- L’Indice de Référence des Loyers – a government rental index
- Restrictions on Rent Increases
- Rent control
Section 3: Conditions for Rent Revaluation
Did you know there is a limit to how much a landlord can increase your rent annually? This limit is determined by an index that changes from year to year.
While some landlords choose not to increase rents, others may do so. And it’s normal as long as it falls within the current year’s index amount.
Remember that some rental agreements may include an automatic rent increase for multi-year leases.
Rental increases
Setting the right rent price for your investment rental property means more than trying to make a profit. First, understand that you cannot estimate the rent price of an apartment instantly; you must actively research it.
Once you set the rent and sign a lease, specific rules regulate how and when you can increase the rent. You cannot increase the rent if the lease does not include a particular clause.
A landlord can increase the rental once a year, provided the tenancy agreement allows it.
Missing such a clause means you cannot raise the rent, whether the property is furnished or not. Additionally, regulations restrict rent increases for properties with poor energy efficiency ratings in certain high-stress housing areas.
Nevertheless, the rent increase cannot be higher than the previous letting, adjusted by the inflationary increase in the rental index—the Indice de Référence des Loyers (IRL).
L’Indice de Référence des Loyers
The “L’Indice de Référence des Loyers” (IRL), a government index, regulates annual rental increases in France. It reflects changes in the cost of living, excluding tobacco and rent. It’s common practice to include a clause in rental agreements that allows for rent adjustments based on this index.
Typically, you can only raise the rent for a property by a set amount each year. Still, there are some cases where a more significant increase may be allowed. For example, if the property has undergone substantial improvements or the previous rent was much lower than similar properties in the area, the tenant must permit the increase.
Example:
If your rental contract includes a clause that allows annual increases based on the “L’Indice de Référence des Loyers” (IRL), and the IRL rises by 2% over a year, you can then adjust the rent to €816 per month for the following year.
This adjustment allows the rent to reflect cost-of-living changes as recorded by the IRL. But it can only be applied if the contract explicitly agrees to this term.
In simpler terms:
| Cap on Increase (IRL) | IRL (L’Indice de Référence des Loyers) is the French Rent Index, which measures inflation related specifically to rental costs. It provides a guideline or a cap on how much the rent can be increased annually. |
| Capped by Inflation | The actual increase is limited to the IRL’s inflation rate. This means that the rent cannot be increased by more than the inflation rate from the previous year. This cap helps prevent unreasonable rent hikes and ties the increase to the overall economic conditions. |
| Calculation of Increase | To determine the new rent, the landlord takes the current rent and increases it by the percentage increase in the IRL. |
| Example | For example, if the current rent is €1000 per month and the IRL for the year shows an inflation rate of 2%, the new rent can be increased to a maximum of €1020 per month. |
This system ensures that rent increases are fair and reflect economic realities, protecting tenants from unexpected and excessively high rent increases.
Restrictions on Rent Increases
From January 2021, landlords cannot raise the rent when they renew or rent to a new tenant if the property has inferior thermal insulation (more than 331 kWh per square meter per year).
Landlords also face restrictions on:
- Charging more than the previous tenant when starting a new lease.
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Increasing the rent annually based on inflation.
When entering into a lease agreement, it’s essential to state any potential rent increases explicitly. This includes any increases that may occur due to property improvements.
Also, landlords can only propose rent increases during lease renewal if the original lease agreement previously agreed upon it.
Including a clause in the tenancy agreement stipulating an annual rent increase based on the price inflation index is standard practice. Regardless of whether the property is furnished, landlords cannot raise the rent if there is no revision clause. If the tenancy agreement has a revision clause, the landlord may increase the rent once a year.
Even with the inflationary increase in the rental index (Indice de Référence des Loyers (IRL), the rent increase for a new letting cannot exceed that of the previous one. This ensures that tenants are not overburdened with excessive rent hikes.
Several exceptions to the norm exist, such as where significant renovations have been made. Also, when the prior rent was noticeably too cheap in relation to comparable nearby rates. Landlords may apply an extra increase in these cases, but only with the tenant’s permission.
