Tax Allocation Checklist: Before the Lease Is Signed
Name property tax and TEOM separately by name in the charges clause. A general “all charges” clause may not be sufficient for property tax; a property tax clause does not cover TEOM. Courts treat them as distinct items requiring distinct clauses.
The CET (CFE + CVAE) cannot be passed to the tenant regardless of what the lease says (Art. R. 145-35 C. com.). Do not include it in the charges clause. Do not include urban planning taxes (taxes d’urbanisme) either — not recoverable even under a broadly drafted clause (Cass. 3e civ., 25 January 2023).
Passing property tax to the tenant reduces the market rental value at renewal (Art. R. 145-8 C. com.; Cass. 3e civ., 23 May 2019). In a high-value asset, model this discount against the apparent yield benefit before committing to a triple-net structure.
If the Ile-de-France office/commercial/storage tax (CGI Art. 231 ter) is to be recovered, include an express clause: courts require specific provision (CA Paris, 29 March 2023). If the lease is on VAT option, ensure it expressly provides for VAT on accessory charges if you intend to charge it.
Notify the Treasury accountant of lease termination at least one month before the end date. Failure to do so can result in the landlord being held jointly liable for the tenant’s unpaid CFE (CGI Art. 1687). Do not lift a pre-2014 charge clause without revising it to exclude Art. R. 145-35 prohibited items.

The Tax Allocation Map: What Goes Where

French tax law designates the legal debtor of each tax — the person who owes it to the tax authority. That designation cannot be changed by private agreement as regards the tax authority. But between landlord and tenant, the parties can agree by lease clause who will bear the economic cost. Since 2014, however, Article R. 145-35 C. com. prohibits the landlord from recovering certain taxes from the tenant at all — regardless of what the lease says. The column “Express clause required?” below indicates whether a specific provision in the lease is necessary even for recoverable taxes.

Tax Legal debtor Recoverable from tenant? Express clause required?
Property tax (taxe foncière) Landlord (as at 1 January) YES — permitted exception YES — must be explicitly named
Waste collection tax (TEOM) Landlord (appendage to property tax) YES — but not automatic YES — property tax clause does not include TEOM
Sweeping tax (taxe de balayage) Owner / occupant (varies) YES — linked to use of premises YES — explicit clause recommended
Ile-de-France office/commercial/storage tax (CGI Art. 231 ter) Landlord / owner CONTESTED — uncertain YES — courts require explicit clause (CA Paris, 29 March 2023)
Urban planning taxes (taxes d’urbanisme) Landlord / owner NO — not recoverable even with express clause N/A — cannot be passed on (Cass. 3e civ., 25 January 2023)
CFE (cotisation foncière des entreprises) Tenant (occupant exercising business activity) Tenant’s own tax — no recovery needed N/A
CVAE (cotisation sur la valeur ajoutée des entreprises) Landlord (income-generating activity) NO — part of CET; prohibited under R. 145-35 N/A — cannot be passed on
CET (contribution économique territoriale) Landlord (as CET debtor) NO — expressly prohibited under R. 145-35 N/A — cannot be passed on

Property Tax: Recoverable, But Only With Explicit Drafting

Property tax (taxe foncière) is owed by the owner of the property as at 1 January of the tax year. It can validly be passed to the tenant under Art. R. 145-35, but requires an explicit clause. The Court of Cassation has censured courts that rejected property tax recovery claims where the lease used broad language putting all property-related taxes at the tenant’s expense — provided the clause clearly excluded taxes on rental income (Cass. 3e civ., 12 September 2019, n° 18-18.018). Conversely, a tenant who has paid property tax for several years under a lease that did not expressly provide for it does not thereby acknowledge that obligation (CA Paris, 17 January 2018, n° 16/08381).

Waste Collection Tax (TEOM): A Property Tax Addendum That Is Not Part of Property Tax

The waste collection tax (TEOM) is levied by municipalities as an annex to property tax. It might seem logical that a clause transferring property tax to the tenant would include the TEOM. Courts have firmly rejected this. The Court of Cassation has held repeatedly that the TEOM can only be charged to the commercial tenant under an express contractual provision (Cass. 3e civ., 13 June 2012, n° 11-17.114; Cass. 3e civ., 24 September 2020, n° 19-16.888). A clause covering “charges habituelles locatives” is not enough (CA Toulouse, 19 April 2017); a clause covering “property tax” does not include TEOM (CA Paris, 25 October 2017, n° 15/23774). Property tax and TEOM must both be listed by name.

CET, CFE, and CVAE: The Lines Are Clear

The contribution économique territoriale (CET) consists of two components: the CFE and the CVAE. Article R. 145-35 expressly prohibits recovery of the CET from the tenant. The CFE is owed by the tenant as the party exercising a business activity in the premises — it is the tenant’s own tax. The CVAE falls on the landlord as the income-generating party and cannot be passed on at all.

