To safeguard the value of rent over the long term, it is common to agree on what is known as an “index-linked rent”: the rent rises or falls in line with price developments, usually measured against the Consumer Price Index (CPI). A fair arrangement – at least if the clause works in both directions.
Tenants May Reclaim Excess Rent Paid
In the case at hand, the residential lease agreement contained an index clause that explicitly allowed only the landlord to claim rent increases. A reduction in rent, for example in the event of a falling cost-of-living index, was not provided for. The landlord increased the rent on the basis of this clause. The tenants paid the rent between February and April 2023 only under reservation. They then brought an action for repayment.
The local court ruled in their favour – and the landlord’s appeal before the Berlin Regional Court II also failed.
Unilateral Clause Not Legally Sustainable
The Regional Court made it clear: a valid index clause under Section 557b of the German Civil Code (BGB) must apply bilaterally in residential leases – that is, it must allow for rent adjustments both upwards and downwards.
If a lease agreement permits the landlord to increase rent when the index rises, but does not provide for a reduction when the index falls, it qualifies as a so-called unilateral clause. Such a provision constitutes an unreasonable disadvantage to one party and is therefore legally invalid, both as an individual agreement and as a clause within general terms and conditions.
Special Rules for Index Clauses in Commercial Leases
Unlike residential leases, index clauses in commercial leases are not generally permitted but only under special conditions. One requirement for validity is, for example, a minimum lease term of 10 years pursuant to Section 3 of the Act on the Prohibition of the Use of Price Clauses in the Determination of Monetary Obligations (PrKG). The decision of the Berlin Regional Court II on the invalidity of unilateral clauses is consistent with the established case law of the Federal Court of Justice (BGH) in commercial tenancy law and therefore also applies to commercial leases.
Implications for Landlords
Exercise caution when drafting index clauses. Rent may not be adjusted only unilaterally. Reductions in the event of a falling price index must also be provided for – otherwise, the entire clause risks invalidity and repayment claims may arise.
Implications for Tenants
If your index-linked rent clause allows only for increases or is otherwise unilateral, it is worth taking a closer look at your contract. You may unknowingly have paid too much – reimbursement could be possible.
Our Recommendation
Index-linked rent agreements can be a practical tool to adjust rent in line with inflation – provided they are drafted in a legally secure way. Pay particular attention to the following points:
- Allow for index adjustments in both directions (increases & decreases)
- Avoid unilateral advantage for one party
- Ensure clear and transparent wording – understandable to both sides
When in doubt: have your lease agreement reviewed legally before it becomes costly.
Your lawyers at SPIEKER & JAEGER are available for advice and contract drafting.