REALWorld Law

Commercial leases

Fixed or variable rents

Will the rent payable remain the same as long as the lease lasts?

Angola

Angola

Any rent updating shall be done in accordance with the legal annual coefficient that is approved by the government. However, for commercial leases:

  • Whose term is more than five years, or
  • Without term

the parties may define other ways to update the rent in the contract.

The lessor may make additional rent updates after executing improvement works in the premises that were imposed by the relevant administrative authorities.

Australia

Australia

It is common practice for leases to contain a clause providing for annual rent reviews. Such clauses tend to account for inflation or movements in the average market rent.

Belgium

Belgium

Parties are free to agree the amount of rent, the intervals at which it must be paid (monthly, quarterly, twice a year etc), and the timing and method of payment. Variable rental agreements are not common, except in certain types of retail lease (shopping centres, outlet malls), when there may be a link to turnover.

Although not mandatory, parties commonly agree on indexation as a 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 for calculating 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.

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 will order any alteration in the rent, 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.

Bosnia-Herzegovina

Bosnia-Herzegovina

Changes to the rent can be agreed between the contracting parties.

Specific provisions stipulating minimum or maximum amounts for rent can also be imposed by municipal bodies. These provisions will affect leases of properties in certain locations in particular municipalities (eg leases of state-owned business premises for specific activities).

Canada

Canada

Whether the rent amount can be changed is dependent on the terms of the lease. The length of the lease’s term will likely influence the inclusion of rent review clauses. Rent increases for residential tenancies is typically controlled by applicable Provincial legislation.

China

China

The rent in commercial leases is usually fixed but subject to an annual increase, with either the total increased amount or the percentage being specified in the lease. It is also common for retail leases to include turnover rent as well as fixed rent where the lessee pays whichever is the higher.

In addition, under PRC law, the rent payable cannot be increased by the lessor unilaterally during the term of the lease.

Croatia

Croatia

Where leases are granted for several years, it is standard practice to provide for a rent review after the expiry of a specified period to allow the rent to be adjusted to the market rate that would be payable for a new lease of the property on similar terms. Alternatively, rent may be index-linked.

Rents linked to turnover are also common (especially in the case of retail property).

Czech Republic

Czech Republic

During the term of the lease, rent may be increased if this is provided for in the lease agreement. This usually happens as a result of a provision for indexation of the rent (linked to the rate of inflation) or a market rent review. arket rent review.

Denmark

Denmark

Generally, the parties will agree on a rent review mechanism, for example indexation, but it is possible to agree that the rent will be fixed for the entire rent period.

The Commercial Rent Act also contains detailed provisions regarding adjustment in line with market rents if either party claims this right. This will be based on a market rent review. The relevant provisions are non-mandatory.

France

France

Rent can be revised every three years at the request of either party, even if a formal rent review is not provided for in the lease.

However, the parties may 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 tertiaries – 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). In any case, the index chosen by the parties must have some connection with the activity carried on by one of the parties or with the purpose of the lease.

If the rent review pursuant to an indexation clause results in a change of 25% or more compared with the rent originally fixed or the rent as determined at the last rent review, either party can request that the rent be reviewed so as to be fixed by reference to the valeur locative or cadastral rental value.

Germany

Germany

Most commercial leases lasting 10 years or more contain indexation clauses. The term can either be fixed for at least 10 years, or the tenant may be entitled to the automatic extension of a shorter fixed-term lease up to a total term of 10 years or more. Indexation clauses in commercial leases with a term of less than 10 years are invalid under statutory law, but remain valid until a court declares the indexation clause to be void.

Turnover related rents are sometimes agreed in leases of retail property and hotels.

Leases of residential property may contain indexation clauses or stepped rent provisions regardless of their duration but this is unusual. Under statutory law, rents can be increased up to the market rent for equivalent properties in the area but in principle not by more than 20% in any period of three years (Kappungsgrenze). In some cities and municipalities in Germany, this cap is set at 15%. This possibility applies only to leases of residential property. Another rental cap (Mietpreisbremse) under statutory law was introduced in 2015 which is designed to cap the amount by which residential rents are permitted to rise in urban areas which are threatened by “overheating”. The law allows a maximum 10% increase in the rent in a new lease contract over an agreed rent table or index for the relevant area. Germany’s federal states are empowered by the law to designate areas within their jurisdiction which fall into this category.

Rent review usually takes place if the consumer price index reaches a certain threshold. Annual rent adjustment is another possibility.

The so-called rent cap in Berlin, which has been in force since 23 February 2020 and under which a five-year rent freeze came into effect, has been declared invalid and incompatible with the German Basic Law (Grundgesetz) by the Federal Constitutional Court (Bundesverfassungsgericht) in its decision dated 25 March 2021.

In its decision dated 12 January 2022, the Federal Supreme Court has allowed a rent adjustment taking into account the effects of the Covid 19- pandemic, considering the individual circumstances of each case.

Hong Kong, SAR

Hong Kong, SAR

Most leases provide for a fixed amount of rent for the duration of the term agreed between the parties.

Hungary

Hungary

Annual indexation on the basis of the consumer price index is the general practice. Other types of variable rent agreement – including rent review in line with increases in market rent – are not common in Hungary.

