Rent Increase Clauses in Mexico Real Estate Lease Agreements

November 16, 2023
Rent Increase Clauses in Mexico Real Estate Lease Agreements

Based on current economic conditions, particularly those stemming from the COVID-19 pandemic, inflation and the cost of living in Mexico has increased notably. One of the most recognized economic indicators in Mexico to evaluate increases in inflation is the National Consumer Price Index (INPC per its acronym in Spanish), which in recent years went from 3.7% in February 2020 to 8.7% in September 2022, and then back down to 4.45% in September 2023.

As a result of the above volatility of the INPC, Mexican property owners, especially in commercial and industrial leases, have recently attempted to change the formula or method for calculating annual rent increases, or to determine the rent when extensions of the original lease term are permitted in a lease.

Among the new methods that have been utilized, in certain cases landlords have attempted to increase rent based on a comparison of the rents of similar spaces within the corresponding geographical area to determine the new rent for the extension or following year. However, such method may be ambiguous and complicated for the parties, allowing potential abuse that may result in unnecessary problems because of the arbitrariness and ambiguity of said method.

Another method that landlords have sought to apply is to establish a fixed percentage rent increase. Although this method is very clear and easily determined, it does not take into account the risk that such percentage increase may be disproportionate for one of the parties given the current economic uncertainty.

Finally, a method that landlords may consider to be fairer for both parties is to continue using the INPC as an indicator for the rent increase, but limit the increase to a percentage agreed upon by the parties in the lease. This means that the rent increases are set in accordance with the INPC, but if the increase of the INPC is greater than a certain percentage, such as 7%, the rent will not be increased by more than said percentage.

It is important to take into consideration the term of the lease and other factors to decide the best method of rent increase or adjustment in lease agreements.

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