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Inflation: prepare for strong indexation of your rent - Finance

Inflation: prepare for strong indexation of your rent – Finance

Bad news for tenants of real estate: their rent may well increase soon, following high inflation.

To understand the mechanism, remember that the indexation of rents is based on the health indexwhich is a derivative of the consumer price index, itself influenced by inflation (+5.64% in November). The health index is also used to calculate the indexation of wages, or even social allowances.

The health index would be 2.0% in 2021 and 3.7% in 2022, against 0.99% in 2020 and 1.46% in 2019, according to the latest forecasts from the Planning Bureau. In November, it increased by 1.26 points to 115.20 points, compared to 113.94 points in October, while it stagnated around 110 points from January to May 2021. Rents based on this index will therefore be higher from next year.

It is often mistakenly thought that an automatic indexation of rents occurs every January 1st, this is not the case. The indexation of rent to the cost of living can only be done on the anniversary date of the signing of the rental contract. Nor is indexing automatic.. This is a legal increase, provided for in the tenancy law. However, it is not compulsory. “The choice to index or not, or even to ‘partially’ index the rent remains specific to the lessor”, can we read in the text of the law.

Rules to follow

The owner of a rental property cannot, however, raise the rent as they see fit. There are certain rules to follow. In practice, to know the amount of a new rent, you have to multiply the base rent by the new index, all divided by the starting index. In principle, this is the index corresponding to the month preceding the entry into force of the lease. Responsibility for rents is regional, but the legislation is generally the same in Flanders, Brussels and Wallonia. An online SPF simulator facilitates the calculation.

For example, a lease contract signed in November 2020 and entering into force the following month, (December 2020), with a rent amounting to 750 euros can be indexed in December 2021 on the basis of the current health index which s stands at 115.20, compared to 109.91 in November 2020. The amount of the rent would be 36 euros higher per month, which represents an increase of 430 euros on an annual basis.

An indexation freeze, a false good idea

As soon as the new rent has been established, the landlord should communicate it in writing to his tenant, who will have no choice but to refuse it. Indexing can only be done once a year. Lease contracts that would mention indexation every 6 months do not comply with the legislation.

A landlord can also decide not to index his rent for several years in a row. Even if this indexation freeze can relieve tenants, the increase will be all the more strongly felt in the following years. In addition, the owner may also claim arrears. However, they are limited in time, the lessor can only go back 3 months from the month of the request.

To understand the mechanism, remember that the indexation of rents is based on the health index, which is a derivative of the consumer price index, itself influenced by inflation (+5.64% in November ). The health index is also used to calculate the indexation of salaries, or even social allowances. 1.46% in 2019, according to the latest forecasts from the Planning Office. In November, it increased by 1.26 points to 115.20 points, compared to 113.94 points in October, while it stagnated around 110 points from January to May 2021. Rents which are based on this index will therefore be higher from next year. It is often mistakenly thought that an automatic indexation of rents occurs every January 1st, this is not the case. The indexation of rent to the cost of living can only be done on the anniversary date of the signing of the rental contract. Nor is indexing automatic. This is a legal increase, provided for in the tenancy law. However, it is not compulsory. “The choice to index or not, or even to index ‘partially’ the rent remains specific to the lessor”, can we read in the text of the law. The owner of a rental property cannot however increase the rent as good seems to him. There are certain rules to follow. In practice, to know the amount of a new rent, you have to multiply the base rent by the new index, all divided by the starting index. In principle, this is the index corresponding to the month preceding the entry into force of the lease. Responsibility for rents is regional, but the legislation is generally the same in Flanders, Brussels and Wallonia. An online simulator of the SPF facilitates the calculation. As soon as the new rent has been established, the landlord should communicate it in writing to his tenant, who will have no choice but to refuse it. Indexing can only be done once a year. Lease contracts that would mention indexation every 6 months do not comply with the legislation. A landlord can also decide not to index his rent for several years in a row. Even if this indexation freeze can relieve tenants, the increase will be all the more strongly felt in the following years. In addition, the owner may also claim arrears. However, they are limited in time, the lessor can only go back 3 months from the month of the request.

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