By Claudia Castillo
Special for El Inmobiliario
Currently, the Dominican real estate rental market has been very active: companies are looking for larger premises, families are seeking more suitable spaces according to their needs, in short, total activation, while in certain areas there is a scarcity of options to show.
Rental agreements usually include a clause for indexing the rent price. One point of contention is that prices have risen considerably, and what the annual increase should be—currently 5% for rents in dollars and 10% for rents in pesos.
Many businesses and individuals have requested that, given the current increase of over 15% compared to prices just a few months ago, the possibility of negotiating this increase be considered. On the other hand, property owners who hold these properties as investments rely on the Central Bank of the Dominican Republic's inflation index to justify this point. However, since the banking crisis of 2002-04, the Dominican Republic has not experienced annualized inflation of 10% or more.
As an alternative to setting a 10% increase, the parties could negotiate an increase equal to the annualized inflation rate for the period preceding the signing of the contract (indexing to the CPI). However, it can be argued that economic agents should not base their expectations on the past, but rather on what they expect to happen in the future.
In the medium and long term, these types of indexation clauses, based on perceptions or customs rather than concrete data—that is, they don't take inflation into account—can erode a tenant's ability to pay compared to a landlord who gains increasing market power over them with each lease term. This is because the longer the lease term lasts, the more difficult it becomes for the tenant to move to another property.
The author is:
Real estate advisor at Plusval Dominicana, architect, appraiser, former President of AEI, Director of AEI Women.