The landlord faces one secondary risk on the CFE: if the tenant leaves without paying the CFE, and the landlord failed to notify the Treasury accountant of the lease termination at least one month before its end (or within three months of an abrupt departure), the landlord can be held jointly liable for the CFE attributable to the preceding month and the month of departure (CGI Art. 1687).

Passing Property Tax to the Tenant Reduces the Rental Value at Renewal

Article R. 145-8 C. com. provides that obligations normally falling on the landlord that have been transferred to the tenant without consideration constitute a factor reducing the rental value. The Court of Cassation has consistently applied this rule to property tax transfers: where the tenant pays property tax, the market rent must be reduced to reflect that additional burden (Cass. 3e civ., 23 May 2019, n° 18-14.917; Cass. 3e civ., 16 March 2017; Cass. 3e civ., 15 February 2018).

A “triple net” lease that passes property tax to the tenant achieves a higher apparent return during the term, but at renewal the market rent judge will apply a discount. In a high-value asset where the renewal rent is the dominant consideration, this trade-off deserves explicit modelling at the time the initial lease is drafted. The Versailles Court of Appeal recently adopted a more economically realistic approach, refusing to apply the discount where comparable market rents already reflected tenants bearing property tax (CA Versailles, 16 November 2023, n° 22/01927) — but this remains a minority position.

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Warning — Urban Planning Taxes: The 2023 Clarification

The Court of Cassation ruled on 25 January 2023 (n° 21-17.985) that urban planning taxes (taxes d’urbanisme) cannot be passed to the commercial tenant even where the lease contains a broad clause covering “all taxes and charges relating to the leased premises, including property tax and TEOM.” Urban planning taxes are not taxes relating to the use of the premises and cannot be recovered regardless of how broadly the charge clause is drafted. This applies to all planning-related levies assessed on the landlord or owner.

VAT on Rent and Charges: The Option and Its Consequences

Commercial rents are in principle exempt from VAT. However, the landlord can opt to subject the lease to VAT. Since a Conseil d’État ruling of 9 September 2020 (n° 439143), the option can be exercised lot by lot rather than building-wide. The option cannot be revoked before the ninth civil year following the year of declaration.

Where the lease is subject to VAT, the VAT base includes not only the rent but also any taxes, levies, and accessory amounts charged under the lease — except VAT itself. The landlord cannot charge VAT on accessory amounts unless the lease expressly provides for it (CA Paris, 14 April 2010, n° 08/21987). Where the landlord acts as an intermediary for charges incurred in the tenant’s name and account, those amounts can be excluded from the VAT base provided specific conditions are met — but flat-rate charge reimbursements can never qualify for this exclusion.

Practical Checklist: Reviewing the Tax Clause in an Existing Lease
Identify every tax recovery clause in the lease: list each tax category the clause purports to pass to the tenant. Cross-check against Art. R. 145-35. Any clause passing CET, CVAE, urban planning taxes, or rent management fees is unenforceable and should be identified for the client at the outset of any lease review.
Verify that property tax and TEOM are named separately: check whether the clause names each tax specifically. If only “property tax” is named, the TEOM cannot be recovered. If only “all charges” is used, verify whether any year’s invoices were paid by the tenant without objection — but do not treat years of payment as a substitute for a clear clause.
Model the renewal rent discount where property tax is passed: for assets with near-term renewal dates, commission a preliminary market valuation that applies the Art. R. 145-8 reduction factor. This enables the landlord to make an informed choice between maintaining the property tax transfer for yield and the impact on the renewal rent.
At lease expiry, notify the Treasury accountant in time: the landlord must notify the Treasury accountant of lease termination at least one month before the end date (or within three months of any abrupt departure). Diary this notification as a standard close-out item for every commercial lease nearing expiry.
For VAT-opted leases: check accessory charge treatment: confirm whether the lease expressly provides for VAT on accessory charges. Without an express clause, the landlord cannot charge VAT on those amounts. For renegotiations or renewals, address the Conseil d’État’s 2020 lot-by-lot option ruling: confirm which units are on VAT option and ensure the declarations are current.
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Tax allocation clauses in commercial leases are a source of persistent disputes that could almost always be avoided with precise initial drafting. We advise landlords and tenants on tax allocation, the impact on renewal rent, and the VAT structuring of commercial leases in France.

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Legal Notice. This article is for general information and educational purposes only. It does not constitute legal or tax advice. Laws and regulations may have changed since publication. Always seek qualified French legal and tax advice on the allocation of taxes in a French commercial lease.