If the rent is to be changed or increased how will the new rent be determined?
If the parties have contractually agreed on the rent updating scheme, the calculation of the new rent value is the one indicated in the contract.
If nothing was stipulated, then the annual legal coefficient shall be applied and:
Changes or increases in rent payable are determined as set out in the lease, as modified by retail leasing and residential leasing legislation, if applicable. The methods of review used include fixed annual increases, market rent review by agreement or in default, by determination by an expert, by arbitration or valuation and movements in line with the Consumer Price Index figure published quarterly by the Australian Bureau of Statistics.
Although not mandatory, parties commonly agree on an indexation as the basis for the amount of rent, in line with the health price index. Where this is the case, the Civil Code imposes a binding method of calculation for such indexation.
Indexation can only take place once a year and, for the first time, on the anniversary of the date when the lease came into effect (which may not necessarily be the same as the anniversary of the date the contract was signed). The index to be used is known as the ‘health index’, ie a consumer price index excluding prices of products like alcohol, fuel and tobacco. This is published by the Ministry of Economic Affairs.
Any method of indexation that is more favourable to the tenant than that provided for in the Civil Code is permitted, but any method for indexation less favourable to the tenant will not be accepted by the courts.
It should also be noted that the Parliament of the Brussels Capital Region introduced, through the Ordinance of 15 December 2022 regulating the limitation of the indexation of commercial leases (the "Ordinance"), a mechanism which temporarily limits the indexation of commercial leases due to the extraordinary increase in inflation and the impact thereof on the economic activity of companies (the Flemish Region and the Walloon Region have not adopted such a measure for their territory).
The new mechanism provides for a mandatory temporary limitation of the indexation of commercial leases for a duration of one year, using a new formula that, from June 2021 (month during which energy prices began rising exponentially), is based on the consumer price index excluding energy components. The index has been published by Statbel for many years (and can be accessed through the following link: Consumer price index | Statbel (fgov.be) and is hereafter referred to as "index-0-energy".
The temporary system applies to commercial leases relating to leased premises in the Brussels-Capital Region in which an annual indexation of the rent to the cost of living is stipulated (to which Article 1728bis of the old Civil Code applies). It is also possible that the commercial lease does not provide for annual indexation, but, for example, an indexation occurring every three years. In that case, the new regime does not affect the frequency agreed between the landlord and the tenant. The restriction also relates only to the "base rent" as such (excluding costs and charges). If other amounts are also paid by the tenant in the commercial lease that are outside the base rent, they are excluded, even if they are contractually indexed./p>
The temporary system is limited to one year. It is applicable as of the day of the Ordinance's entry into force, i.e. 22 December 2022.
In practical terms, this means that the new formula must be applied at the time of the next lease indexation starting as of 22 December 2022 and thus applies to all indexations falling in the period 22 December 2022 – 21 December 2023. For example, if the anniversary of the date of entry into force of the lease falls in March, the limited indexation will apply as from March 2023 onwards until February 2024. On the other hand, if the anniversary falls in November, then the tenant will have to wait until November 2023 before being able to benefit from the limited indexation, it being understood that the tenant will also, of course, be able to benefit from the limited indexation for a full year (i.e. November 2023 - October 2024).
The general formula is based on the product of three factors. The first factor is the base rent of the lease. The second factor performs the indexation from the effective date of the lease up to July 2021 (June 2021 index). The third factor performs the attenuated indexation as from July 2021, until the day of indexation:
In which formula the factor 0.99 is the result of the quotient:
If the lease entered into force after July 2021 or if the base rent was established by agreement or by judgment with effect after July 2021, the indexed rent may not exceed the amount resulting from the following formula:
In leases governed by the Commercial Leases Act there are two additional mechanisms for rent review.
At the end of every three years during the lease, either party can ask the court to revise the rent.
Before a judge orders any revision, the ‘normal’ rental value of the premises must have changed by at least 15% due to new circumstances which could not have been foreseen when the lease was entered into. These changed circumstances must have had a continual influence for three years and the claim for revised rent must have been brought before the court during the final three months before expiry of the relevant three-year period.