Ireland

Ireland

A short-term letting of five years or under does not usually include a rent review clause. A lease of more than five years will contain a clause providing for the rent to be adjusted every five years. In older leases, the rent will typically either remain constant or be increased every five years. The Land and Conveyancing Law Reform Act 2009 prohibits the creation of new leases with upwards-only rent review clauses from 28 February 2010, and as such more modern leases tend to be adjusted in accordance with the Open Market Rent.

Italy

Italy

Pursuant to the Italian Tenancy law, the parties can provide that the rent is adjusted annually by a maximum of 75% of the variation in the ISTAT index (a measure of consumer price inflation) in the case of non-residential leases (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, ie six years for commercial leases and nine years for hotel leases) and by a maximum of 100% of the variation in the ISTAT index in the case of residential leases. The above limitation to the rent indexation can be departed from by the parties in relation to non-residential lease agreements (ie for offices, retail space and hotels) providing for a yearly rent greater than €250,000, provided that such leases do not affect buildings with a historical value confirmed by a local administrative order.

In a business branch lease (ie a lease with a contractually agreed term entered into for the purposes of a stand-alone business such as the operation of a retail unit within a shopping centre) the parties are free to agree the percentage of the ISTAT index variation to be applied, usually 100 per cent.

Usually, in the case of an initial reduced rent, the ISTAT adjustment starts from the year in which full ordinary rent first becomes payable.

‘Turnover rents’ and ‘stepped rents’ (where rent changes over time to reflect increasing benefits for the tenant or the investment made by the tenant in the premises) are also permitted.

It is currently advisable to specify in the lease contract the express reasons for any rent increase, to make it clear that increases are not sought in order to compensate for losses due to inflation, since this is done through application of the ISTAT index variation to the contractually agreed rent.

Japan

Japan

A fixed, variable (eg rent which is based on the sales revenue of the leased premises), or mixed rent amount may be agreed to by the parties in a lease agreement.

Under the ALBL, both a lessor and a lessee possess the right to increase or decrease the rent amount if the current rent has become ‘unreasonable’.  In the case of an ordinary lease, the parties can contract away the lessor's right to an increase in rent, but cannot contract away the lessee's right to decrease the rent.  In the case of a fixed-term lease, however, both of these rights may be contracted away.

Netherlands

Netherlands

Parties usually agree to a rent subject to annual indexation (by way of the Consumer Price Index published by the Dutch Central Bureau of Statistics (CPI)). In the case of industrial leases or other types of commercial space, the parties are free to agree upon an interim adjustment of the rent aligned to market conditions. Standard revision procedures are often included.

With regard to a retail lease, the lessee and the lessor are entitled to ask the court to adjust and assess the rent in accordance with the rent of comparable local retail space at the end of the lease term (in the case of renewal), or in a case where the retail lease has been entered into for an indefinite period every five consecutive years after the assessment of the rent by either the parties or the court.

Nigeria

Nigeria

Nigerian courts will uphold the sanctity of contracts agreed between parties to a commercial lease and will refrain from introducing provisions that parties did not contemplate and agree in the lease agreement to be binding, particularly provisos on rental escalation rates and review mechanism.

The rent for long-term commercial leases do not have to remain the same for the entire term provided the parties agree in the lease agreement for a rent review clause or provision. Where the lessor fails to negotiate and insert in the lease agreement, a condition that the reserved rental can be reviewed within specified periods, the lessor cannot unilaterally vary the agreement and demand a rent review without negotiating with the lessee and obtaining its consent. It is not sufficient that the applicable commercial rates for similar properties in the location of the property differs from the rent paid by the lessee.

Commercial leases for shorter terms typically have provisions for rent review where on expiry, the lessee exercises an option to renew the lease for a further period. Furthermore, the lessor in a lease that is expiring is at liberty to negotiate new rent rates as a condition to renew the lease.

For leases directly granted by state pursuant to the Land Use Act, the Governor may revise the rent at such intervals as stipulated in the Certificate of Occupancy, otherwise, at such reasonable intervals within the term of the grant.

Where the parties by their contract specify that the rent shall be subject to review and explicitly indicate the review mechanisms, it becomes much simpler to review the reserved rental. This is achieved by inserting a detailed rent review clause in the agreement of the parties.

Norway

Norway

Rent for commercial leases is often adjusted annually in line with an indexation. Adjustment to market level usually only happens when a lease is renewed. In retail leases the rent may also sometimes be linked to the tenant's turnover.

Poland

Poland

It is standard practice to link rent reviews to an appropriate price index. Adjustment is often on an annual basis for commercial leases. Adjustment of rent in relation to residential leases is very limited and can only be done in accordance with the provisions of The Protection of Tenants and Municipal Housing Resources Act.

In order to increase the rent at review the landlord under a commercial lease must notify the tenant of the increase at the end of the calendar month no later than one full calendar month before it is to be implemented. This does not apply to leases of business premises completed before 1 January 2005.

