All about the index-linked rent

The index-linked rent is a form of rent that can be agreed in the rental contract for residential or commercial properties. According to § 557b BGB, the index rent stipulates that the rent is linked to the consumer price index. The consumer price index is determined by the German Federal Statistical Office and is based on the cost of living of all private households in Germany.

This cost of living is calculated by taking the average price development of all goods and services purchased by consumers. These include, for example, food, clothing and transport, but also fuels such as petrol and energy prices. If the daily cost of living rises, the basis for calculating the index rent also increases.

The consumer price index is uniform throughout the country and usually rises slowly but steadily on an annual average. The annual averages of the last five years according to the Federal Statistical Office:

• 2015: 100.0
• 2016: 100.5
• 2017: 102.0
• 2018: 103.8
• 2019: 105.3

How the index rent is calculated

You need this information to calculate the change in your monthly rent by index rent:

• Consumer price index in the month of the last rent increase
• If the landlord has not yet increased the rent Consumer price index at the beginning of the lease
• Current consumer price index - this is the oldest known monthly value, as the indices are only published for full past months
• The amount of your cold rent

Tables with current indices can always be found on the website of the Federal Statistical Office destatis.de.

With this formula you can calculate the permissible increase of the index rent:

(current index level : old index level x 100) - 100 = percentage rate of rent increase

The result is the percentage by which your basic rent may be increased. However, the increase is only permitted if the rent has remained the same for at least 12 months. The landlord does not have to increase the rent every 12 months, but can announce the first increase after 5 years, for example. As soon as the landlord has notified you of the rent increase in writing, this rent increase may come into effect for the month after next.

Example:

You moved into your flat on 1 September 2018 and an index-linked rent was agreed in the rental contract. The landlord wanted to increase the rent for the first time after two years. He informed you of the planned increase in writing on 15 July 2020. Thus, the increased rent may be valid from September 2020.

Since moving in in September 2018, you have paid a monthly basic rent of 645.50 euros. According to the Federal Statistical Office, the consumer price index in September 2018 was 104.7. You received the information about the rent increase in July. Therefore, the last known consumer price index at that time was the one of June 2020 at 106.6. The permissible rent increase is calculated as follows:

(106.6 : 104.7 x 100) - 100 = 1,81

In this case, the basic rent may therefore be increased by 1.81%, which means an increase in rent of 11.68 euros to a new monthly basic rent of 657.18 euros.

The Federal Statistical Office also provides a calculator with which index changes in past years and months can be recalculated.

If the index rent increase exceeds the permissible amount, you can ward off the rent increase. We help you to enforce your right.

Whether an index-linked rent is rather good or rather bad for you as a tenant depends among other things on the situation in the respective rental market. Although a rent increase with an index-linked rent is pre-programmed, no further increases are permitted.

Advantages of an index-linked rent

The index-linked rent can be advantageous for the tenant, above all because of its predictability and transparency with regard to the basis of calculation. It also protects against further surprises due to rent increases.

• No further rent increases: If an index-linked rent was agreed when the contract was concluded, the landlord may only increase the rent for this reason. No further rent increases, for example due to modernisation or to bring the rent into line with the local comparative rent, are permitted. The only exception: If the landlord is legally obliged to modernise (e.g. to renew the heating due to stricter exhaust gas regulations), he may increase the rent additionally despite the index rent.

• Rent increases are easy to check: The indices of the Federal Statistical Office are available to everyone. This means that tenants can easily calculate increases and, based on developments in recent years, plan ahead.

• Rent can remain comparatively low: Where a particularly rapid increase in rents is likely in the coming years, the index rent can also be lower. Whenever the consumer price index rises more slowly than the local comparative rent, the index rent is the lesser evil for the tenant. The landlord is bound by the slow increase of the index even if the local comparative rent rises.

• Rent reduction is also possible: Should the consumer price index fall, you as a tenant are also entitled to a reduction of the rent. This has happened very rarely for decades. Since July 2020, however, the index has fallen slightly for the first time since 2016 compared to the same month last year. Your advantage: Even if you can only lower the rent slightly, the landlord is not allowed to increase the rent again until 12 months later.

Disadvantages of an index rent

Unlike in many other rental agreements, the index-linked rent unfortunately pre-programmes the rent increase. The landlord can increase the rent without the tenant reacting.

• Increase comes in any case: If an index rent has been agreed, an increase in rent by the landlord is very likely.

• Landlord does not need permission: Since the index-linked rent is contractually regulated, the landlord does not need the tenant's consent before increasing the rent. He only has to inform the tenant in time about the new rent and the tenant is obliged to pay the new amount.

