Why is rent indexation included in commercial lease agreements?
Commercial lease agreements are typically entered into for a fixed term of 5, 10, or even 20 years. It is therefore clear that, over such a long lease term, the time value of money will change due to inflation in the economy.
Consequently, the market rent rate, for example, 20 euros per square meter of leased space in the first year of the lease, will, after a few years, no longer reflect its original market value and will reduce the landlord’s profit. In a scenario of significant inflation, the lease may even become unprofitable for the landlord.
Rent indexation: how a landlord can protect against a decline in the purchasing power of money
To protect against a decline in the purchasing power of money, when negotiating the terms of a commercial lease agreement with a potential tenant, the landlord therefore introduces a rent indexation mechanism.
The function of the indexation clause is to ensure that the rent rate corresponds to increases or decreases in the prices of goods and services in Poland, and that the rent maintains its “commercial value” at the same level as on the date the lease agreement was entered into, i.e., prior to its indexation. It can therefore be concluded that the indexation clause in a commercial lease agreement is an “anti-inflationary” mechanism designed to protect the landlord’s long-term interests in the event of a loss of purchasing power of money.
What indexation rate should a landlord adopt to protect against inflation?
Pursuant to Article 3581 § 2 of the Polish Civil Code, the parties may stipulate in the contract that the amount of a monetary payment will be determined based on a measure of value other than money. This provision means that the amount of the tenant’s payment to the landlord may be determined not by specifying a monetary amount, but by defining the value that the payment is to have, using a measure of value other than money (W. Borysiak (ed.), Civil Code: Commentary, 34th ed., 2025). The Polish Civil Code therefore does not specify how rent is to be indexed, and the parties to a commercial lease agreement may freely determine this method.
In practice, however, the parties always opt to include an indexation clause that corresponds to official inflation indices published by public entities. This approach ensures a degree of predictability regarding the amount by which the rent may be increased, as well as objectivity and precision for both parties to the agreement.
In the Polish commercial lease market, the following two indexation indices are generally used:
- HICP (Harmonized Index of Consumer Prices), a harmonized consumer price index published by Eurostat and calculated uniformly across all European Union countries. The index is calculated based on observations of changes in consumer prices. As a rule, this index is primarily used in lease agreements where the rent is specified in euros, and the law permits the indexation of payments denominated in a foreign currency (E. Gniewek, P. Machnikowski (eds.), Civil Code. Commentary, 12th ed., 2025);
- The Consumer Price Index for the calendar year, announced by the President of the Central Statistical Office and published in Monitor Polski (inflation index). This index is generally used in lease agreements where the rent is specified in Polish zlotys.
Of course, the provision does not preclude the possibility of using other theoretical indices, such as changes in the price of gold or other precious metals, or foreign exchange rate fluctuations; however, in practice, these are uncommon solutions and exceptions to the indexation method based on the two indices indicated above.
Rent indexation in a commercial lease agreement – what should you keep in mind?
Rent indexation is a fairly complex mechanism. In addition to the method of rent indexation specified in the indexation clause, there are other important issues that the parties to the lease agreement should define precisely.
First and foremost, the lease agreement should specify when the first rent adjustment will take place. The date should be based on the time the lease agreement is entered into. For example, when entering into a lease agreement in November 2025, the tenant should not agree to rent indexation starting in January 2026. It is obvious that in such a short period of time, there will not be a significant change in the purchasing power of money that would justify the application of the indexation mechanism.
Furthermore, when entering into a lease agreement in November, based on the partial HICP/GUS indices published through November of the year the lease agreement is in effect, the parties can easily predict the change in the rent amount; therefore, there is no need to index the rent as early as January 1 of the following year.
Is it permissible to include a provision for negative rent indexation in a lease agreement?
Yes. It is in the tenant’s interest for the lease agreement to include a provision allowing for negative rent indexation, i.e., a reduction in rent when the HICP/GUS index shows a negative value. The practical consequence of including such a provision will be a reduction in the rent during periods of deflation, i.e., a decline in the general price level in the economy.
If the parties do not include such a provision, this will lead to a situation where rent will always increase during periods of inflation but will not decrease when the inflation rate turns negative. It should be noted, however, that periods of deflation in the economy are extremely rare (in Poland, this occurred between 2014 and 2016).
Does the landlord have to inform the tenant about rent indexation?
No, they do not. It is in the landlord’s interest for the lease agreement to specify that they are not obligated to inform the tenant of the rent indexation within a specific timeframe. In this situation, indexation occurs “automatically,” without the landlord needing to make any formal declaration of intent.
A practical example from Polish case law:
“(…) the parties included an indexation clause in their agreement. The parties clearly specified in the relevant agreements that the rent would be subject to annual indexation (…) Moreover, the indexation itself did not require any amendment (to the agreement). Therefore, in the case of contractual indexation, there are – as the District Court noted – no grounds for imposing on the creditor (plaintiffs) the obligation to submit a statement that they will demand indexation.” (judgment of the Polish Regional Court in Warsaw, 23rd Commercial Appeals Division, dated April 27, 2018, case no. XXIII Ga 912/17).
What, however, happens in a situation where, according to the terms of the lease agreement, indexation does not occur automatically, and the landlord is obligated to notify the tenant of the application of indexation, but the landlord “omits” this requirement? Will the landlord then be able to apply indexation retroactively? It appears not. If the landlord does not exercise this right, retroactive indexation will not be possible. While the landlord’s right to indexation does not expire, declarations of intent generally have prospective effect and do not apply retroactively. Retroactive rent indexation will therefore only be possible if the landlord explicitly exercises this right and indexes the rent.
Summary
Rent indexation is one of the most important mechanisms for safeguarding rent levels in commercial properties. It allows landlords to protect themselves against a decline in the purchasing power of money (inflation) and maintain the economic value of the rent throughout the term of the lease, which generally spans many years.
For the parties, it is not only the mere fact of including an indexation clause that is crucial, but also how the contractual provision stipulating the clause is structured. Particular attention should be paid to issues such as the choice of the indexation benchmark, the timing of the first indexation, the possibility of applying negative indexation, and the rules for notifying the parties of the indexation. Ambiguities in the wording of these provisions can, in practice, lead to significant financial consequences for both parties.
Before signing a commercial lease agreement, it is therefore advisable to carefully analyze the provisions regarding rent indexation and assess their effects over the entire lease term. This will help avoid a situation where an “automatic” rent increase comes as an unpleasant surprise to the tenant, while also providing the landlord with adequate protection against the effects of inflation.
This usually does not happen automatically. A rent adjustment alone does not, by virtue of the lease agreement, result in a change in the amount of security deposits or bank guarantees, unless the parties have expressly provided for this. If the lease agreement does not contain relevant provisions, the security deposit remains at its original level, even if the rent is increased as a result of indexation. This can lead to a situation where the security deposit no longer corresponds to the current value of the tenant’s obligations, so the parties should address this issue in the agreement.
Not always. Although the indexation mechanism most often applies to rent, in practice it may also frequently cover other monetary payments made by the tenant to the landlord, such as a marketing fee.
Most often, the parties agree to the first indexation 12 months after the lease begins, which allows the rent adjustment to be based on full annual inflation data.
Yes. It is often in the tenant’s interest to postpone the first rent adjustment, e.g., by 12 or 24 months from the date the lease is signed, as well as to limit the frequency of subsequent adjustments (e.g., to every two years).
