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Setting the rent for a new lease contract
Principle: free rents
In accordance with Article 17, II of the law of July 6, 1989, the setting of rent for new rentals is free. This applies to first-time rentals or rentals with a change of tenant. However, since August 24, 2022 (and July 1, 2024, in overseas territories), when a dwelling is classified as energy efficiency class F or G, the rent for re-rentals, renewals, or extensions cannot exceed the last rent applied to the previous tenant.
Exceptions: regulated rents
Rents regulated by the law
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Laws
In accordance with Article 140 of the ELAN law, rent control can be implemented in continuous urbanization zones with more than 50,000 inhabitants where there is a significant imbalance between supply and demand for housing. This control can apply to one or more cities since the law no longer requires that the entire agglomeration (as understood by the decree No. 2013-392 of May 10, 2013, regarding the scope of the annual tax on vacant housing established by Article 232 of the General Tax Code) be subject to it.
Initially set for a duration of five years from the publication of the ELAN law, this experimental mechanism was extended by three years by Article 85 of the law 2022-217 of February 21, 2022 (known as the 3DS law); it will therefore expire on November 23, 2026.
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Conditions
Public establishments for inter-municipal cooperation with competence in housing matters, the City of Paris, the territorial public establishments of the Greater Paris metropolis, the metropolis of Lyon, and the Aix-Marseille-Provence metropolis can request that a rent control mechanism be implemented across all or part of their territories.
Several conditions must be met :
- A significant gap between the average rent observed in the private rental sector and the average rent in the social housing sector.
- A high median rent level.
- A low rate of housing starts relative to existing housing over the last five years.
- Limited prospects for multi-year housing production included in the local housing program and low prospects for their development.
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The procedures
The scope of the territory affected by the rent control is determined by decree, and an annual prefectural order sets a reference rent, an increased reference rent, and a decreased reference rent for each category of housing, determined based on the structure of the rental market observed by the local rent observatory. To comply with rent control, the rent requested (excluding charges) must be between the increased reference rent by 20% and the decreased reference rent by 30%. A supplementary rent may be applied to the base rent for housing with location or comfort features justifying it, compared with housing in the same category located in the same geographical area. The amount of the supplementary rent and the housing characteristics must be mentioned in the lease agreement.
Note : No supplement can be requested when the housing presents one or more of the following characteristics: "sanitary facilities on the landing, signs of humidity on certain walls, an energy performance level of class F or G, windows abnormally letting air pass outside of ventilation grids, a vis-à-vis less than ten meters away, infiltrations or floods coming from outside the housing, water evacuation problems during the last three months, a degraded electrical installation, or a poor exposure of the main room" (Article 140, III, B of the law No. 2018-1021 of November 23, 2018, on the evolution of housing, planning, and digital technology)..
Good to note : - So far, the rent control mechanism applies to Paris, Lille, Plaine Commune, Lyon, Villeurbanne, Est Ensemble, Montpellier, and Bordeaux, and it will soon be implemented in the Basque country urban community (Decree No. 2023-981 of October 23, 2023).
In case of non-compliance with the rent control measure, the landlord risks a fine of up to €5,000 for an individual and €15,000 for a legal entity.
To find out the reference rent for the neighborhood where the housing is located, you can visit the following link :
Rent control by decree
For which housing ?
This mechanism applies to the rental of vacant housing or re-letting.
It does not apply to first-time rentals, housing that has been vacant for more than 18 months, or housing that has undergone improvement works within the last 6 months with a cost equal to or greater than the annual rent of the last tenant. In these 3 scenarios, the rent is free.
Note : the rent for leases concluded, renewed, or extended since August 24, 2022, for housing with an energy efficiency rating of F or G must be identical to that of the previous tenant.
In which municipalities ?
Rent control can be implemented in continuous urbanization zones with more than 50,000 inhabitants where there is a marked imbalance between housing supply and demand, leading to serious difficulties in accessing housing across the existing residential stock. This is characterized in particular by high rent levels, high acquisition prices for older homes, or a high number of housing applications compared to the annual number of move-ins in the social housing sector (Article 18 of the Law of July 6, 1989).
Tense zones are those listed in Decree No. 2013-392 of May 10, 2013.
An annual implementing decree is published, the most recent being Decree No. 2023-642 of July 20, 2023.
Under what conditions ?
The rent for this new lease must be at most identical to the last rent of the previous tenant, possibly adjusted based on the variation of the reference index for rents, unless a revision occurred in the previous twelve months.
There are several exceptions to this cap, particularly for first-time rentals or properties that have been vacant for more than 18 months.
Furthermore, the annual implementing decree may provide for specific adaptations, especially in cases of renovations carried out by the landlord or manifestly undervalued rents.
Revision of the rental agreement's rent
For the rent to be revised, the lease must include an annual revision clause. It cannot exceed the variation of the Reference Index for Rents (IRL).
This revision does not apply to housing with an energy efficiency rating of F or G, and this is for leases concluded, renewed, or extended since August 24, 2022.
Temporary measure alert: in accordance with Article 12 of Law No. 2022-1158 of August 16, 2022, amended by Law No. 2023-568 of July 7, 2023, the variation of the Reference Index for Rents cannot exceed 3.5% between the third quarter of 2022 and the first quarter of 2024.
Setting the rent at lease renewal
- For tacitly renewed leases : application of the variation of the Reference Index for Rents (IRL);
- For renewals : application of the variation of the IRL unless the rent is manifestly undervalued. The conditions are set out in Article 17-2 of the law of July 6, 1989, with the landlord required to "propose to the tenant, at least six months before the end of the contract and in the form prescribed by Article 15, a new rent set by reference to the rents usually observed in the neighborhood for comparable housing."
No rent increase can be proposed to the tenant of a dwelling with an energy efficiency rating of F or G, for leases concluded, renewed, or extended since August 24, 2022.