Rent Adjustments: Indexes, Review, and Negotiation

This page is a translation of the original Portuguese text, provided for convenience. It deals with Brazilian law. If there is any discrepancy, the Portuguese version prevails. Read the original in Portuguese

Rent adjustments must follow the indexes allowed by law and the terms of the lease. When the rent no longer matches the real estate market, landlord and tenant can negotiate.

Adjustment indexes allowed by law

Law No. 8.245/91 lets the parties freely choose the inflation index used for the annual rent adjustment. The two most common indexes in the Brazilian real estate market are the IGP-M (General Market Price Index), calculated by the Fundação Getúlio Vargas, and the IPCA (Broad National Consumer Price Index), compiled by the Brazilian Institute of Geography and Statistics.

The IGP-M has historically been the index most often used in leases, which is why it is known as “rent inflation.” Its makeup, however, includes wholesale prices that can be heavily influenced by exchange rates and commodities. The result is swings that do not always reflect the tenant’s real cost of living or the property’s actual appreciation in the local market.

The IPCA has been gaining ground in leases because it more faithfully reflects the inflation that end consumers experience. After the sharp rise in the IGP-M in 2020 and 2021 (when it exceeded 35% over twelve months), many landlords and tenants chose to replace the index in their contracts. They moved to the IPCA as a more stable and predictable benchmark for the annual adjustment of residential and commercial rents.

Annual adjustment and three-year rent review

The annual adjustment is the automatic correction of the rent by the index named in the lease, applied every twelve months the contract is in force. It simply restores the purchasing power of the currency and does not change the real rental value. The landlord applies the index accumulated over the period and tells the tenant the new amount due starting on the lease anniversary.

A rent review, by contrast, is a different mechanism. Its purpose is to bring the rent in line with the current market price. Article 19 of Law No. 8.245/91 allows either party to ask a court to review the rent after three years of the contract (or of the last agreement on the amount). The review can result in a rent increase or a reduction, depending on conditions in the local real estate market.

A rent review action requires proof that the current rent is significantly above or below the market value for similar properties in the same area. The judge appoints an expert appraiser, who prepares a technical report comparing the current rent with rents paid on properties with similar features, nearby locations, and a comparable state of repair to the property under review.

It simply restores the purchasing power of the currency and does not change the real rental value.

Until the court issues a final decision in the review action, the tenant must pay the provisional rent set by the judge, which is usually 80% of the amount the plaintiff requested. If the final judgment sets a different amount, the difference is settled retroactively from the date of service of process, with inflation adjustment and statutory interest owed by either party depending on the final outcome.

Negotiating the adjustment between landlord and tenant

Direct negotiation is always preferable to going to court. It preserves the relationship between the parties and avoids significant litigation costs. When the contractual index produces an adjustment that is out of step with the market (whether too high or too low), a frank conversation between landlord and tenant can lead to solutions that work for both sides of the lease.

A tenant who considers the adjustment excessive can give the landlord market research showing that similar properties in the area are renting for less than the landlord is asking. Listings for comparable properties, reports from real estate agencies, and local vacancy rates are useful arguments at the negotiating table.

The landlord, in turn, can justify the adjustment by pointing to the neighborhood’s appreciation, improvements made to the property, higher condominium and tax costs, and strong rental demand in the area. Transparency and reasonableness from both sides make it easier to reach an agreement that keeps the lease healthy and lasting over the years the contract is in force.

When the parties cannot reach consensus, mediation by a qualified professional or through a real estate agency can help. A neutral third party helps identify common interests and build creative solutions, such as phasing in the adjustment through monthly installments or tying it to an alternative index that both contracting parties accept.

Replacing the contractual adjustment index

Replacing the adjustment index requires an agreement between landlord and tenant, formalized in a contract amendment. No law requires the agreed index to be changed. Still, good faith and reasonableness in contracts encourage the parties to look for balanced solutions when the original index produces manifestly unfair results for either party to the lease.

Some contracts contain a substitute-index clause, which provides that if the main index is discontinued or becomes unavailable, another index defined in advance applies automatically. This kind of provision is advisable. It prevents deadlock when the original index stops being calculated or undergoes significant methodological changes that distort its original purpose of correcting for inflation.

Specialized legal counsel can advise on the best strategy for negotiating and formalizing a change of index. Counsel can also make sure the contract amendment complies with the law and adequately protects the interests of both parties to the residential or commercial lease.

Rent adjustments in commercial leases

In commercial leases, the rent adjustment has a direct effect on the economic viability of the tenant’s business. The law allows the parties to negotiate the index and the frequency of the adjustment freely. They may adopt sector-specific indexes or composite formulas that reflect the economic reality of the business operating in the leased property.

The commercial lease renewal action, provided for in Article 51 of Law No. 8.245/91, can include a dispute over the rent for the renewed term. A tenant who meets the legal requirements can seek renewal of the lease, with the court setting a rent in line with the market. This balances protection of the tenant’s business goodwill (fundo de comércio) with fair compensation for the owner.

For any question involving a rent adjustment or review, whether residential or commercial, it is advisable to consult a lawyer specializing in real estate law. Such a lawyer can evaluate the contract, the applicable indexes, and the legal options available in your specific negotiation or dispute over rent amounts.

Frequently Asked Questions

Can a landlord apply an adjustment above the contractual index?

No. The annual adjustment must strictly follow the index stated in the contract. Any increase above the agreed index is a unilateral change to the contract, and the tenant can challenge it. If the landlord believes the rent has fallen behind the market, the landlord must wait for the three-year period to file a rent review action, or negotiate a new, mutually agreed amount directly with the tenant.

Can I replace the IGP-M with the IPCA in my lease?

The change depends on an agreement between landlord and tenant, formalized in a contract amendment signed by both parties. Neither party can impose a change of index unilaterally. In practice, many landlords and tenants have accepted replacing the IGP-M with the IPCA as a balanced solution, since the IPCA tends to vary less sharply and more predictably over time.

After how many years can I ask a court to review the rent?

A rent review action can be filed after three years of the contract or of the last agreement on the rent amount. Either the landlord or the tenant can request the review. The judge will appoint an expert to assess the property’s market value, and the court will set the rent based on the expert report and on local real estate market conditions established in the review proceeding.

As informações deste artigo são de caráter informativo e não substituem consulta jurídica individualizada. Cada caso possui particularidades que exigem análise específica.