( © Created by Philippe IMBERT – Atelier des taxes locales )

The registry rental value of a building in France is the normal annual rent of the building when it is rented to market conditions. The French registry rental value (“Valeur locative cadastrale”, or VLC) is the rental value calculated in accordance with the rules for determining the assessment basis of real property taxes in France.

To calculate the registry rental value, what the audit of local taxes will have to realise, we should not consider the current rental value of the property, but we should base on the normal rent that could produce the building on the 1^st of january 1970.

The registry rental value is calculated by land registry evaluation unit, the unit being the premises, which is a property or a fraction of property subject to a separate use.

There are different sorts of registry rental values : for commercial premises, for professional premises, for industrial premises and for residential use premises.

According to Article 324 H of Annex III of the French general tax code (CGI) :

 * "I- For detached houses and premises located in a collective building, the communal classification is based on a nomenclature in eight categories, adapting to the local standards of construction the general criteria listed in the table below.

II- For built remote outbuildings and other items specified in Article II of 324 G, the communal classification is based on a special nomenclature in four categories, adapting to the local standards of construction the general criteria described the table below.

III- In both cases I and II, may be created some intermediate categories that will combined, in simple proportions, two catégories-types.

IV- The physical characteristics associated with each type and category of premises identified in the communal classification are listed in the report of the review operations."

 (* unofficial translation)

Each municipality establishes a classification for the premises located on its area,

During the overhaul of 1970, all the owners of buildings and premises had to fill in a form.

Since this overhaul, the owners of buildings and premises must indicate in a special file to the administration all the new constructions, additions to existing structures (Art of CGI 1406), changes in consistency and changes of assignment, within the 90 days of realization of the change.

Among all the premises, some reference premises are selected and evaluated,

Calculation of the weighted surface,

Take the real surface and use modifications based on the size of the building, the elements of comfort, the nature of the rooms, the elements of comfort, the state of maintenance of the building, the situation of the building in the municipality, etc.

Use of a patch of importance,

.This patch modifies the surface by assigning a coefficient based on the number of m2.  

Weight of the secondary elements,

The coefficient weighting the size of secondary elements ranges from 0,1 to 0,6, depending on the value of each secondary element.

Use of an overall patch,

Application of the surface equivalences,

Some items of equipment give rise to a superficial equivalence, which means an equivalence in square meters (a bath : 5 m2, a shower : 4 m2, a cooling system : 2 m2, etc.).

Calculation of the total weighted surface,

Use an evaluation tariff on the total weighed surface

The tariff is determined from a study of the existing rents in the municipality in January 1^st 1970.

The result is the registry rental value.

The professional premises (premises used by some professional independent people, like doctors in medicine, dentists, lawyers, chartered accountants, insurance agents, …) follow the same method to evaluate the registry rental value than the residential use premises.

Article 1498 of the French general tax code (CGI) explains the registry rental value of commercial premises and some other premises (Law No. 2003-1312, 30th December 2003, art. 43§2 Supplementary Budget for 2003 Official Journal 31^st  December 2003) :

* "The rental value of all goods other than the premises referred to in Article I of 1496 and the  industrial establishments under Article 1499 is determined using one of the methods listed below:

 1 º For goods on hire at normal price conditions, the rental value is the one that emerges from this location;

   2º a. For properties leased with abnormal price conditions or owner-occupied, or occupied by a third party without a rent, or vacant, or rented for free, the rental value is determined by comparison.

 The terms of comparison are chosen in the municipality.They may be chosen out of the municipality to evaluate buildings with a particular or exceptional character;

   b.The rental value of comparative reference premises is fixed :

 Either from current lease on the reference date of the revision when the building had a normal leased at this date,

 Or, if not, in comparison with similar buildings located in the municipality or in a municipality which has, from an economic point of view, a similar situation to that municipality situation and who were located at that time with normal price conditions;

 3 º Outside these above basis, the rental value is determined through direct assessment. "

(* unofficial translation)

Three methods are used to fix the registry rental value of commercial premises.  

1 - Determination of the rental value by the leases study

"1 º For goods on hire at normal price conditions, the rental value is the one that emerges from this location;”

If the premises are rented at normal conditions, and if the premises were existing and  hired on January 1^st, 1970, the registry rental value of 1970 is equal to the rent charged at that time.

But we have to verify whether the local is rented at normal price conditions. It is therefore important to be able to compare with a reference building. We choose a reference building and we determine the amount of weighted m2 of this reference building. If the amount of the weighted m2 of your building is between 80% and 120% of the total amount of the weighed m2 of the reference building, the rent of your building is considered as normal.

In this case, "the rental value is the one that emerges from this location." Then, we will update the rental value of 1970 by using a set of two coefficients.

If the premises did not exist on January 1^st 1970, or has a different consistency or use, the determination of the registry rental value by the lease study is not possible.

2 – Determination of the rental value by the comparison method

«   2º a. For properties leased with abnormal price conditions or owner-occupied, or occupied by a third party without a rent, or vacant, or rented for free, the rental value is determined by comparison.

