Share: Share on Facebook Share on Twitter Share on LinkedIn I recommend visiting cushmanwakefield.com to read:%0A%0A {0} %0A%0A {1}

Rent indexation – make sure it is clearly spelt out in leases

16/02/2024

Rent indexation under commercial property leases is a topical issue and particularly relevant during the first quarter of a month. If its conditions are spelt out in detail, it will help avoid potential landlord-tenant disputes. But how to choose the right index and what to focus on during lease negotiations?

HICP, MUICP, EICP – what are they all about?

Most commercial real estate investments in Poland are funded in euros, so rental rates are also usually denominated in the euro. EUR-denominated rents are indexed by Eurostat’s HICP - all items (Harmonised Index of Consumer Prices), while rental rates denominated in the Polish zloty are indexed by the Consumer Price Index published by the President of Statistics Poland (GUS).

Harmonised Indices of Consumer Prices (HICPs) are calculated by member states according to a harmonised methodology of the European Union and - depending on a geographical area - include the following types:

The MUICP (the Monetary Union Index of Consumer Prices for the euro area/euro zone), which is computed for each country using the euro as its currency.

The EICP (the European Index of Consumer Prices for the European Union), which is computed for all the member states of the European Union.
HICPs include month-to-month indices (Percentage change M/M-1), indices relative to the corresponding month of the previous year (Percentage change M/M-12 - annual rate of change), and average annual indices (Percentage change - 12 months average). The right choice of an index is a complicated process and should be made on the basis of a detailed analysis of a market situation and in accordance with the best practices in the real estate industry,”comments Aneta Rynkiewicz, Client Finance Manager, Asset Service EMEA, Cushman & Wakefield.

Which HICP is most commonly used?

For properties under management of global real estate services firm Cushman & Wakefield - with a combined area of 4 million sq m - rent indexation usually takes effect on 1 January and is linked to various indices, depending on the currency of rental rates.
Our analysis of lease agreements under our management has revealed that 75% of contracts provide for indexation by the HICP - all items computed relative to M/M-12. By geographical area, the MUICP is most commonly used, followed by the EICP. The choice is driven by the macroeconomic situation and analysis of inflation as at the lease date – parties to an agreement, supported by a team of advisers, choose the most favourable index from the point of view of their best interests,” adds Aneta Rynkiewicz.

It is worth adding that an index for rent indexation in many lease agreements specifies the number of member states of either the European Union or the eurozone. This practice may create significant problems with interpretation when the number of these states changes and the index is no longer published. It is, therefore, recommended that a lease should clearly state that an index to be used for rent indexation is the EU HICP (Harmonised Index of Consumer Prices) published by Eurostat or specify which party to the lease agreement will choose a new index for rent indexation and how once the said index is no longer published.
“During the lease negotiation process we also pay attention to theoretically less important issues which may contribute to generating substantial savings and secure the interests of both parties throughout the lease term. More is needed than just specifying the index properly. It is always worth stating clearly whether the annual rate of change or the 12-month average rate of change will be used for indexation in the years ahead. For complete clarity, we suggest including a link to the website on which such an index can be tracked. This will help prevent many misunderstandings,” explains Damian Kołata, Partner, Head of Industrial & Logistics Agency Poland, Head of E-Commerce CEE, Cushman & Wakefield.

It is very important that all the conditions of rent indexation be clearly set out in a lease agreement during its negotiation, including the date from which indexed rent will be due, the precise name of the index and its type: a monthly or annual percentage change of rate (m/m-12 or 12 months average), the month in which the index was determined as final and the method of rent indexation accounting.
“Given the current rate of inflation in Poland and the European Union, rent indexation is one of the most crucial issues during discussions between landlords and tenants. Leases very often include provisions on the minimum and maximum indexation values and exclusion of negative indexation. This is to properly secure the interests of both parties, which is particularly important in the still volatile macroeconomic environment,”

concludes Aneta Rynkiewicz.

Recent News

WELL done, Saski Crescent! Precertification for a refurbished building to a strict standard

CA Immo has announced that its boutique office building New Saski Crescent has been WELL precertified following the recent completion of its comprehensive and multi-faceted refurbishment. The investor was advised during the precertification process by consulting firms Cushman & Wakefield and WSP.

 

Mariola Bitner • 21/06/2024

Po Woli dla Autyzmu
Cushman & Wakefield integrates the real estate industry for the sixth time in support of children on the autism spectrum

More than twice as much as last year, i.e. PLN 82,700, was collected by Real Estate companies invited by Cushman & Wakefield to participate in the next edition of the ‘Po Woli dla Autyzmu’ charity city game. The funds will contribute to the account of the SYNAPSIS Foundation and will be donated to support diagnostics and therapy for children and young people on the autism spectrum.

Malwina Kierebińska • 11/06/2024

WANT TO KNOW MORE?

If you would like to find out more about our specific expertise, or discover how we could work with your company, please contact a member of our team – we’d be delighted to hear from you.
With your permission we and our partners would like to use cookies in order to access and record information and process personal data, such as unique identifiers and standard information sent by a device to ensure our website performs as expected, to develop and improve our products, and for advertising and insight purposes.

Alternatively click on More Options and select your preferences before providing or refusing consent. Some processing of your personal data may not require your consent, but you have a right to object to such processing.

You can change your preferences at any time by returning to this site or clicking on Cookies.

MORE OPTIONS
Agree and Close
These cookies ensure that our website performs as expected,for example website traffic load is balanced across our servers to prevent our website from crashing during particularly high usage.
These cookies allow our website to remember choices you make (such as your user name, language or the region you are in) and provide enhanced features. These cookies do not gather any information about you that could be used for advertising or remember where you have been on the internet.
These cookies allow us to work with our marketing partners to understand which ads or links you have clicked on before arriving on our website or to help us make our advertising more relevant to you.
Agree All
Reject All
SAVE SETTINGS