The Freedom of Contracting Parties and Contract Terms

One of the most common questions concerning both landlords and tenants is that of rent increase. Can a property owner unilaterally increase the rent, and if so, under what conditions?

The answer to this question is not simple and depends on a variety of factors, such as the type of lease (commercial or residential), the terms agreed upon in the lease contract, and the applicable legislation.

What Does the Law Provide?

First and foremost, the law grants significant freedom to the contracting parties to determine the terms of the lease, including the amount of rent and the method of adjustment.

• Free Determination: The contracting parties can freely agree on the initial rent amount and specify mechanisms for increases, such as annual adjustments based on a specific index (e.g., CPI, inflation, turnover increase, etc.).
• Validity of Contractual Terms: As long as the agreed terms are not unreasonable or abusive, they are fully binding on the contracting parties.
• After Three Years: For residential leases, after three years, the rent is again determined freely, while for commercial leases, specific regulations apply.

Specific Regulations for Commercial Leases

Since 2022, specific regulations have been established for commercial leases that limit rent increases to 3% annually. This means that even if the lease contract specifies a larger increase, it cannot be enforced.

What Applies When No Contractual Increase Is Specified?

In cases where the lease does not specify a method for rent adjustment, the so-called "legal increase" may apply, which equals 75% of the annual increase in the CPI. However, this provision only applies when there is no other agreement between the parties. Specifically, for commercial leases, this provision applies to old  (pre-March 2014) leases that do not specify a rent increase after the initial first two years, if the rent exceeds 6% of the annual objective value of the property.