Hotel leases: the impact of France's 2026 Simplification Act - a mixed outcome

Enacted in France on 26 May 2026, Law No. 2026-403, known as the “Simplification Act,” introduces four changes to the commercial lease regime, presented as significant advances for tenants. However, their impact on hotel leases is mixed.

Monthly payment of rent at the tenant’s request

Historically, rent has most often been paid quarterly on 1 January, 1 April, 1 July and 1 October. From now on, any tenant, including a hotel tenant, may request monthly rent payments, helping to smooth cash flow.

“Tunnel” indexation clauses now explicitly legalised

So-called tunnel clauses, which set both a minimum cap and a maximum cap on annual rent variations, had until now been the subject of judicial and academic debate. Under the law of 26 May 2026, these clauses are now expressly legalised, provided they cap or regulate annual variations in the commercial rent index by exactly the same percentage upwards and downwards.

Hotel leases, particularly built-to-suit (“BTS”) leases, were already using such clauses. They give the hotel operator greater visibility over the rent-to-revenue ratio and provide the investor with greater comfort regarding returns.

Tenant guarantees capped at three months’ rent: a setback for hotel BTS leases ? 

Market practice had gradually evolved, with security deposits, parent company guarantees and bank guarantees sometimes amounting to as much as two years’ rent, in order to protect the landlord against tenant default. The law of 26 May 2026 brings this to an end. The total amount of guarantees that may now be required from a hotel tenant is capped at three months’ rent, whether in the form of a security deposit, a parent company guarantee or a bank guarantee.

This is likely to make negotiations around hotel BTS leases more difficult. Under this structure, the investor-landlord finances the construction or refurbishment of the hotel to meet the future tenant’s requirements and secures that commitment through so-called “possession” compensation, often assessed at two years’ rent or more, intended to cover unpaid rent and adaptation works if the tenant withdraws.

A cap of three months’ rent is clearly insufficient in light of such exposure. Until practitioners devise alternative mechanisms, the legal and economic security of BTS structures is likely to be weakened.

Suspension of the termination clause now governed by statute

Most hotel commercial leases include a termination clause allowing the landlord to terminate the lease in the event of non-payment, following a formal demand for payment that has gone unanswered for one month. Until now, the courts had been relatively flexible in granting tenants payment extensions under Article 1343-5 of the Civil Code.

The law of 26 May 2026 now makes such suspension subject to two conditions: the tenant must demonstrate its ability to repay the debt within the requested period – in other words, provide a business plan – and must have resumed payment of current rent before the hearing.

This change is unlikely to have any particular impact on hotel leases. Unlike many other businesses, hotel operators are accustomed to preparing business plans to demonstrate their ability to meet financial commitments.