RENT INDEXATION OF COMMERCIAL LEASES
The indexation of commercial leases in Belgium differs from the regulation of residential leases. The possibility of indexation and its frequency are specifically stipulated in the lease itself. It is even possible that there is no indexation; in that case, the owner cannot claim for it unless the contract is modified at renewal.
A PRAGMATIC OVERVIEW
Rent indexation in Brussels
On December 21, 2022, the Brussels Parliament introduced temporary (one-year) restrictions on the indexation of commercial leases in Brussels. This measure was aimed at supporting businesses during the energy crisis. The indexation of Brussels commercial leases is now partially linked to the consumer price index, excluding energy products.
The calculation of indexation in Brussels depends on the starting date of the contract:
- Contracts started before 01/08/2021: Base rent x 0.99 x (new consumer price index excluding energy products) / (base health index).
- Contracts started after 01/08/2021: Base rent x 0.99 x (new consumer price index without energy products) / base consumer price index without energy products.
Since November 1, 2023, the formula for indexing commercial leases in Brussels has changed. Instead of immediately applying the new calculation method with the energy index 0, it was necessary to compare two calculation methods and choose the one that gave the lowest result. Since these rules expired in December 2023, from now on the formula that takes into account the health index should be applied, as before the restrictions imposed at the end of 2022 to cope with the energy crisis. You can access the monthly rent indexation table online.
Rent indexation in Wallonia and Flanders
In both Wallonia and Flanders, the calculation of the indexation of commercial leases is similar to other leases. Since 1994, indexation has been calculated based on the health index. If your lease started before this date, the consumer price index applies.
Frequency of Indexing
A commercial lease can be indexed at most once a year. Thus, the first indexation can occur at the earliest one year after signing the contract, depending on the contractual terms.
Notice to Tenant
Unlike residential leases, where the owner must inform the tenant of the indexation, the situation is different for commercial leases. It depends on what is agreed upon in the lease. For example, the contract may stipulate that the tenant must automatically index its rent every year, which means it must adjust it spontaneously. Sample rent indexation letters for a commercial lease are available.
Retroactive Indexing
Unlike residential leases, which can be retroactively indexed for up to 3 months, the owner of a commercial lease can claim overdue indexation for the past 12 months. However, if a tenant forgets to index their rent for more than 12 months, the indexations are lost after this period. Therefore, it is essential that the owner stay alert and send the tenant a timely indexation reminder.
Digital Tools for Optimal Management
Property management tools can provide a solution for not forgetting indexations. These tools, such as Offimac, can check via a bank connection whether rents are indexed on time. The calculation and notification of the indexation to the tenant are done automatically, relieving the owner. Offimac also automates many other property management tasks, such as payment tracking, reminders, charge offs, and creating and sending rent invoices. This software centralizes all information about your real estate portfolio and provides a clear overview of its status.
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Source reference:
[1] Law Concerning Commercial Leases of April 30, 1951. Article 6: The Statutory Provision of the Indexation Clause and its Application. [2] Federal Public Service Economy (FPS Economy). The Application of Consumer Price Indices (Base Index and New Index). [3] Academic Legal Journal (Belgium). Analysis of the Correlation between the Indexation Clause and the Rent Review at the End of the Triennial Period. [4] Royal Federation of Belgian Notaries (notaris.be). The Validity and Time of Annual Indexation in Commercial Leases. [5] Specialized law firm in Real Estate Law. Case Law on Disputes around the Retroactive Claim of Rent Indexation. [6] Flemish Agency for Innovation & Entrepreneurship (VLAIO). Practical Guide: The Financial Management of Commercial Leases and Indexation. [7] Real Estate Sector Report. Market Analysis of Rents and the Impact of the Indexation Formula on the Yield of Commercial Real Estate. [8] Deloitte or PwC (Belgium). Tax and Accounting Processing of Indexation Revenues for Landlords. [9] Common Rental Law (Federal Legislation). Distinction in Indexation Rules between Commercial Lease and Office Lease (Common Law). [10] Chamber of Commerce/Business Association. Advice on Formulating Indexation Clauses and Negotiating them. [11] Software Industry Insight. Automation of Indexation: The Importance of Accurate Date and Formula Settings in Software.