Rent control
Rent control limits the owner’s rent (including a mobility lease). Rent control applies in municipalities situated in stretched areas.
Rules that apply in stretched areas
Specific rules (including the rent supplement the reference rents (reduced and increased) apply to Paris, Lille, Hellemmes and Lomme, Lyon and Villeurbanne, Montpellier, Bordeaux, and the municipalities of Common Plain and d’Est Ensemble.
For example, the rent signed/renewed since July 1st, 2019, in Paris is subject to rent control, whether with a mobility lease or an empty or furnished dwelling lease.
If the owner (or his representative) does not comply with these rules, he may be fined up to €5,000 (or €15,000 if it is a legal person).
Rent control does not cover some dwellings, as they are subject to other rules. Dwellings subject to the 1948 law or contracted by the Anah (excluding intermediate rent agreements), social housing (HLM), and furnished tourist goods, and subleases are subject to other rules.
Useful links:
To do a simulation for the apartment you wish to rent, go to the DRIHL website to obtain the exact estimation of the controlled rent.
You can check whether your rent meets the rent guidelines using this simulator.
Check out this simulator to find out whether your municipality is in a tense area.
Mobility lease
It is not possible to extend a mobility lease.
In France, a mobility lease is strictly non-renewable. This means that once it ends, the lease cannot be renewed or extended under the same terms. If the parties want to keep the renting arrangement going, they must sign a new contract.
Section 2: New Rent Estimate
You wish to raise the rent on an apartment you own as a landlord. You must go through the following procedure to ensure that your new rent amount is reasonable:
1. Locate Similar Apartments: You should take a close look at other apartments that have many characteristics of yours, such as building type, size, and amenities. These apartments must be in a neighboring building comparable to yours or in the same building complex as yours.
2. Compile Examples of Rental Prices: If you live in a vast city (more than a million inhabitants), find the rent for at least six comparable apartments.
Finding three examples is all required in a smaller town or city.
3. Verify the Rent Prices’ Stability: At least two-thirds of the rent examples you collect should be from apartments where the tenants have lived for at least three years. This helps ensure that the rent rates you are considering are steady throughout time rather than just high or low for the short term.
This approach helps maintain fairness by ensuring that your new rent is average for similar units in your neighborhood. It lets tenants know they’re paying a fair amount and stops landlords from arbitrarily raising prices too high.
Submission of a new proposal
At least six months before the lease’s expiration, the landlord must submit his proposal.
Landlord has to use one of the following approaches:
- A formal letter requesting a receipt acknowledgment;
- A Commissioner of Justice act;
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Delivered by hand to the tenant pending acceptance or signature.
The deadline will begin on the day the registered letter is received, the Commissioner of Justice’s act is served, or it is delivered personally.
Note: The proposal’s text should include the following details. When a landlord proposes to renew a lease with adjusted rent, they cannot evict the tenant during the existing lease term. This prevents the landlord from unfairly pressuring the tenant, who may wish to continue residing in the property, into accepting new lease terms hastily.
Essentially, this protects the tenant from being coerced into a decision by the threat of eviction, ensuring they have adequate time to consider or negotiate the renewed lease.
The tenant must provide the landlord with a written agreement no later than four months before the end of the lease to accept the landlord’s proposed increase. In this instance, the parties will determine the rent revaluation by mutual agreement.
However, different rules apply to the rent increase depending on the kind of rental.
How does rent increase when a rental contract is renewed?
Let’s say your landlord wants to raise the rent as your rental agreement renews. This means you will rent the same space after your original lease expires. If so, this increased rate will usually apply to your new contract.
The landlord cannot raise your rent immediately if they wish to increase it by more than 10% over what you originally paid. Instead, it’s dispersed:
They will divide the increase into three parts and apply each part annually. This implies that, over three years, including the duration of the renewed contract and any further renewals, you will notice an addition to your rent of one-third of the entire increase every year until the whole increase is achieved.
How does a landlord apply the new rent?
When the tenant, landlord, or judge agrees on a new rent, it takes effect gradually, beginning with the lease renewal.
