Rent Increase: CPI Indexation and Contract Renewal

Despite the Fair Rental Law (2017), the State of Israel avoided imposing rigid "Rent Control" found in some European countries or the US. Landlords enjoy broad freedom when setting or increasing rent, but everything depends on the type of contract and the option period.

Legal Disclaimer: The State of Israel is a completely free market. There is no absolute government percentage cap that prevents a landlord from raising the rent by 30% at the end of a contract. (As of March 2026).

1. The Initial Lease Term (Fixed Contract Year)

When a new contract is signed (for example, for 12 months), the rent is "locked in." The landlord cannot change the rent stated in the contract until it expires (except in cases where the landlord added an "indexation clause" as explained below).

2. Indexation to the CPI or Dollar (Inflation Protection)

Until the 2000s, it was common in Israel to peg rent to the US Dollar exchange rate. Today, this practice is almost entirely extinct in residential real estate. The prevailing method today (in the free market, and especially in 'long-term rental' housing projects, less so with small private landlords but it is gaining momentum with inflation) is indexation to the Consumer Price Index (CPI) of the CBS (Lamas).

• How does it work? The contract stipulates "The rent will be 5,000 ILS per month, linked to the known index on the day of signing the contract." If after a year the index jumps by 5%, the rent will automatically increase to 5,250 ILS.
• "Positive Index Only / Floorless Index": It is customary to formulate Israeli contracts as "linked to the CPI, but no less than the base index." Meaning - if the index (and inflation) rises, the tenant pays more. If there is deflation and the index falls - the rent remains 5,000 ILS and does not decrease.

3. "Option" Period (Lease Extension) and Increases

Here lies the main change regarding tenant protection. In Israeli contracts, it is common to give an "option" (the tenant's right to extend the contract for another year or two). According to the Fair Rental Law:

1. If a percentage increase is predetermined in the option clause (e.g., "The rent will increase in the option year by 3%"): The rate increase is locked and automatic if the tenant exercises their option lawfully (usually must notify 60 days in advance). The owner cannot say "Listen, market prices jumped, I want 15% or leave."
2. If the option does not stipulate rigid conditions: This is a problematic legal situation (a "vague option"). It is always advisable to draft a clear lease agreement.

4. At the End of the Contract (and Options) – Unrestricted

When the contract ends, and all 'option' periods have run out, the landlord is free to tell the tenant: "If you want to sign a new contract - the new rent is 7,000 ILS instead of 5,000". Whether to agree or not - is the tenant's choice to find another home. As mentioned, there is no "price inspector" in the State of Israel who will intervene here.

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Calculating the Consumer Price Index every first of the month against the confusing tables of the Central Bureau of Statistics leads to collection errors and lost profits of thousands of shekels (or tens of thousands in commercial portfolios). With Landager's property management system, we read the CBS API every 15th of the month (the day the index is published in Israel). The central system identifies all your tenants who signed a "positive indexation clause", automatically calculates the point difference since the contract was signed, and automatically sends a designed letter (E-mail / SMS) to the tenant: "Next month's rent has been updated due to indices by 215 shekels. Your Direct Debit will be...". Financial control with no hands-on required!

Back to Overview: Residential Tenancy in Israel.