

The amount of the doorstep is freely fixed by the parties and generally corresponds to 3 or 6 months of rent.

This entry fee can be paid at once or by installments in addition to the rent. It is usually compensated by a lower rent.

It is not refunded at the end of the lease.

FYI  

The amount of the doorstep and the terms of payment must be indicated in the lease.

At the time of drafting the lease, the landlord and tenant must decide whether the door step is a rent supplement (the most common case) or an indemnity.

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Rent supplement

In this case, the door step is taken into account for the calculation of the triennial revision and for setting the rent for the renewed lease.

For the owner, it constitutes a property income.

Doorstep is taxable person if the lease rent is subject to it. The rent of premises equipped, that is to say equipped with furniture and equipment necessary for the exploitation of the activity of the tenant is subject to VAT. If the lessor benefits from the exemption from VAT, he is not concerned by the declaration and payment of VAT.

For the tenant, the doorstep constitutes a deductible expense of the results as a percentage of the duration of the contract (1/9e per year) provided that the rent fixed in the lease is abnormally low, i.e. significantly below the rental value.

Allowance

For the ownerThere is no taxation.

For the tenant, the door step is not a deductible charge and it cannot be cushioned.

Please note

The door step is subject to the contribution on rental income (CRL) of 2.50%. It must be paid only by owners of legal persons (i.e. businesses, associations, bodies governed by private law, etc.) if the premises are located in a building which has been completed for at least 15 years and the rental income is not subject to VAT.

The rules on VAT on commercial rents vary depending on whether the premises are equipped or bare.

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Equipped premises

Owner who rents premises equipped with furniture, equipment and facilities necessary for the operation of the tenant's business (for example, a theater designed to accommodate spectators) is subject to the VAT rate of 20%.

If the owner benefits from the exemption from VAT, he is not concerned by the declaration and payment of VAT.

Bare premises

The owner who rents out bare premises, that is to say, not fitted with equipment, furniture or material necessary for the holding for which they are intended, is exempt from VAT.

However, he can opt for VAT by sending a single letter to the tax department of the companies where the premises are located.

Who shall I contact

Please note

When the rental shall not give rise to the actual payment of the VAT, the legal owner (businesses, associations, private law bodies, etc.) must pay the contribution on rental income (CRL).

During the lease, the rent can be revised according to the triennial (legal) review every 3 years, according to a sliding scale clause (usually annual) or according to a revenue clause.

Three-year review (legal review)

The rent can be revised at the request of the landlord (also called lessor) or the tenant (also called lessee). This revision is not automatic. This is a right that can be exercised even when the lease does not provide for it.

When does the triennial review take place?

The three-year rent review can be requested by the landlord or tenant in a period of 3 years after one of the following times:

  • Entry of the tenant into the premises
  • Renewal of a previous lease
  • The previous revision takes effect.

The review is requested only when the 3-year period has expired (i.e. from the day after its expiry). There is no maximum time limit.

The request for a triennial review may also be made after the expiry of a period of 4 years, 5 years or more.

The request for review must be submitted by act of commissioner of justice (formerly act of bailiff) or by registered letter with acknowledgement of receipt (LRAR). It must specify the amount of rent charged.

When the tenant accepts the request for rent review, he can either write to the landlord with his agreement or do nothing and pay the new rent.

Revised rent calculation

The triennial review shall be established taking into account one of the following indices:

FYI  

The Quarterly Construction Cost Index (QCI), which was used as the benchmark for the triennial commercial rent review, can no longer be used for leases entered into or renewed since September 2014.

The rules for calculating rent are different if it is the first revision or a subsequent revision.

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First Rent Review

The formula for calculating the revised rent is as follows:

Current rent x (last index published at revision/ benchmark at initial fixation).

For contracts concluded or renewed since September 2014, the variation in rent may not lead to an increase of more than, for one year, 10% the rent paid in the previous year.

Example :

A lease is signed on the 1ster october 2021 with monthly rent of €500 based on the ILC. The first triennial review shall take place on 1er October 2024.

To obtain the revised rent amount:

Current rent x (last index published at revision/ benchmark at initial fixation)

= €500 x (index of 2e quarter 2024/index of 2e quarter 2021)

= €500 x (136.72 / 118.41)

= €577.31

Subsequent revisions

New review requests can be filed every 3 years.

The period runs from the moment when the previously revised rent is applied.

To calculate the revised rent, the current benchmark must be taken into account on the date of the last revision.

The formula for calculating the revised rent is as follows:

Current rent x (last index published at revision/ benchmark at last revision).

Example :

A lease is signed on the 1ster october 2018 with a monthly rent of €500, based onILC.

During the 1re revision in october 2021, the rent is set at €525.84.

=500 x (index of 2e quarter 2021 / index of 2e quarter 2018

= 500 x (118.41/112.59)

= €525.84

During the 2e triennial review of 1er october 2024, the following calculation formula shall be applied:

Current rent x (last index published at revision/ benchmark at last revision)

= Current rent x (index of 2e quarter 2024 / index of 2e quarter 2021)

= 525.84 x (136.72/118.41)

= €607.15

Removal of the three-year review ceiling

The three-year rent review is in principle capped, i.e. it cannot exceed the change in the commercial rent index (ILC ) or the index of rents for tertiary activities (ILAT). However, in some cases, the rent adjustment is not capped: it is then set according to the rental value.

