Commercial Rent Reviews and Escalation Clauses in Bangladesh

A commercial lease in Bangladesh often runs for three, five or even ten years. Over that time, costs rise, the neighbourhood changes and the value of a shop, showroom or office floor can move a long way from the rent written on day one. That is why most well-drafted leases contain a rent review or escalation clause: a pre-agreed rule for how and when the rent will change. Without one, landlords end up renegotiating from scratch every year or two, and tenants live with uncertainty about what their next rent will be.

This guide explains how commercial rent reviews and escalation clauses work in the Bangladeshi context, the main types (fixed percentage, stepped, index-linked and market review), how to calculate each one, and how to draft a clause that is fair, clear and enforceable. It is written for market owners, office and showroom landlords, and also for business tenants who want to understand what they are signing. This is general information, not legal advice; for a specific lease, consult a lawyer.

What Is a Rent Review and What Is Escalation?

The two terms overlap, but it helps to separate them:

• Rent escalation is an automatic increase built into the lease, such as "rent increases by 5% every year" or "rent increases by 10% every two years". Nobody has to negotiate; the new figure follows the formula.
• A rent review is a scheduled point at which the rent is reconsidered, for example "rent will be reviewed at the end of year 3 by reference to market rent for comparable premises". There is a process, and the outcome depends on evidence or negotiation.

Many leases combine the two: fixed annual escalation for the first few years, then a market review at a mid-term point. For a short definition, see our glossary entry what is rent escalation.

The Legal Background in Bangladesh

The Premises Rent Control Act, 1991 applies to premises in many urban areas and contains provisions on "standard rent", on how often and by how much rent may be increased, and on the role of the House Rent Controller. Its application to commercial premises, and how courts treat escalation clauses that go beyond its limits, can be complex. In practice, many commercial leases in Dhaka and Chattogram contain agreed escalation terms, but a clause that conflicts with the law may not be enforceable if challenged.

Other laws are also relevant: the Contract Act, 1872 (general contract principles), the Stamp Act, 1899 (stamp duty on leases), the Registration Act, 1908 (registration of longer leases), and tax laws on rent. For an overview of the rent control law itself, read our explainer on the Premises Rent Control Act 1991.

Disclaimer: This article is general information only and not legal advice. Rent limits, stamp duty, registration requirements and tax treatment can change. Confirm the current position with a lawyer, tax adviser or the relevant authority before drafting or signing a lease.

Type 1: Fixed Percentage Escalation

The most common clause in Bangladeshi commercial leases is a fixed percentage increase at fixed intervals. It is simple to understand and simple to calculate, and both sides know the full rent schedule in advance.

Typical wording: "The monthly rent shall increase by [__]% at the end of every [12/24] months from the commencement date, calculated on the rent payable immediately before the increase."

For example (illustrative): 5-year lease with 5% annual escalation

A showroom starts at Tk 80,000 per month. The rent rises 5% every year, compounding on the previous year's rent.

Total rent over 5 years ≈ 960,000 + 1,008,000 + 1,058,400 + 1,111,320 + 1,166,892 = Tk 5,304,612. If the clause instead said "5% of the original rent each year" (simple, not compound), year 5 would be 80,000 + 4 × 4,000 = Tk 96,000. The difference looks small per month but adds up, so the clause must say which method applies.

Pros and cons

• Pros: predictable, no negotiation, easy to budget.
• Cons: may run ahead of or behind the real market; a high percentage can push a tenant out in later years.

Type 2: Stepped (Fixed Amount) Rent

Instead of a percentage, the lease lists the exact rent for each period. For example: years 1–2 Tk 60,000, years 3–4 Tk 66,000, year 5 Tk 72,000. Stepped rent is transparent and often used when a tenant has a fit-out period or needs lower rent in the early years while the business builds up.

A stepped schedule is easy to put in a lease annex and easy to load into a rent ledger. It also avoids arguments about rounding. The downside is the same as fixed percentages: it cannot react to what actually happens in the market.

Stepped rent often pairs with a rent-free or reduced-rent fit-out period at the start, which should be written into the same schedule so everyone knows exactly when full rent begins.

Type 3: Index-Linked Escalation

Some leases link increases to an inflation measure, such as the Consumer Price Index (CPI) published by the Bangladesh Bureau of Statistics. The rent moves in line with general price inflation.

Typical wording: "On each review date, the rent shall be adjusted by the percentage change in the [named index] over the preceding 12 months, subject to a minimum increase of [__]% and a maximum increase of [__]%."

• Collar and cap. A minimum (collar) protects the landlord in low-inflation years; a maximum (cap) protects the tenant in high-inflation years.
• Name the exact index and source. "Inflation" alone is too vague. Say which index, which publication and which months are compared.
• Plan for missing data. Include a fallback if the index is discontinued or delayed.

Index-linked clauses are less common in local small-shop leases, but they appear in corporate and multinational tenancies, where finance teams are used to them.

Type 4: Open Market Rent Review

A market review resets rent to what a comparable space would fetch on the open market at the review date. It is the fairest method in theory, but the hardest in practice, because "market rent" has to be established.