Upon renewal of a lease governed by the Commercial Leases Act, where there is a disagreement between the parties about future rent, an action can be brought asking the court to decide on a fair level of rent.
Under the Regional pop-up regulations, neither indexation nor revision apply since the term of the pop-up lease cannot exceed the period of one year.
The new rent will be agreed on by the contracting parties or set by municipal bodies.
The rent payable following a review will normally be the current market rent for the premises at the date of the review or the same rent as the immediately previous period, whichever is higher. The lease may provide a mechanism, such as a procedure for appraisal by an independent expert, for determination of the new rental rate and may also specify whether the expert is required to make certain assumptions about the use and location of the premises and its improvements. If the determination of the expert is not explicitly binding on the parties, the lease may also provide for an arbitration procedure under the applicable Provincial arbitration statute.
In most commercial leases, annual increases are already agreed between the parties as a percentage, or the total increased amount is specified. Where turnover rent is payable, changes in rent will be based on the increase or decrease in the lessee's turnover.
Where the parties do not wish to provide for an open market rent review in the lease, they usually agree to link rent to a consumer price index (either Croatian or European) or, more rarely, to provide for fixed increases.
It is entirely up to the parties how they regulate the rent review.
Most commonly by indexation.
Annually – by reference to the net consumer price index published by the Public Administration or by a fixed percentage.
Market rent review – based on an assessment by independent experts.
Rent can be revised every three years at the request of either party, even if a formal rent review (eg indexation clause) is not provided for in the lease.
The parties may also agree on an automatic indexation of the rent – often stipulated on a yearly basis. The most frequently used indexes are the Tertiary Activities Rent Index (indice des loyers des activités tertiaires – ILAT), the Construction Costs Index (indice du coût de la construction – ICC) and the Commercial Rents Index (indice des loyers commerciaux – ILC), all published by the National Institute of Statistics and Economic Studies (INSEE).
Indexation is the method normally applied to rent review, usually with reference to the German Consumer Price Index. A change in rent is normally triggered if the index changes by 10 points or by 10% or more in either direction. Where this is the case, the frequency of rent reviews depends on the rate of change to the Consumer Price Index. Annual rent adjustment is also possible, but in this case there is no 10 points/10% threshold.
Most leases contain a fixed amount rent for the duration of the term agreed between the parties.
A rental clause which allows for increases in rent is acceptable, provided it is clearly drafted. For example, annual percentage increases or periodic changes in rent by reference to some published index, such as the Consumer Price Index would be sufficiently certain.
Increases in rent may also be reviewed and determined by an independent third party valuer in accordance with the market rent at the time of review. The mechanism for determination should be agreed by the tenant and landlord and clearly stated in the lease to avoid any disputes.
Rents linked to turnover are also sometimes agreed for retail leases.
If the rent is denominated in Hungarian forints, then it is normally adjusted annually in line with inflation in Hungary (as measured by the consumer price index published by the Hungarian Central Statistics Office) or by an agreed proportion of the rate of inflation. Where the rent is determined in euros or US dollars, the Monetary Union Index of Consumer Prices (or Harmonised Index of Consumer Prices) issued by Eurostat or the equivalent US CPI is generally used for indexation.
A standard lease will contain a rent review clause setting out the basis upon which the rent is to be reviewed.
Traditionally, rent was usually increased to the market rate for the property at the date of the review if this was higher than the existing rent.
The Land and Conveyancing Law Reform Act 2009 contains a prohibition on such upwards only rent review clauses in all new commercial leases entered into from 28 February, 2010. All new rent review clauses will be 'neutral', ie they can not be upwards only. There is no change to rent review provisions in existing leases and the legislation is not retrospective.
