Why Service Charges Are the Real Financial Exposure

The French shopping centre model is built around the loyer net principle: the landlord seeks to receive the rent as a net figure, free of the operating, maintenance and management costs of the centre. Those costs are transferred to tenants through the service charge mechanism. In practice, a tenant whose lease shows a quoted rent of €500 per square metre per year may find that the total occupancy cost including charges, taxes and marketing contributions is €650 or more. For decades, the structure and content of shopping centre charge schedules was largely unregulated. A series of legislative reforms changed this, most significantly with the introduction of mandatory charge disclosure obligations in 2014 that now apply to all commercial leases concluded or renewed from 5 November 2014.

The Post-2014 Mandatory Disclosure Framework

Article L 145-40-2 of the Code de commerce, introduced by the loi Pinel of 18 June 2014, imposes four mandatory requirements on every commercial landlord for leases concluded or renewed from 5 November 2014:

1
Exhaustive Charge Inventory
The lease must include a precise and exhaustive inventory of the categories of charges, taxes and levies passed to the tenant. Charges not listed in this inventory cannot subsequently be billed. The inventory must be sufficiently specific to allow the tenant to understand what is being passed through and to verify its accuracy.
2
Forward-Looking Works Information
The landlord must inform the tenant of the projected state of works planned for the three years following the lease date, giving the tenant visibility into future capital expenditure that may generate charges.
3
Three-Year Works Summary
A summary of works carried out by the landlord during the three years preceding the lease date must be provided, enabling the tenant to assess the recent maintenance history of the property.
4
Allocation Rules and Payment Terms
The rules for allocating charges among the different tenants of the centre must be set out, along with the modalities of payment. In centres with multiple tenants, any change to these rules must be notified to all tenants in advance.

The allocation of charges among multiple tenants must be made by reference to the occupied surface area. The tax burden attributable to each tenant must correspond strictly to that tenant's unit and their proportionate share of the common areas necessary for their use. These are mandatory requirements that cannot be overridden by contractual stipulation. A landlord who calculates charges by reference to tantièmes from a copropriété division rather than the surface-based key required by law can be required to repay the excess (CA Paris 30-11-2023 n° 21/11061).

What Can and Cannot Be Passed to the Tenant

Article R 145-35 of the Code de commerce defines with precision the categories of charges, taxes and works costs that may and may not be passed to the tenant.

Charges That Can Be Passed to Tenants
  • Maintenance and operation of common areas, shared equipment and services
  • Building and occupiers' liability insurance premiums
  • Collective services benefiting all occupants: heating, cooling, lifts, cleaning, security, waste management
  • Shared digital and multimedia infrastructure costs
  • Collective signage, internal and external advertising systems
  • Environmental annex compliance costs and tertiary sector energy decree obligations
  • Contributions to ASLs or Afuls governing the wider site
  • Marketing and promotional costs for the centre where contractually stipulated
  • Taxes and levies corresponding strictly to the tenant's unit and proportionate share of common areas
Charges That Cannot Be Passed to Tenants
  • Taxe foncière (property tax) — this is a landlord burden and cannot be contractually transferred
  • Major structural repairs (grosses réparations) under Article 606 of the Civil Code
  • Works required to bring the property into regulatory conformity where the obligation pre-dates the lease or arises from the landlord's own obligations
  • Fees and management charges relating to the landlord's asset management of the property
  • Charges relating to vacant units — costs of empty units cannot be allocated to occupied tenants
  • Charges attributable to specific other tenants cannot be passed to different tenants
  • Capital expenditure on the landlord's own assets beyond routine maintenance

The Taxe Foncière Settlement

For many years, French shopping centre landlords routinely passed the taxe foncière to their tenants as a service charge item, defended on the basis of recognised usage in the shopping centre sector. The Cour de cassation settled this definitively. In a ruling of 23 May 2019 (n° 18-14.917), it held that the taxe foncière is a burden that weighs in principle on the landlord, and that the alleged usage in shopping centres is ineffective — a usage cannot prevail over a clear legal rule. A 2021 ruling (n° 19-23.183) confirmed the same reasoning for major structural repairs: both the grosses réparations and the taxe foncière are obligations normally incurred by the landlord and, where transferred to the tenant without express statutory authorisation, constitute exorbitant charges that reduce the market rental value of the premises. The practical consequence is twofold: tenants have grounds to contest bills issued on that basis; and the existence of these charges is a factor that must reduce the market rental value at renewal.

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Due Diligence Alert for Investors

When acquiring French shopping centre assets, investors should review the charge schedule of every lease in the portfolio for taxe foncière and major repairs pass-throughs. Leases that include these items contain obligations that are legally questionable and that, if challenged by tenants, could reduce net income materially. They also represent a rent review risk: the existence of exorbitant charges depresses the market rental value against which the renewal rent is set, meaning that a lease with a high apparent rent but an exorbitant charge schedule may produce a lower renewal rent than a lease with a lower apparent rent and a clean charge structure.