The rent increase is spread out:
- For a lease of 3 years, 1/3 per year. Or 1/6 per year if the rent increase is more than 10%);
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For a lease of 6 years, 1/6 per year.
Example:
Suppose that for a three-year lease, the tenant pays the final monthly rent (excluding costs and rent supplement) before lease renewal is €600, and the new rate is €650.
The monthly increase will be €50.
The increase is less than 10% of the rent (600 X 10% = €60) and will be applied annually at a rate of 1/3.
The monthly rent will grow by €16.67 per month the first year (since €50 x 1/3 = €16.67), €33.33 per month the second year (because €50 x 2/3 = €33.33), and €50 per month the third year.
However, the proposed rent increase cannot exceed the higher of two limits:
- 50% of the difference between the rent charged in the neighborhood for comparable dwellings and the tenant’s last rent before lease renewal. This may be revised if not done within the previous 12 months.
- Annual rent increase equals 15% of the actual cost of work done since lease renewal (improvement or retrofitting) if the amount equals or exceeds the previous year’s rent.
Example
Assume the last monthly rent before renewal is €1,000.
The average rent for comparable homes in the neighborhood is €1,200.
The landlord has also undertaken property modifications worth €15,000, which exceeds the annual rent of €12,000 (€1,000 multiplied by 12 months).
Calculation of Maximum Allowable Rent Increase
50% of the Difference Between Neighborhoods Rent and Last Rent:
The difference between neighborhood rent and tenant’s last rent is €1,200 – €1,000 = €200.
50% of this difference: 50% x €200 = €100.
Annual Rent Increase Based on the Cost of Work
15% of the actual cost of improvements: 15% x €15,000 = €2,250.
Application:
First Limit: The rent can increase by up to €100 based on 50% of the difference between the neighborhood rent and the tenant’s last rent.
Second Limit: The rent can increase by up to €2,250 based on 15% of the cost of improvements.
In conclusion, the maximum permissible rent increase is €2,250 per year, which is €187.50 per month (€2,250 divided by 12 months). This is based on the larger of the two limits.
Section 3: Conditions for Rent Revaluation
Rent Increase
Suppose the current rent (base rent, which excludes additional charges or rent supplements) is lower than the “reduced reference rent” for the area. In that case, the landlord has the right to propose a revaluation. This is essentially an increase to bring the rent closer to typical rates in the area.
Example: Let’s say the base rent for an apartment in Lyon is €500 per month, which is below the reduced reference rent of €600 for similar apartments in the area. Upon the approach of lease expiration, the landlord could initiate a rent revaluation to increase the rent closer to or up to €600 to align with the area’s typical rates.
Rent Reduction
Conversely, suppose the base rent is higher than the “reference rent plus” (a higher threshold of typical rents). In that case, the tenant can initiate a rent reduction to ensure they aren’t paying significantly more than what is usual for similar properties in the area.
Example: A tenant rents an apartment in Marseille with a monthly base rent of €1300. However, the reference rent plus for his type of apartment in that part of Marseille is only €1200. Realizing he’s paying more than the usual rate, a tenant can initiate a rent-reduction action to decrease his rent so that it does not exceed the €1200 benchmark.
Definition of “reference rent.”
Local governments set reference rent levels in some places to cap the amount landlords can charge. These ceilings support reasonable and equitable rent costs. Typically, there are two standards:
Reduced reference rent: This falls on the lower end of the rent spectrum and serves as a floor below which rents are considered unusually low.
Reference rent plus: This is the top end and acts as a cap to keep rents from rising too high.
You can find out the reference rent plus with the simulator: http://www.referenceloyer.drihl.ile-de-france.developpement-durable.gouv.fr/
Conditions
The new rent (which does not include additional expenses or rent supplements) that a landlord proposes at the time of lease renewal must not exceed the reduced reference rents when the landlord informs the tenant of the new rent.
A rental property’s energy efficiency determines whether rent increases are permitted during lease renewal. The property’s “DPE” (Diagnostic de Performance Énergétique, also known as Energy Performance Diagnosis) must show an energy categorization of A, B, C, D, or E.
