When it comes to entering a Lease on a commercial space, there’s always the question of how to handle annual rent increases. Some Landlords like to tie the rent to changes in the Consumer Price Index (CPI), while others prefer to keep it simple with fixed increases. Let’s break down the pros and cons of both approaches and why sticking to fixed rent increases might be the smarter move.

CPI in Leases: Keeping It Fair

So, what’s the deal with using CPI increases in commercial Leases? Well, it’s a way to adjust rents based on how prices for goods and services are changing over time. This method can keep things fair and transparent between Landlords and Tenants, helping to avoid any disagreements over the need for rent increases. Plus, it can protect Landlords from losing out to inflation by making sure their rental income keeps up with rising costs.

However, there are some downsides to using CPI increases. For Tenants, it can mean facing unpredictable rent changes that make budgeting a headache. And for Landlords, relying solely on CPI might not always cover their actual increasing expenses, leading to financial strain. That’s where fixed rent increases come in as a more stable and predictable option.

Steady Rent Rises: Planning Ahead

Negotiating fixed rent increases means setting a specific amount for rent increases each year, giving both Landlords and Tenants a clear picture of what to expect. This predictability helps with long-term planning and budgeting, benefiting everyone involved. It also helps Landlords keep pace with their costs without having to worry about fluctuating CPI numbers.

Tenant Tranquility: Predictable Rent Bumps

For Tenants, fixed rent increases provide peace of mind, knowing exactly how much their rent will go up each year. This makes it easier to budget and avoids any sudden spikes in rental costs. It can also lead to better relationships between Tenants and Landlords, as everyone knows what to expect.

In the end, while CPI increases offer flexibility and transparency, opting for fixed rent increases could be the way to go in commercial Leasing. With stability, predictability, and protection against inflation, fixed increases can make life easier for both Landlords and Tenants. By finding the right balance between the two approaches, Landlords and Tenants can create Lease agreements that work for everyone in the long run.

Talking to Landlords: Dealing with CPI

If you find yourself in a situation where a Landlord insists on CPI increases in a commercial Lease, it is essential to approach the situation tactfully and strategically. Here are some steps to consider.

When a Landlord pushes for CPI increases, it is important to try to understand their stance first. You might decide to negotiate by suggesting compromises like capping CPI boosts or proposing fixed increases or a combination of both. Additionally, you could offer alternatives for stability, such as fixed rent adjustments. We recommend seeking advice, if negotiations get tricky. Above all, it is important to evaluate the Lease terms carefully and consider flexibility, if CPI increases are non-negotiable. And last, but not least, keep everything in writing for clarity.

Remember that open communication, understanding the Lease terms and exploring options, can help navigate a situation where a Landlord insists on CPI increases in a commercial Lease. Throughout each Lease negotiation, it is important to approach the situation professionally and seek mutually agreeable solutions whenever possible.

New Digs Hunt: When Leases Hit Snags

If negotiations stall over CPI increases, exploring other commercial premises may be a better and more strategic option. Finding a Lease that better fits your budget and objectives, can promote financial stability and operational efficiency. Moving to a space with more favourable lease terms, may offer a solution to avoid potential financial strain and uncertainties linked to CPI adjustments.

Your Leasing Co. specialises in Tenant/Landlord communication and representing Tenants to negotiate favourable lease terms.  If you have any questions or need any help to get the best outcome from your Lease, you can call us for a free, no obligation conversation on 1300 356 702.