Key elements of a market review clause

1. Review dates, e.g. end of year 3 and year 6.
2. Definition of market rent: the rent a willing landlord and willing tenant would agree for the premises, for the remaining term, on the lease's other terms.
3. Assumptions and disregards: for example, disregard tenant's own improvements and goodwill, so the tenant is not charged for value they created.
4. Procedure: who proposes, how long the other side has to respond, and what happens if they disagree.
5. Dispute resolution: an independent valuer, surveyor or arbitration.
6. Upward-only or both ways: whether rent can fall at review.

In Bangladesh, reliable comparable evidence is not always published, so parties often rely on local brokers, recent lettings in the same market and, for larger buildings, professional valuers. Keep your own records of every letting you make, including rent per square foot and incentives, because that becomes evidence at review time.

Comparing the Main Escalation Methods

What Else Escalates: Service Charge, Utilities and Deposits

Rent is not the only number that changes. A good lease is clear about the other items:

• Service charge. Usually varies with actual costs (guards, cleaning, lift, generator, common electricity) rather than a fixed percentage. The lease should say how it is calculated and how tenants can see the breakdown.
• Utilities. Metered electricity and water follow the utility tariff, not the escalation clause.
• Security deposit top-up. Some leases require the deposit to rise in proportion to rent, so it always equals, say, a set number of months' rent. If you want this, write it explicitly.
• Taxes and VAT. Where VAT or tax deduction at source applies, the lease should say whether the rent figure is inclusive or exclusive. Confirm current rules with a tax adviser.

Drafting a Clear Escalation Clause

Most disputes over escalation are caused by vague wording, not by the percentage itself. Check your clause answers each of these questions:

1. From which date does the first increase apply: the signing date, possession date, or rent commencement date after a fit-out period?
2. Is the increase calculated on the original rent or the current rent (simple or compound)?
3. How is rounding handled (to the nearest Tk 10, Tk 100)?
4. Does the increase apply automatically, or must the landlord send notice?
5. Does it apply to rent only, or also to service charge and parking?
6. What happens if the lease is renewed: does escalation continue from the last rent?
7. Is there any cap on the total increase over the term?

Sample clause (for discussion with your lawyer): "The monthly rent for the first twelve (12) months from the Rent Commencement Date shall be Tk [____]. Thereafter, the monthly rent shall increase by [__] percent on each anniversary of the Rent Commencement Date, calculated on the monthly rent payable immediately before that anniversary and rounded to the nearest Tk 100. The increased rent shall be payable without further notice. This increase does not apply to the service charge, which is governed by Clause [__]."

How to Communicate an Increase to a Tenant

Even when the increase is automatic, a short, polite written reminder one to two months ahead prevents surprises and keeps the relationship professional.

Dear [Tenant/Business name], as per Clause [__] of our lease dated [____] for Shop/Office [__], the monthly rent will increase by [__]% from [date]. The new monthly rent will be Tk [____] (previously Tk [____]). The service charge remains as per the current statement. Please contact us if you have any questions. – [Landlord/Management]

If you need formal wording, adapt our rent increase letter template in English.

Advice for Tenants Negotiating Escalation

• Model the full-term cost, not just the first year's rent. Use the table method shown above.
• Ask for a cap, or for a market review that can move both ways.
• Ask that escalation starts after any fit-out or rent-free period ends, not from signing.
• Clarify whether your own improvements will be disregarded at a market review.
• Make sure the renewal clause does not allow an unlimited jump at renewal.

Common Mistakes

• Not stating simple or compound. This ambiguity is surprisingly common and causes arguments later.
• Escalating from the wrong date. Signing date, handover date and rent start date can differ by months.
• Setting a percentage that is too aggressive. Tenants may leave at the first chance, and vacancy costs more than a smaller increase. Our guide on managing vacant shops shows how expensive empty space can be.
• Forgetting to apply the increase. Landlords sometimes forget for months and then demand arrears in one go, which damages trust. Diarise every review date.
• Ignoring the law. A clause that conflicts with rent control or tax rules can be challenged. Take advice.
• No dispute mechanism for market reviews. Without a valuer or arbitration route, a disagreement simply stalls.

Keeping Track of Review Dates

A market owner with forty shops can easily have forty different escalation dates. Keep a simple schedule: tenant, unit, lease start, rent start, escalation method, next review date, current rent, next rent. Review it monthly. Set reminders two months before each date so you can send notices on time and update invoices from the correct month.

Final Thoughts

A rent review or escalation clause is a promise about the future. The best clauses are simple, specific and fair: they state the method, the dates, the base, the rounding and what happens at renewal. Fixed percentage and stepped rents suit most local shops and offices; index-linked and market reviews suit longer, larger leases. Whatever you choose, write it clearly, check it against current law, and track every review date.

Bariwala ERP (বাড়িওয়ালা ERP) stores lease agreements against each unit and generates monthly invoices in bulk, so once you update a tenant's rent at the review date, the new amount flows through to invoices, receipts and the due list. The system helps with the arithmetic; the fairness of the clause is still up to you and your tenant.