Rent Increase: CPI Indexation and Contract Renewal

This guide provides general legal information for educational purposes only and does not constitute legal advice. Always consult a licensed attorney in Israel for advice specific to your situation. Information last verified: May 2026.

The Fair Rental Law (Amendment 31 to the Hire and Loan Law, 5731-1971), effective as of 21 September 2017, governs residential leases in the State of Israel. While Israel avoids rigid "Rent Control" (price caps) for the free market, the law imposes specific transparency and notice requirements regarding rent adjustments and contract renewals.

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 (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 (permissible under Section 25י(א) of the Law) is indexation to the Consumer Price Index (CPI) of the Central Bureau of Statistics.

• 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 rises, the tenant pays more. If the index falls, the rent remains at the base level and does not decrease.

3. "Option" Period and Renewal Notices

The Fair Rental Law introduced strict notice requirements for extending a lease. Under Section 25יג, the landlord must notify the tenant of their desire to extend the lease (and under what conditions/rent) no later than 90 days before the end of the term.

1. Predetermined Increases: If a percentage increase is predetermined in the option clause (e.g., "The rent will increase in the option year by 3%"), the rate is locked. The landlord cannot demand a higher market-rate increase if the tenant exercises the option lawfully.
2. Vague Options: If the option clause does not specify the new rent, the parties must negotiate. However, the 90-day notice period still applies for the landlord to propose new terms.

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 set a new rent for any subsequent contract. Whether to agree or not is the tenant's choice. There is no price inspector in Israel who intervenes in setting free-market rent at the start of a new tenancy.

How Landager Helps

Landager tracks lease terms, rent increases compliance, and mandatory notice deadlines - ensuring landlords meet the 90-day notification requirement under the Hire and Loan Law.

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