In the case of a non-residential lease, rent is adjusted annually by a maximum of 75% of the variation in the ISTAT index (a measure of consumer price inflation) (however 100% of the variation in the ISTAT index may be applied (if agreed by the parties) to non-residential leases which have a term that exceeds the minimum term provided for by law, i.e. six years for commercial leases and nine years for hotel leases), while in the case of residential property the annual adjustment can be a maximum of 100% of the ISTAT index variation. In the case of a business branch lease, a maximum adjustment is not provided for by law but the lease itself will usually provide for an adjustment equal to 100% of the ISTAT index variation. The above limitation to the rent indexation can be departed from by the parties in relation to non-residential lease agreements (i.e., for offices, retail space and hotels) providing for a yearly rent greater than €250,000.00 provided that such leases do not affect buildings with a historical value confirmed by a local administrative order.
Under the ALBL, if the current rent amount has become ‘unreasonable’ and the parties cannot reach an agreement regarding a new amount, the parties must first apply for mediation to resolve the dispute before turning to the courts for resolution.
Should the court become involved, it will take several factors into account when determining a new ‘reasonable’ rent amount:
The landlord and the tenant are free to agree on the amount of rent payable. This also means that the parties should provide for a means of rent review and the time at which such review will take place contractually. In absence of such a provision, neither party can request a rent review. Parties usually agree on an annual adjustment in line with the Consumer Price Index published by the Dutch Central Bureau of Statistics (CPI).
Statutory law provides with regard to retail leases that the tenant and the landlord can ask the court to adjust and assess the rent in accordance with the rent of comparable local retail space at the end of the first lease period (and afterwards every five years after an adjustment of the rent) or, if the retail lease had been entered into for an indefinite period, every five consecutive years after the previous adjustment of the rent by either the parties or the court. The tenant and the landlord must first try to reach mutual agreement on a new adjusted rent. If the parties do not succeed, they must seek expert advice. If the parties cannot reach agreement on the expert to be appointed, the court can appoint an expert. As the advice of the expert is not binding, either party is entitled to ask the court to adjust the rent. The adjustment of the rent is based on the average of rents of comparable local retail space during the previous five years. It is possible, and quite usual, to agree upon lease commencement on a different method to adjust the rent, e.g. to market value, if such agreement is approved by the court.
The parties are at liberty to contract and specify the rent applicable to the lease from year to year and at specific periods of the term of the lease. The lease agreement could at the onset of the lease indicate the rental, the period of review of the rent and the rates of escalation of future rents applicable for the lease or the determinants where no specific rates of increase are agreed in the agreement.
In determining the increase in rent, the landlord and the tenant may apply any rates, percentage increment on the base rent for the preceding period or a specific amount already mutually agreed in the lease agreement to be applicable upon renewal. The parties may also agree to use the central bank inflationary index or the market rental value for similar properties in the location.
It is usual for parties to indicate in the lease agreement that the rent shall be mutually agreed based on market value/rates and further specify that in the event of a disagreement on the rent, a professional qualified as an estate surveyor/valuer or any other qualified person may be engaged to advice on the rate of the increase of the rent.
The most commonly used index is the Consumer Price Index from Statistics Norway.
The most common indexation method is a link to the Polish Consumer Price Index ('CPI') published by the Central Statistical Office ('GUS'), but in some cases the international Harmonized Consumer Price Index or other international indexes are used. It is also standard practice to link the rent to a valuation of the fair market value by using comparisons with the rent for similar properties.
If the parties have contractually agreed on the rent updating scheme, the calculation of the new rent value is the one indicated in the contract.
If nothing was stipulated, then the annual legal coefficient shall be applied:
Additional updating (for older leases) is effected by negotiation between the parties, landlord and tenant, in order to agree on the updated level of these rents. The rent is updated in accordance with the criteria defined by law if the parties do not reach an agreement or if the tenant is deemed to be one of the following types of company:
In these cases the annual rent is to be equal to one fifteenth of the property’s tax value.
Rents are generally linked to the Consumer Price Index, and may also be linked to turnover. The parties may also agree on specific provisions governing changes in the rent and provide specific methods for calculation of the rent.
