Index-linked leases: Can graduated and index-linked rent be combined?
Index rental agreement: Definition, benefits, usage
Landlords who want to counteract the effects of inflation are advised to regulate tenancies by means of an index-linked rental agreement. This form of lease agreement is based on the official consumer price index applicable to private households. The price index is determined at regular intervals by the Federal Statistical Office and increases as the rate of inflation rises. Thus, with the rental index, landlords can increase rents accordingly, if the cost-of-living increases. However, even with a rental index, rents can only be increased once a year. Additionally, these rents do not increase automatically. The landlord must announce the increase in writing. However, the consent of the tenant is not necessary for it to be valid. The use of index-based rents has both advantages and disadvantages for landlords and tenants.
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Calculation of the rental index
The main difference between index-linked rent and graduated rent is that the increase in the rent for a graduated lease is fixed in advance. In the case of index-linked rent, it is based on the price index, which can vary and is not entirely predictable. A combination of graduated rent and index-linked rent in one contract is permissible in principle, but only if the elements of the increase do not overlap. The calculation of the index-linked rent essentially requires two values. This is the index value at the time of the conclusion of the tenancy agreement or the last rent increase as well as the current index value. The index rent is calculated by dividing the new and the old index value and multiplying it by one hundred; the value one hundred is then subtracted. An example of index-linked rent, if the previous rent was 720 euros, the old price index at the time of signing the contract was 107.2 and the new one is 108.6, would therefore look like this: (108.6 / 107.2 x 100) - 100. This formula results in a percentage price increase of 1.31%. The resulting rent increased by this percentage is therefore 729.43 €. However, it is advisable to consult a model for an index-linked rental agreement in which the calculation formula is already defined. You can find templates for this quickly and easily online.
Circumventing the rent break with index-linked rents
Index-linked leases offer landlords the opportunity to circumvent the Mietpreisbremse (rent break), as the legislature has exempted index-linked leases from the rent cap. This applies exclusively to new real estate brokerage. The decisive factor is that the rent agreed in the lease for the index-linked rent is below the rental cap. This creates a so-called grandfathering for landlords, under which rent increases do not have to take the Mietpreisbremse into account and the rent may also be above the amount of the Mietpreisbremse. This is an option for landlords, especially in times of rising inflation, to adjust income to the rate of inflation, even if a rent break has been set for the place of residence.
Advantages and disadvantages of indexed rent
The principal advantage of this type of rental agreement is that you, as the landlord, can implement the rent increases specified in the index agreement even if the rent is already at the typical local rent level or has even exceeded it. The index rent also creates a certain degree of security in planning, as you can better offset general price increases by adjusting rental income. However, depending on how the rental market develops, these advantages can also become disadvantages. This is the case, for example, if the local rent increases more than the level of inflation. This cannot be mitigated by the index-linked rent. In addition, if the cost-of-living decreases, a tenant is entitled to a reduction in rent. Another disadvantage is that costly renovation or maintenance work may not be included in the rent under the index rent for residential property. Accordingly, a modernization rent increase is excluded unless the modernization is carried out on the basis of statutory requirements.