How to Implement a Rent Increase in a Commercial Lease?

Any rent increase within the framework of a commercial lease is subject to strict regulations, just like the terms of this increase, which must be clearly stipulated in the contract binding the landlord to the tenant. As a landlord, you may wonder if you have the right to increase the rent of your commercial premises and how to do so while complying with the law and avoiding conflicts. Here is an overview of the main rules to know in the field of commercial leases.

How to determine the amount of commercial rent?

An overview of the commercial lease

In Luxembourg, the commercial lease is governed by the law of February 3, 2018. It can be used to rent any type of professional premises, with the exception of offices, short-term rentals (lasting 12 months or less), and liberal professions. For these three categories, the rental of a workspace is governed by the Civil Code. Most commonly, a commercial lease is used for commercial and service activities, such as a hair salon, for example.

Determining the rent of a commercial lease

To set the rent amount and possibly plan for an increase, several criteria are taken into account, such as the market, the condition of the property, and the neighborhood. The combination of these characteristics makes it possible to calculate the rental value of the property.

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Warning: since 2018, it is illegal to ask tenants of a commercial premises for a "pas-de-porte" (key money). This term was used to refer to the entry fees required from the tenant upon their arrival. Whether it's called a "pas-de-porte", "entry fees", or "additional compensation", you should know that this practice is prohibited!

How to increase the rent of a commercial lease?

The rent amount for your commercial premises must be clearly stated in the lease. You must also add the cost of charges and specify what they include (water, electricity, maintenance of common areas, gas, etc.).

It is recommended to include the payment terms and deadlines in the rental contract to avoid any confusion and disputes. Finally, the contract must also include the rules regarding rent revision. Generally, this revision is based on the consumer price index: you use the figure from the month preceding the signing of the lease to set the rent, and you base the revision on the latest index at the time of the review.

The risks of excessively high commercial rent

Some professionals, including large department stores that are thought to be firmly established in their territory, do not hesitate to leave their historic neighborhoods if they feel the rent is too high. It is therefore crucial to keep in mind that any rent increase in a commercial lease can put the tenant in difficulty and force you to quickly find a new tenant.

Furthermore, a high rent risks being less attractive on the market. You could encounter more difficulties finding a tenant, and they might not stay long, especially if they find cheaper premises elsewhere.

Finally, an excessively high rent can also lead to problems with late or defaulted payments. To avoid these delicate situations that could cause you to lose money, the ideal approach is to adapt to the market and remain reasonable when considering a rent increase. To guide you in your decisions, trust a commercial real estate specialist in Luxembourg or entrust them with the management of your assets!