In a pinch due to higher business space rent after indexing? 3 solutions!

As is well known, inflation is currently skyrocketing. This leads in many cases to extreme rent increases. Leases of retail and hospitality businesses, for example, assume an annual increase in rent based on the Consumer Price Index (CPI). As a tenant of business space, can you do anything about this?

CPI vs. core inflation

A call has been made by various agencies and industry associations to use the concept of core inflation instead of the usual indexation based on the CPI. Instead of an inflation rate of almost 10%, an inflation rate of about 3-3.5% would then follow. For most tenants, this is more affordable.

What is core inflation?

Core inflation is the inflation rate that does not take into account product categories whose prices can fluctuate widely. These include energy and agricultural products (food). The core inflation figure, like the normal index figure, is also calculated each month by the CBS. In the months of January and February, the difference between inflation and core inflation was easily 4%, while in the months of March and April, the difference rose to 7% and 6%, respectively.

Since core inflation is not based on higher energy prices, it seems more reasonable to assume this instead of using the CPI figures. After all, in most cases, high energy prices are paid by tenants anyway based on the lease.

What options do you have if you find yourself in a bind due to excessive rent for your business space?

1. Forcing lower indexing

Enforcing a lower indexation may offer a solution. For tenants, however, this will have to be agreed upon in consultation with the landlord. Landlords will argue that, in the past, lower indexation did not lead to higher indexation either. Therefore, most landlords will not agree to a lower indexation.

Another idea could be to agree on a lower indexation or a fixed indexation for the next five years. This could mean that a landlord commits himself now to implementing the lower indexation, if in the following years, for example, an indexation of 5% is also agreed for a fixed amount. It is uncertain for both tenant and landlord whether the indexation will remain as high or go down again or perhaps become even higher. In any case, it provides clarity for the parties.

2. Unforeseen circumstance

In corona times, invoking the contingency has often successfully resulted in a lower rent. Although high inflation is extreme and both tenant and landlord will not really have taken such high inflation into account, there is no contingency. On the contrary, the parties have taken into account how indexation is handled. Specific provisions on this have been included in the lease agreement so that it has been agreed in advance how to proceed.

This could be different if the parties have not agreed on indexation, but have been implementing standard indexation for a long time.

3. Rent review

A final option, depending on the lease, is for a tenant to use the option to request a rent review. In most cases, this can be requested every five years. This involves looking at the rent of similar businesses during the five-year period preceding the request. In the period before this, there were no such extreme rent indexations. This can result in the rent that is further determined by a judge being a lot lower than before.

Indexation will still be applied, but the rent may remain at the same level. Should parties enter into a new rental agreement, it is important to include in the rental agreement, for example, that a maximum is always agreed upon in case of indexation. So not only a minimum for landlords but also a maximum that may be passed on to tenants in order to take into account extreme indexations as they occur now.

Summary

In short, enter into discussions with your landlord to see what solutions are possible. Have an investigation into whether it is possible to review the rent. Our team will be happy to look at the possibilities with you. Are you entering into a new rental agreement? Then keep in mind to include a cap. Can't figure it out? Then contact us!

If you are in a bind with multiple contracts, a restructuring of contracts and debts through insolvency law, such as the WHOA (Homologation Private Arrangement Act) may be a solution. You can read more information about it at this link.