The Binary Rent: How French Shopping Centre Leases Price Turnover

Where It Came From and Why It Persists

The loyer binaire was designed in the 1960s by the promoters of France's first shopping centres. The premise was elegant: the landlord had invested in creating a commercial environment — the centre itself, its layout, its catchment, its anchor tenants, its parking — and expected to share in the commercial success that environment would generate. The fixed minimum protected the landlord's return regardless of market conditions. The variable component gave the landlord a share of the upside, acting as a surcharge that only applied when the tenant was performing well.

The structure aligned incentives in theory. In practice, over sixty years of shopping centre development, the balance has shifted. Minimum rents in established centres are now set at levels that reflect the full commercial value of the location, leaving the variable component as a largely theoretical mechanism that triggers only in exceptional trading conditions. The guaranteed minimum is no longer modest protection against a downside scenario — it is the effective rent.

The binary rent structure persists for a further reason: it creates the legal consequence that the ordinary statutory rules for fixing the renewed rent do not apply. When a lease contains a clause-recettes, the renewal rent is governed by the parties' agreement, not by the statutory criteria for market rental value. This is a significant structural advantage for the landlord, confirmed and refined by decades of case law.

The Mechanics: How the Structure Works

A loyer binaire has two components. The first is the loyer minimum garanti — the floor of the financial obligation, payable regardless of trading performance, even if turnover is zero, even if the centre is struggling, even if the tenant is closed for refurbishment. The second component is the variable additional rent, calculated as a percentage of the tenant's turnover applied from the first euro of sales. But the tenant does not pay both components simultaneously: they pay whichever is higher. In practice, the variable rent triggers only when the turnover percentage, applied to actual sales, exceeds the guaranteed minimum — and in most established centres, this threshold is rarely reached in normal trading conditions.

The two components are indivisible. Courts have consistently held that the fixed and variable parts of a binary rent cannot be assessed or renewed independently of one another. Any valuation exercise that treats the fixed component as a standalone rent, ignoring the variable element, distorts the economic reality of the lease.

Turnover Rates by Sector

The percentage of turnover applied in the variable component is not fixed by law. It reflects market convention, negotiating practice, and the economic capacity of each retail sector to sustain rent as a share of revenue. The relevant measure is the taux d'effort — the ratio of rent to turnover — which varies by sector because different activities generate different margins. The following ranges reflect commonly observed market practice in French shopping centres:

These ranges are market conventions rather than legal standards. The lower rates for supermarkets and pharmacies reflect the lower margin structures of those activities. The upper end of the perfumery range reflects both high margins and sensitivity to prime location. In practice, rent negotiations in established centres take place in the context of the landlord's overall plan de merchandising. A landlord who wants a particular anchor brand may offer significantly reduced rates, or even a purely variable arrangement with no guaranteed minimum, to secure the tenant.

The Two Contractual Structures

The Turnover Definition: Where the Disputes Begin

The definition of turnover for rent purposes is one of the most commercially significant provisions in any shopping centre lease. Standard clause language captures a comprehensive set of revenue streams: all sales and services carried out in, from or via the leased premises, whether for cash or credit; orders placed from the premises and delivered anywhere; orders placed from outside the premises but delivered to the unit; and any sales through any channel — telephone, internet, electronic media, subscription, or any other means — originating from or attributed to the location. Intra-group transfers at cost price are typically excluded up to a defined cap, with any margin element included regardless.

The rise of omnichannel retail has transformed this definition from a technical formality into a major financial issue. For a retailer with a significant online channel, the question of which digital sales are attributed to the physical store can determine whether the variable component ever triggers. Tenants negotiating new leases should scrutinise the turnover definition with particular care — a clause that includes all online sales without limitation could effectively convert what appears to be a variable-rate lease into a fixed obligation at a punishing effective rate.

Reporting Obligations and Audit Rights

The binary rent structure imposes on the tenant a substantial and ongoing regime of financial disclosure obligations. Monthly reporting: the tenant must transmit to the landlord, no later than the fifth of each month, a certified statement of the preceding month's turnover excluding VAT. Annual certified accounts: within two months of the close of each calendar year, the tenant must deliver an annual turnover declaration certified by an independent accountant, together with a certified copy of the turnover declarations submitted to the tax authorities. Ad hoc disclosures: within eight days of any request by the landlord, the tenant must provide a signed declaration of turnover for any specified period and customer footfall figures on request. Books and records: the tenant is required to maintain, and make available to the landlord or any designated accountant, all accounting records for five years from the end of each calendar year — journals, general ledger, trial balance, annual accounts, cash books, till rolls and any other documents detailing sales by product.

The Pure Variable Rent: Rare but Real

It is legally permissible to set the rent entirely as a percentage of turnover, with no guaranteed minimum. The Cour de cassation has confirmed the validity of this structure. In practice, it is rare — the obvious risk for the landlord of a zero-income scenario if the tenant closes or trades poorly makes most landlords unwilling to accept it. The pure variable rent has appeared in two contexts: as an incentive to attract a prestigious anchor tenant to a new centre or retain a key brand in a struggling centre; and as a crisis measure during the Covid-19 pandemic, when many landlords agreed to temporarily convert fixed rent obligations to a percentage of turnover referenced to a pre-pandemic base year.

What the Binary Rent Does to Renewal

The binary rent structure has a decisive consequence at lease renewal. Under ordinary commercial lease law, the renewed rent is set at market rental value, determined by the statutory criteria of Article L 145-33 of the Code de commerce. For binary-rent leases, this statutory process does not apply in the same way. The Cour de cassation established in its landmark ruling known as the arrêt Théatre Saint-Georges that the renewal rent for a lease containing a clause-recettes is governed exclusively by the parties' agreement. The statutory rules on judicial fixation of the renewed rent are displaced.

This means that if the lease sets the renewal rent as a continuation of the binary structure — the same guaranteed minimum and the same percentage — the landlord cannot apply to the court to have the minimum revised upward to market rental value at renewal. A landlord who finds that the guaranteed minimum set ten years ago no longer reflects the commercial reality of the centre can refuse renewal (paying the eviction indemnity) or try to negotiate a revised rent during the renewal process, but cannot use the judicial rent review mechanism to impose a higher minimum over the tenant's objection unless the lease specifically provides for that. The response by landlords has been to draft renewal clauses that expressly provide for the guaranteed minimum to be fixed at market rental value on renewal, submitted to the jurisdiction of the juge des loyers commerciaux.

This article is for general information and educational purposes only. It does not constitute legal advice. The legal framework described reflects French law and market practice as at 2025. Always seek qualified legal and financial advice before making decisions based on this content.