Rules for increasing rent
Housing in the Czech Republic has become more expensive in recent years. Energy prices rose, interest rates increased, and so did rents. This development has affected not only people looking for new rental housing, but also those already living in rented accommodation. Many owners of rental properties increased the rent. How will the situation develop further, and what rules apply to rent increases?
Rent growth in the coming months
A lthough interest rates in the Czech Republic are falling very slowly, the volume of mortgages granted is beginning to rise slightly. It appears that prospective owner-occupiers no longer wish to wait. Even so, demand for rental housing is expected to remain high. However, no dramatic increase in prices is expected. The largest rise in rents occurred in the first half of this year. The situation has now calmed somewhat and rental prices are stagnating. Nevertheless, the question remains as to how energy prices will develop and how the Czech National Bank (ČNB) will respond to slowing inflation.
Inflation clause in a lease agreement
When increasing rent, the presence of an indexation clause in the lease agreement also plays an important role. An indexation clause is a provision in a lease agreement most commonly found in commercial premises. However, it can also be used for residential premises where the tenancy is long-term. This provision allows owners to increase rent in line with inflation, but it must be drafted precisely. A properly worded indexation clause must include the date of the rent increase, the specific inflation index and the method by which the increase takes effect, for example upon the landlord’s request or automatically. If the agreement does not include an indexation clause, rent may be increased by agreement between the tenant and landlord, or in accordance with the rules set out in the Civil Code.
Rent increases under the Civil Code
If a lease agreement is concluded for an indefinite period, the landlord may increase the rent only up to the level of usual rent in the given area. The percentage increase in rent must not exceed 20% of the rent over the previous three years. The landlord must also demonstrate that the newly set rent corresponds to the usual rent in the area. If a lease agreement is concluded for a fixed term, rent may be increased when a new agreement is signed. The property market is dynamic and it is necessary to respond to changes. If you enter into a one-year lease agreement, you may consider increasing the rent when concluding a new agreement. However, it is important that any such increase is justified by relevant data.
Rent increases following renovation
The landlord and tenant may agree on an increase in rent if the landlord has carried out building alterations to the property that permanently improve the quality of living or deliver energy savings. In such cases, the maximum annual rent increase may amount to 10% of the reasonably incurred costs.