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French Government Sets New Limits on Property Rent Increases

Friday 15 February 2008

The French Government has introduced new controls on rents for residential property lettings.

Whilst in France the level of a rent on a new tenancy can be freely determined between landlord and tenant, subsequent annual revisions of the rent are limited to a price index formula. The formula comprises changes in a composite price index made up of retail prices, construction prices, and the index of house maintenance and improvement.

Most tenancy agreements contain an annual rent revision clause.

The French Government have now concluded that the construction and maintenance indexes are leading to excessive rental increases, so they have decided to try and moderate the level of these increases by abolishing any link with them. Accordingly, rents will now only be allowed to go up in line with the retail price index.

This is the second attempt in two years that the Government have made at trying to limit the rise in rents. Prior to 2006, the price index used for rent revisions was solely that for construction costs. The use of this index was abolished simply because of the pace at which construction costs have been rising in France.

In an effort to improve access to French rental property for those of modest incomes, there are also to be new controls on rental/damage deposits. Where previously landlords could ask for two months rental deposit, in future this will be limited to one month.

Not surprisingly, the French landlord associations are up in arms about the changes, arguing that any additional controls on rents is simply going to reduce the amount of rental accommodation that is put into the market place. Tenants already benefit from strong security of tenure, and there are many who consider that the additional controls will mean that landlords will become more selective about their tenants, and that this will impact adversely on those for whom the changes have been introduced.

Nevertheless, despite these new measures of protection for tenants in France, the Government has also widened the availability of institutional forms of rental guarantee for landlords. A landlord letting to a potentially risky tenant would be able to seek a State backed guarantee against the non-payment of rent.

There are also private insurers who offer landlords rental guarantee insurance, and the French Government have indicated that they are considering offering a State backed universal rental guarantee scheme for all tenants. Not surprisingly, there are critics who are concerned that such a scheme would remove all self-responsibility from tenants, and that it could simply not be funded.

Whilst these changes in the rental index apply to both unfurnished and furnished accommodation (provided in the latter case it is the main home of the tenant) the new rule on rental deposits only applies to unfurnished accommodation. Landlords of furnished lettings remain free to negotiate with prospective tenants the level of the rental deposit.

You can read more about rental guarantee schemes and rental deposits in our guide to Letting French Property.

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