Pursuant to the Article 15ze1 of the Act on specific arrangements related to the prevention, counteraction and control of COVID-19, other communicable diseases and emergencies caused by them, during the ban on trading at a retail facilities offering a sales area of more than 2,000 m2 (“Large-Scale Shopping Centres”), concerning the tenancies/lease/other similar contracts by which the retail space is granted with the aim to use it, the level of provision of tenant/lessee is lowered to 20% value of contractual provision if the contract was concluded before 14 March 2020 and during the period of 3 months after lifting each of the bans – to 50% value of contractual provision if the contract was concluded before 14 March 2020. In case if lowering the provision were not justified on the ground of article 3571 of the Polish Civil Code (general rebus sic stantibus clause), both of the parties shall have the right to demand lowering the abovementioned contractual provision by the court.

Portugal

Portugal

Any rent updating shall be done in accordance with the legal annual coefficient that is approved by the government. However, the parties may define other ways to update the rent in the contract.

The landlord may operate additional rent updating in older leases (non-residential leases dating from before 1995), where the rents are very low. Law 31/2012, as amended by Law No. 79/2014 and Law No. 43/2017, of 14 June, provides for the possibility of a negotiation between the parties, landlord and tenant, in order to agree on the updated value of these rents. If the parties do not reach an agreement, the rent is updated in accordance with the criteria defined in the law (the annual rent is to be equal to 1/15 of the property’s tax value).

Romania

Romania

There are no mandatory legal provisions governing lease agreements as regards indexation of the rent. However, clauses expressly providing for indexation are a common in longer lease agreements. Normally the rent will be linked to the increase in the Harmonized Consumer Price Index.

The Civil Code also allows the courts to alter the parties' rights and obligations if exceptional and unforeseen events, which occur after the agreement is entered into, make the execution of the agreement overtly burdensome and unjust for the debtor.

Slovak Republic

Slovak Republic

Generally, the parties are free to contract as they wish. In the case of a commercial lease, it is common to provide for the indexation of the rent so that it is linked to the rate of inflation.

Spain

Spain

In agreements for the lease of retail premises it is not unusual to agree a variable rent (together with, or alternative to a fixed rent). The variable rent will be a percentage on the sales made in the premises and may either remain stable or be ratcheted linked to the level of sales.

Regarding fixed rent, the parties are free to agree whether there will be annual rent reviews or not. If no express mention is made, no review will take place. If a review is agreed in principle but no review system is specifically provided for, then the rent will be increased or decreased annually, in line with changes in the Competition Guarantee Index created by Law 2/2015, of 30 March, on De-indexation of the Spanish Economy.

In practice, in most leases, the rent will be increased or decreased annually, in line with the Spanish National Consumer Price Index (CPI) figures for the 12 months immediately preceding the date of each adjustment.

Sweden

Sweden

With the exception mentioned below, rents are not reviewed on a market level basis during the term of the lease but are set at a fixed amount, although they may be subject to annual review under an index clause if the term of the agreement is at least three years.

In order to renegotiate the rent either the landlord or the tenant must terminate the lease in accordance with the provisions of the Swedish Rental Act. If the landlord terminates with a view to seeking a new rent which exceeds the market value, this may be deemed a wrongful termination. The procedure to terminate a lease in order to renegotiate rent is very formal. Therefore, it is important to seek legal advice prior to terminating a lease to avoid the risk of having to pay damages.

Variable rental arrangements do exist in a retail context, and in this case rent may be linked to the turnover of the tenant's business.

Thailand

Thailand

This matter is solely a contractual arrangement between the parties. Both fixed and variable rent are commonly used in Thailand.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

Rent is commonly calculated on a ‘per square foot’ or ‘per square metre’ basis. In relation to retail property, it is common to see an additional turnover rent element. Rents are generally reviewed annually.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

The rent must be specified in the lease and it is common to see rents reviewed every year up to every five years, depending on the duration of the lease.

UK - England and Wales UK - England and Wales

UK - England and Wales

Where a lease is granted for more than five years, it is standard practice to provide for a rent review every five years in line with the market rent that would be payable for a new lease of the property on similar terms. Such provisions normally provide only for upwards rent reviews, although statutory provisions have been proposed that, in the future, could restrict the imposition of upwards-only reviews.

UK - Scotland

UK - Scotland

In certain leases, there is provision for a stepped rental increase. However, for leases of over five years the accepted market practice is to schedule a rent review on the fifth anniversary of the date of entry and every five years thereafter.

Ukraine

Ukraine

By Ukrainian law, rent is subject to indexation. This means that the rent varies in relation to the index measuring inflation or according to other circumstances stipulated in the lease agreement.

A lessor and lessee may also agree and stipulate in the lease agreement other grounds for changing the rent during the lease term and the relevant procedure.

United States

United States

Whether the base rent will vary is entirely dependent upon the negotiated terms of the lease.

Zimbabwe

Zimbabwe

The Commercial Premises Lease Control Act simply states that once a fair rental has been determined and is in force, the landlord will not be permitted to charge a rental in excess of that amount. However, the parties have contractual freedom and may in their agreement include a rental review clause to state that the rental will be subject to an increase of a certain percentage after a certain period of time, or that it will increase in accordance with the comparable market rates.