The parties are free to review the rent. Nevertheless, the most common method of indexation is to link the rent to the rate of inflation through, for example, the Consumer Prices Index published by the Slovak Republic's Bureau of Statistics. A lease of non-residential premises also normally provides for the landlord to increase the rent if the costs of operating the building increase.
Other than the annual review, in leases longer than five years it is not uncommon for the parties to agree to a rent review mechanism based on an independent assessment of the market rent before agreeing on any adjustment. An expert will calculate the market rent for the property and the rent will then be increased or decreased accordingly.
Unless the rent is subject to annual review under an index clause or an agreed fixed increase or decrease, it is not possible to change or increase the rent during the term of the contract.
This matter is solely dictated by the contractual arrangement between the parties and commercial considerations. Economic situations often dictate changes and variations in rent amounts.
Rents and rental increases can be mutually agreed between the parties.
In 2006, Abu Dhabi law imposed an annual cap on rent increases to protect tenants against increases in rent. Such rent cap was, however, abolished by the Abu Dhabi Executive Council with effect from 22 November 2013.
Three years later, Abu Dhabi Executive Council Resolution No. 14 of 2016 on Lease Agreements of Premises re-introduced the 5% annual cap on rent increases, with effect from 13 December 2016.
The law requires rents to be revised in accordance with general economic conditions in Dubai and the rental amounts for similar properties, based on a sliding scale which is customarily notified by a Ruler's Decree each year. The law gives the Real Estate Regulatory Agency (RERA) the power to determine the criteria for revising rents in Dubai in accordance with general economic conditions.
Decree No. 43 of 2013 concerning the percentages of maximum property rent provides for the average market rent to be set according to the Rent Index for the Emirate of Dubai as approved by RERA.
The percentage of the maximum increase in the real estate rents in Dubai is determined on renewal according to the current annual rent amount compared with the average rent for a similar property.
Whilst these restrictions apply to both residential and commercial property, in practice, for commercial property, alternative terms agreed would probably be respected.
Most leases with a term of more than five years contain provisions for rent reviews. The rent payable following a review will normally be the current market rent for the premises at the date of the review or the same rent as previously, whichever is higher.
Rent reviews are often complex with the valuer required to make certain assumptions about the premises and their rental value. A significant amount of case law has developed over the past 25 to 30 years which valuers must take into account.
Rents linked to turnover are also sometimes agreed. This is more common in premises such as restaurants or shops.
Where the lease is for less than five years, or where the parties don't wish to provide for an open market rent review, they will sometimes agree to link the rent to an index, such as the Retail Prices Index (although the basis on which this index is calculated is due to change in 2030) or may, less commonly, provide for fixed rent increases.
Note that where the lease benefits from security of tenure, the new rent may in some circumstances be set by the court.
Rent is normally linked to the open market rent which would be payable for equivalent premises on the same terms and conditions.
The relevant provisions normally mean that rent can only be increased and not decreased, although it has recently been suggested that the government may introduce a restriction on 'upwards only' rent review mechanisms.
The rent review clause also normally contains a provision for the resolution of any disputes relating to the rent review.
In the case of retail leases rent may be based on a percentage of the turnover obtained from the tenant's activities on the premises.
If the lease provides for the base rent to be changed or increased, it will either specify the amount of such change or increase (for example, a typical base rent increase may be 3% of the then-applicable amount on an annual and cumulative basis) or will provide a mechanism, such as a procedure for appraisal by an independent expert, for its determination or increases tied to a specific metric, such as the Consumer Price Index (CPI), which is a US government published statistic mirroring the cost of living increases in a region.
The lease agreement will make provision for the rental to be reviewed after a certain period of time or it may state that the rental will increase on an annual basis by a certain percentage, or in accordance with the comparable market rates. The parties are however free to contract as they wish in this regard.
Where the parties cannot reach an agreement pertaining to a rental increase, or where the increase is excessive, the Housing and Building Rent Regulations [Statutory Instrument 32 of 2007] and the Commercial Premises Lease Control Act Rent Regulations [Statutory Instrument 676 of 1983] states that either party may approach the rent board to decide the matter and thereafter issue an order.