Two companies sign leases for practically identical premises in the same industrial park — a 1,500 m² warehouse with a 200 m² office. Five years later, one of them has paid €100,947 more than the other. Not because the space was better. Because the other tenant negotiated two things before signing: the base rate and the indexation terms.
This article walks through both levers with real numbers — and halfway down you will find a simulator where you can test the calculation yourself.
The scenario: 1,500 m² warehouse + 200 m² office
A typical offer in an A/B-class park around Riga looks like this:
And in the lease text — one sentence most tenants skim past:
"The rent shall be increased annually in line with the consumer price index, but by no less than 3%."
That sentence looks harmless. It is not.
What an indexation floor and ceiling actually are
Indexation is the annual adjustment of rent in line with inflation — usually the national CPI (Latvian CSB) or the Eurostat harmonised index (HICP). In itself it is normal market practice. The risk hides in two parameters:
A standard landlord-drafted lease has a floor and no cap. That means all inflation risk sits with the tenant, while the landlord is guaranteed growth even in deflation. It is an asymmetry you can only fix before signing.
What real inflation did in 2021–2024
This is not a theoretical risk. Latvia's annual inflation in recent years:
A tenant who signed an uncapped lease in 2021 received a letter in early 2023: rent +17.3%. In a single year. No negotiation — all strictly according to the contract they signed themselves.
Meanwhile in 2024, when inflation was 1.3%, leases with a 3% floor still went up by 3%.
Test it yourself: the negotiation simulator
The simulator below compares two scenarios for the same premises. The initial offer: €4.90/€9.50 with a 3% floor and no ceiling. The negotiated lease: a 5% discount on the base rate, a 3% indexation ceiling, and no floor. The indexation path uses real Latvian inflation.
The three levers to negotiate
1. The base rate
A 5% discount sounds modest — €475 per month. But indexation compounds from the base: the lower the base, the smaller every subsequent increase in euro terms. Over five years this "modest" discount alone is worth more than €29,000. Vacant space costs the landlord money every month — a well-argued discount request paired with a willingness to sign long-term is a perfectly normal negotiating position.
2. The indexation ceiling
A ceiling is the tenant's insurance against inflation spikes. In year 3 of our scenario, the uncapped lease grew by 17.3% while the capped lease grew by 3%. The difference: roughly €1,650 per month — and it persists and keeps compounding through every remaining year. Years 3 and 4 alone create most of the total €100,947 gap.
3. The floor — and what to ask for in return
Landlords justify the floor with their financing — bank loans typically require predictable cash flow. That is understandable. But then the fair compromise is symmetry: if there is a floor, there is also a ceiling. A "2% to 4%" collar gives both sides predictability. A one-sided floor without a cap gives predictability to one side only.
Year by year: the full picture
Note the dynamic: in year 1 the gap is purely the discount. From year 3 onwards the indexation terms do most of the work — and the gap never shrinks again, because every increase becomes the base for the next one.
Before you sign: the short checklist
For the other clauses worth negotiating before you sign, see our guide: 7 clauses you must negotiate before signing a warehouse lease.
This article is educational material, not legal advice — have a lawyer review the specific wording before you sign.