Exorbitant Charges and Their Impact on Rental Value

Article R 145-8 of the Code de commerce provides that obligations normally incurred by the landlord from which the landlord has discharged itself without compensation constitute a factor that reduces market rental value. A landlord cannot have it both ways: imposing exorbitant charges on the tenant to recover costs that the law assigns to the landlord, and then arguing for a market rent that does not reflect those costs. The Paris Court of Appeal rejected the argument that a usage within a single centre (where all comparable leases are imposed by the same landlord under the same standard terms) can constitute a usage capable of overriding a clear legal rule (CA Paris 30-11-2011 n° 10/05085). Expert valuers and courts now need to decide whether to take comparable rents at face value or to strip out elements representing exorbitant charges, producing an adjusted comparable figure — a technically demanding exercise requiring detailed knowledge of the charge structure of every comparable transaction.

Shopping Centre-Specific Charges

Beyond the general charge categories, shopping centres generate a specific set of costs reflecting their nature as unified commercial entities managed as an operating whole: road access and internal circulation infrastructure; collective signage and advertising equipment (interior and exterior); multimedia and connectivity systems serving common areas; costs of implementing environmental annexes and tertiary energy decree compliance programmes; and contributions to ASLs or Afuls governing the wider site. Marketing and promotional costs deserve particular attention: standard shopping centre leases typically oblige tenants to bear the cost of all promotional and advertising operations for the centre — campaigns, seasonal events, loyalty programmes, digital marketing — in addition to any separate trading association or marketing fund contribution. Where the landlord manages the marketing budget unilaterally, the risk is that tenants may use the fund's existence as the basis for a liability claim if the centre's promotional activity fails to generate the expected footfall.

The GLA Surface Measurement Method

The standard allocation method in French shopping centres is the GLA (Gross Leasable Area) measurement. Under this method, the measured surface of a unit includes the full thickness of party walls shared with common areas and, to the midpoint, party walls shared with adjacent private units — structural elements, columns and technical installations are all included in the measured area. The GLA method produces a larger measured area than net internal area. The Cour de cassation approved the use of GLA for fixing initial rents (Cass. 3e Civ. 23-2-1983). For charge allocation purposes, the same method must be applied consistently to the subject unit and to all other units in the centre. Inconsistent surface measurement would distort the charge allocation in favour of or against the subject tenant. When reviewing charge allocation methodologies in due diligence, verify that the surface basis used for charge allocation corresponds to the surface basis used in the lease rent provisions, and that the same method has been consistently applied across all tenants.

The Centre Extension Problem

A specific risk arises where the centre is extended or restructured after the original lease was concluded. Standard charge clauses state that total charges may vary to take into account extension works. Article L 145-40-2 requires the landlord to inform tenants of any new charges and of any element that may modify the allocation of charges among tenants — but the lawfulness of a contractual provision that allows the landlord to unilaterally increase the charge base by extending the centre is contested. Courts have not yet settled this question definitively, and it represents a genuine ongoing exposure for tenants of centres where expansion is planned.

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The Vacant Unit Problem

Article R 145-35 prohibits the allocation to occupied tenants of charges relating to vacant units. In a centre with significant vacancy, this means the landlord must absorb the charge costs attributable to empty units rather than redistributing them across the remaining tenants. Some landlords have attempted to draft charge allocation clauses that dilute vacancy costs across the occupied tenant base. Any such clause is in direct conflict with the statutory prohibition and is likely to be found ineffective on challenge.

What Investors and Tenants Must Verify in the Charge Schedule
Does the charge schedule comply with the mandatory inventory requirements of Article L 145-40-2? For leases concluded or renewed from 5 November 2014, the inventory must be exhaustive — unlisted charges cannot be billed.
Does the charge schedule include the taxe foncière or major structural repairs? If so, these items are legally the landlord's burden and their inclusion is a defect affecting both tenant liability and renewal rent valuation (Cass. 2019, 2021).
Is the allocation of charges among tenants based on occupied surface area? The use of any other allocation key (e.g. tantièmes) is inconsistent with Article L 145-40-2 and may be contestable.
Does the charge allocation method respect the prohibition on passing vacant unit costs to occupied tenants (Art. R 145-35)? In centres with significant vacancy, this prohibition has a material impact on net income.
Is the GLA surface measurement method used consistently for both rent and charge allocation across all units in the centre?
Does the lease contain a clause allowing the charge base to expand following centre extension works? The lawfulness of such clauses is contested and represents a risk for tenants.
Are the exorbitant charge items factored into any renewal rent valuation? Their presence should depress the market rental value against which the renewal minimum is set (Art. R 145-8).
Reviewing a French Retail Portfolio or Lease Acquisition?

Service charges in French shopping centre leases require specialist review — both for compliance with the post-2014 mandatory framework and for the valuation implications of charge structures at renewal.

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This article is for general information and educational purposes only. It does not constitute legal advice. The legal framework described reflects French law and practice as at 2025. Service charge disputes in French shopping centre leases involve complex factual and legal issues. Always seek qualified legal advice before making decisions based on this content.