The terms of comparison are chosen in the municipality. They may be chosen out of the municipality to evaluate buildings with a particular or exceptional character;”

The determination of the rental value by comparison is used for the majority of the premises

   For properties leased in conditions of abnormal price,

   For property owner-occupied,

   For property occupied by a third party without a rent,

   For vacant property,

   For premises rented for free.

It is necessary to determine the weighted surface of the premises to assess.

The French tax administration agents are choosing a reference building to compare with the owner’s building, with a fixed tariff. They multiply the tariff of the reference building by the number of weighted m2 of the building to evaluate. The choice of the reference building can be discussed.

Usually the reference building is chosen in the municipality where is the building to assess. However, the reference building can be selected outside the municipality, if it "has a particular or exceptional character."  

For example: several municipalities do not have any hypermarket, and few have two hypermarkets. It may be necessary to search outside the municipality to find the reference premises. Then, we have to update the registry rental value of 1970 by using a set of two coefficients :

   update between 1970 and 1980, based on the county (“département”) coefficient;

   upgrading from 1981 to 2007 based on the national coefficient.

3 - Determination of the rental value by direct assessment : the method when the two other methods are inapplicable.

"3 º If these bases are not applicable, the rental value is determined through direct assessment."

   First, estimate of the market value of the building on January 1^st 1970.

Several ways exist to determine this fair value :

- Selling price in close sales contracts,

- Discounted sale price in acts of old selling contracts,

- Cost of reconstruction of the building on which is applied a depreciation.

   Then, determination of the interest rate applicable to that market value.

The interest rate has to be the average rate of real estate in the municipality.

Again, the registry rental value of 1970 must be then updated.

There are two main types of industrial premises :

   Factories and manufacturing, processing or repair workshops;

   Premises where are realised extraction, handling or services operations, in which are mainly used motive power and tools.

The offices and premises of minor importance belonging to the same industrial centre are also treated as industrial premises (except residential use premises).

1 - The determination of the registry rental value by the accounting method

Article 1499 of French general tax code (CGI) concerns the registry rental value of industrial premises : * "The rental value of industrial assets liable to the real property tax on developed land is determined by applying on  the cost price of their various components, adjusted with factors that had been planned for the revision of the balance sheets, the interest rates set by decree by the Conseil d’Etat.

Before eventual use of these factors, the cost price of the land is increased by 3% for each year since the entry of the component in the heritage of the owner.

A decree of the Conseil d’Etat sets the abatement rates applicable to the registry rental value of the buildings and of the installations to accommodate the date of their entry into the assets of the company.

An additional deduction is also given to certain categories of premises because of their exceptional nature, which is based on the nature of the operations realised; These types of premises are determined by a decree of the Conseil d’Etat that also sets limits and conditions for the application of the deduction. " (* unofficial translation)

The rental value of industrial premises is mainly based on accounting data, concerning mainly the cost price of the land, buildings, equipment and tools.

Article 324 AE of Annex III of French general tax code (CGI)  explains : * "The cost price referred to in Article 1499 of the General Tax Code means the original value for which the assets should be included in the balance sheet in line with the Article 38 quinquies of the present Annex.
No correction is made to such values to take into account the taxes on turnover (value added tax) supported by the company.

The original value to take into account is the total cost price prior outstanding deductions and special depreciations allowed in tax matters. It is similar for assets partially reassessed or depreciated for the total or for a part of them. "

(* unofficial translation)

The article 324 AF of Annex III of French general tax code (CGI) adds : *"When it does not come from the balance sheet, the cost price is determined, as appropriate, by all the accounting records or other documentary evidences and, if not possible, through assessment subject to the right of supervision by the administration. "

(* unofficial translation)

From the cost price are used revaluation coefficients and rebates :

   Reevaluate assets bought or created before January 1^st 1959 according to a revision coefficient of the balance sheets.

   Add 3% on the cost price of the land per year, since the entry in the heritage.

   Calculate on the cost price reassessed an interest rate (8% on land and 12% on buildings and facilities).

The result of these three operations gives the gross registry rental value of the industry premises.

Calculate on the gross registry rental value a 25% abatement (property acquired or created before 1976) or a 33% abatement (property acquired or created since January 1^st 1976) to reflect the length of ownership.

The result of this new operation is the registry rental value of the industrial premises.

2 - The determination of the registry rental value by the particular method

Under Article 1500 of French general tax code (CGI), * "By derogation to Article 1499, buildings and industrial lands that are not included in the assets of an industrial or commercial company bound by the obligations set out in Article 53A, are evaluated as specified in Article 1498. "

 (* unofficial translation)

 Companies that fall under the package system regime of taxation, even if they opt for the real system of taxation can not use the accounting method and therefore have to use the particular method for the determination of the registry rental value.

This particular method consists in measuring the registry rental value of industrial premises according to the valuation rules for commercial premises, which means determining the rental value or by the study of the leases, or by comparison with a reference building, or through direct assessment.

The determination of the rental value by the study of the leases is only possible if the premises were existing on January 1^st 1970. However, the premises must have been rented with normal conditions.