• Uncertainty as to when an increase will come: The landlord does not have to increase the rent annually in the case of an agreed index-linked rent. It is therefore also possible that you will receive notification of a rent increase for the first time after 5 years.

• The increase can be drastic: Especially if the rent is only increased after a longer period of time, the increase can be correspondingly high due to the interim index increase since the beginning of the lease.

Example:

You moved in in September 2015 and the landlord wants to increase the rent according to the index for the first time in September 2020. You live with your family in a large living space of approx. 120 square metres and the basic rent was 1,150 euros when you moved in. The index was 100.4 in September 2015 and 105.8 in September 2020. According to the calculation formula, the landlord may increase the rent by 5.38 percent to 1,211.87 euros.

Tip: If you have an index rent in your rental agreement, calculate the possible rent increase for yourself once a year. This helps you to plan for the possible increase and not be surprised.

Some rental agreements stipulate that the rent may only be increased above a certain index-linked rent. This can also help to make the increase more predictable.

Index rent compared to graduated rent:

When comparing index-linked rent and graduated rent, neither is better than the other. It depends on the individual case:

• In the case of graduated rent, the exact increases are specified in the rental agreement from the outset. In the case of index-linked rent, no concrete increase amounts are anchored in the rental agreement.
• In both forms, the rent must remain unchanged for at least 12 months.
• Both forms exclude rent increases for other reasons.
• In the case of graduated rent, the rent brake also applies to all planned increases after conclusion of the contract.
• In the case of index-linked rent, only the amount of rent at the beginning of the rental relationship can be regulated by the rent brake.

As with the graduated rent, the Landlord must comply with certain specifications in the event of an index rent increase. These specifications provide some opportunities for the tenant to avoid or delay a rent increase.

Even if the index-linked rent has already been set out in the lease, landlords must also comply with certain rules when increasing rent.

Contractual conditions

Even the index-linked rental agreement as part of the rental contract must meet certain conditions:

• The agreement must be in writing.
• It must be clearly regulated that the consumer price index of the Federal Statistical Office forms the basis of calculation.
• A reduction of the rent may not be excluded: Should the consumer price index fall after 12 months of unchanged rent, the tenant is also entitled to a reduction of the rent. A formulation that excludes this right is not permitted.
• The index clause must explain that the rent may only be changed one year after the start of the lease or after the last rent increase.

Time limits for index rent increases

The rental price must generally remain the same for at least 12 months. This applies both after moving in until the first rent increase and between increases.

Before the Landlord can increase the rent, he must notify the Tenant in writing. The new rent may then be demanded from the month after next. The month in which this announcement reaches you is therefore relevant.

Example:

If you receive an announcement of an index rent increase on April 15th, the increased rent may not become valid before June 1st at the earliest. If the landlord sends the announcement late on 30 April and it reaches you by post on 2 May, the increased rent is only payable from 1 July.

Form of the announcement of an index rent increase

The Landlord must give notice of the rent increase in text form. In this written declaration of rent increase, the landlord must provide the following information:

• The price index change must be indicated. The landlord must therefore declare on which consumer price index he wants to increase the rent.
• The new rent increase must be included in the letter. Alternatively, the landlord can indicate the amount by which the rent should increase. At least one of these two details must be provided by the landlord.

If one of the details is missing, the rent increase declaration is invalid and you as a tenant can object to the declaration in writing. You can thus delay the rent increase if necessary, as the landlord must send you a corrected declaration. The increased rent is then only due from the month after next after receipt of the corrected letter.

When increasing the rent, the landlord may only use the consumer price index of the Federal Statistical Office. It is not permitted to use other figures as a basis for calculation. Some landlords refer, for example, to estimates of the European Central Bank (ECB) or the German Institute for Economic Research (DIW), to the rent index or construction price index. The use of inflation rates in individual sub-sectors such as housing, electricity, water or gas is also not permitted.

A much disputed question is whether landlords can circumvent the Rent Control law (Mietpreisbremse) by means of an index-linked rent. Here, the initial rent at the time of moving in is the decisive factor: If this was already above the local comparable rent when you moved in, you can apply the rent control. If the rent at the time of moving in was within the framework of the conditions for the rent control, the index rent may also exceed the comparative rent over the years. Nevertheless, it is always worth calculating your savings potential with the help of the rent control.

Read about the experiences of other tenants who have successfully lowered their rent with the rent brake or have been able to ward off an increase in rent.

Are you unsure whether your rent is too high? CONNY will help you to enforce your right. Have your index rent checked by our partner lawyers:

1. You send us your data on the index-linked rent agreement.
2. We will have your case checked for you free of charge.
3. If it is possible to defend against an increase, we will pay a partner lawyer.
4. You only pay if we are successful for you.