These divisions are a component of a French system that rates a building’s energy efficiency, with A being the most efficient and G being the least.
Landlords cannot increase the rent for properties classified as F or G (considered energy inefficient).
Section 4: Tenants Rights
Tenant’s Right to Refuse
Tenants can reject a proposed rent increase if they believe it is excessive. You must write your landlord a letter to accomplish this.
You must send this letter at least four months before your current lease ends. This enables you to agree to or reject the increase before finalizing the renewal details.
This regulation facilitates tenants’ ability to make financial adjustments by preventing abrupt and significant rent increases. Additionally, it guarantees renters a voice in the proceedings by granting them the right to reject any increase they deem unjustifiable.
The tenant can use this email template to write a letter.
Note: If the tenant does not respond, it will be interpreted as a rejection. If the tenant declines or does not reply, the landlord cannot apply the suggested increase to the lease renewal.
The landlord (or tenant) may use the Departmental Conciliation Committee (CDC) to reach a price agreement if the tenant refuses to engage or does not reply by the latest four months before the end of the lease. This committee can guarantee a just and fair resolution for all parties concerned. The committee can prove to be extremely useful in settling any problems that may occur.
How do I inform the tenant?
The landlord must notify the tenant of the increased rent at least six months before the lease expires.
The landlord can provide notice by:
- A registered mail with receipt acknowledged;
- Commissioner of Justice Act;
- A personal delivery verified by signature or receipt.
The following must be included in the notification:
- Complete Article 140 VI of the Law of 23 November 2018;
- Full text of Article 17-2 of the 1989 Law copied (otherwise, the proposal is invalid);
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The suggested new rent amount and the sources used to calculate it.
During the lease period, a landlord cannot end the agreement or notify the tenant to leave the property if they want to raise the rent through a rent revaluation share.
In essence, it guarantees that tenants will, at least, know that they can remain in their house for the lease balance without worrying about being abruptly evicted by the landlord in the event of a rent increase.
How can a tenant contest a rent increase?
The tenant can challenge the rent revaluation share.
If a landlord proposes a rent increase, the tenant can challenge or dispute this increase to ensure it aligns with local market rates.
Procedure to Challenge
The tenant must gather evidence to support their case. This entails gathering data on the rents of six comparable properties. These homes must be similar in size, condition, and features.
Location of Comparable Dwellings
To compare rents within the same area, comparable houses should be located in the same building group as the tenants’.
Or in any other group of buildings with similar characteristics and the same geographical area. This enables the renter to draw comparisons from a more diverse but still relevant group of examples.
Dispute
Suppose there is disagreement or the tenant or landlord does not respond to the request for rent reassessment. In that case, any party must seize the Departmental Conciliation Committee (CDC) four months before the lease expires.
If the disagreement continues after the CDC’s intervention, a protection litigation judge may be appointed before the lease expires.
Case study
Problem
Last year, the landlord from which tenants rent their apartments increased rent, and they have just received another increase. The tenant’s contract indicates that the landlord is allowed to raise the rent, but they are querying whether it is normal for such increases to occur two years in a row. Tenants have resided at the same address for three years, with the previous year marking the first instance of a rent hike. The increase was €50, and tenants now wish to understand what might happen next year.
Solution
Under a classic lease, the rent may be increased annually on the anniversary of the lease signing, and the increase amount is capped by an index published by the government every quarter. However, if you reside in a rent-controlled city (like Paris), it’s advisable to verify that the new rent remains within the permissible limits.
Owners can adjust rent every year to account for inflation (IF it is stated in the rental agreement). However, this cannot exceed a specific percentage. If all criteria are met, it is not unusual for your rent to increase, and you may anticipate it to happen again next year.
If they are not followed, you can call the agency or owner and inform them that the rent has been increased excessively. You should look for the ceiling in your neighborhood and, if it is higher than that, warn them that this is illegal.
Please note: This article does not constitute legal advice – the information on this page has been prepared solely for your information. As we are not a law firm and act as a platform, we can and may share our estimations, but we cannot give you legal advice for your individual further proceedings.
