August 26 2016
Commercial property owners are often attracted to an annual CPI rent review. Standard agreements and deeds of lease make it very easy to agree to what seems like an annual 1% increase but it’s not that straightforward.
When it comes to reviewing the rent, you can’t just take whatever percentage you think ‘the CPI’ is and adjust the rent accordingly.
The deed of lease contains a formula for calculating exactly what the new rent will be. This involves researching the CPI index (from Statistics New Zealand) and inserting the previous and current index points into the formula which also contains whichever multiplier is agreed. The formula gives you the new rent.
This is often overlooked and a simple 1% increase is agreed to by the parties; this is incorrect.
If your property manager or agent isn’t working out the new rent correctly, you could be missing out on income. Check they know what they’re doing by understanding it yourself.