The landlord may apply for a rent cap in any of the following cases:

  • Modifying local marketing factors (increase in population, new arteries, street turned pedestrian, etc.) which led to an increase or a decrease of more than 10% of the rental value
  • Contract clause concerning the duration of the lease
  • Change of activity (called de-specialization) in the lease made by the tenant

In these different cases, the amount of rent may be de-capped and thus correspond to the rental value the premises.

The rental value of the property takes into account the following:

  • Characteristics of the room (location, area, standing and layout of rooms, etc.)
  • Destination of the premises (nature and number of businesses authorized by the lease, e.g. bakery)
  • Obligations of the parties, in particular the apportionment of the taxes and charges of the co-ownership
  • Local marketing factors
  • Prices in the neighborhood.

Warning  

The increase in the rent as a result of the removal of the ceiling may not exceed, for a year, 10% the rent paid in the previous year. This is called the rent smoothing.

Escalation clause (or indexing clause)

Variation in relation to a benchmark

At the conclusion of the lease, the parties may agree on a sliding scale clause (or indexing clause), allowing the rent to vary according to a reference index mentioned in the contract.

The index differs according to the activity carried out:

  • For commercial or craft activitiesHowever, this is the quarterly index of commercial rents (ILC).
  • For other activities, it is the index of rents for tertiary activities (ILAT)

The construction cost index (ICC) may also be used for rent indexation under a sliding scale clause.

The frequency is freely determined by the parties to the contract. In practice, rent reviews often take place every year.

The rent is then revised automatically at the end of the contract, without the intervention of the owner (lessor).

Protection against excessive rent variation

If, as a result of the sliding scale clause, the rent increases or decreases by more than ¼ in relation to the price previously fixed, one of the parties may request the immediate rent review.

This request is made by registered letter with AR or by an act of a commissioner of justice (formerly an act of a bailiff).

The judge will then set it at the rental value.

The increase may not exceed 10% the rent paid in the previous year.

Recipe clause

The revenue clause (or variable rent clause) is a clause in the commercial lease that provides that the rent varies according to the turnover of the tenant.

In addition to a variable part that corresponds to a percentage of the turnover realized by the tenant, the rent often includes a fixed part (called Guaranteed minimum rent).

This clause is often used for premises located in shopping centers.

When the commercial lease expires (after a minimum of 9 years), the tenant benefits from the right to renewal of the commercial lease.

The amount of the renewed rent is calculated in one of the following 2 ways:

  • Depending on the change in the commercial rent index (ILC) or, if applicable, the index of rents for tertiary activities (ILAT). They say the rent is capped the change in ILC or ILAT.
  • Depending on the rental value

Where the landlord and tenant fail to reach an agreement, either party may seize:

  • or the court of justice
Who shall I contact
  • the Departmental Conciliation Commission (CDC) for commercial leases. The competent CDC shall be that of the place where the trade is carried on:

Capping rent on the variation of the LCI or LTI

The renewed rent cap means that the rent variation may not exceed the variation in thequarterly commercial rent index (ILC) or thequarterly index of tertiary activity rents (ILAT).

The capping rule applies in the following 2 cases:

  • On renewal of the lease 6 months before the lease expires : this renewal is effected by a leave given by the lessor 6 months before the expiry date, or by a request for renewal made by the lessee 6 months before
  • When the lease continues beyond 9 years tacitly (i.e. without leave from the owner or request for renewal by the tenant) not exceeding 12 years.

In order to determine the rent due when the lease expires, the initial rent should be multiplied by the last index known at the date of renewal and then divided by the index published 9 years previously.

Example :

A lease concluded on the 1ster december 2015 set an annual rent of €10,000. It expires on November 31, 2024. It shall be renewed on 1er December 2024.

The applicable indices are as follows:

  • Latest known commercial rent index (CLI) as of 1er december 2024: it corresponds to the one on 3e quarter 2024 equal to 137,71
  • Known Commercial Rent Index (CLI) published 9 years ago: it corresponds to the 3 e quarter 2015 equal to 108,38

For calculate new rent, the following formula must be applied:

Initial rent x (last LCI known at time of renewal/LCI known at time of lease)

= €10,000x (137.71/108.38) =€12,706

The parties may decide to exclude the capping of the commercial lease at the time of the conclusion of the lease or its renewal.

Exclusion from the rent cap

In some cases, the rent for the renewed lease may be set without following the rent cap rule. This is called rent not capped. The latter is then fixed to the rental value.

The cap is waived because of either the length of the lease or the significant change in the rental value.

Capping related to the duration of the lease

When the lease is concluded or renewed for a over 9 years, the rent for the renewed lease shall be capped and fixed at the rental value.

The rent is also removed when the lease has continued beyond 12 years due to the parties' inaction. In practice, the landlord did not give leave and the tenant did not request the renewal of the lease.

Removal of the ceiling due to significant changes in the rental value

There are several elements that determine the rental value of a renewed rent :

  • Characteristics of the premises: location of the premises in the building in which it is located, its surface area, its volume, the amenities of access for the public. When the landlord adds an additional area or cellar to the rented premises, the rent may be offset.
  • Destination of the premises: the tenant of a bar-tobacconist business obtains in the course of the lease the authorization of the owner to sell “all telephony products”. The rent may be waived at the time of renewal. Here, it is the evolution of commercial activity that allows rent caps to be lifted.
  • Respective obligations of the parties. Terms of use of the premises that may be inconvenient for the tenant: for example, common passage in an entrance. As a result, the rental value will move down.
  • Local marketing factors
  • Major improvements to leased spaces

The amendment of only one of these elements may justify the removal of the rent ceiling. This amendment must be notable, i.e. sufficiently important. It is the judge who assesses the existence of this amendment on a case-by-case basis.