Employers warn rent cap could hurt business investment

Iceland’s Employers’ Association (FA) warns that a proposed rent cap could harm business investment and operations if it is extended to commercial premises, mbl.is reports.

The association says there is not enough justification for restricting businesses’ freedom to negotiate rental agreements. It has submitted comments on the bill, proposed by the Minister of Social Affairs and Housing, to the welfare committee of Alþingi, Iceland’s parliament.

Under the bill, regular rent increases could take place no more than once every 12 months and could not exceed the rise in the consumer price index. The restrictions would also apply in part to commercial property.

FA says businesses commonly negotiate lower rents during their first years in a premises, followed by increases in stages. A legal ceiling on rent rises could make such agreements harder to reach and lead to higher initial rents, the association says. It also warns the rules could encourage shorter leases and make businesses less willing to invest in premises and equipment.

The association says monthly index-linked rent payments are an important part of financing for many property companies, and warns that the proposed restrictions could affect their cash flow.

FA argues that passing the bill unchanged would set a concerning precedent for government intervention in business relationships. It recommends removing provisions that restrict negotiations over commercial property. The association also objects to the proposed cap on rent increases for residential property, saying it could reduce the supply of rental homes and investment. However, it says it does not fundamentally object to the goal of ensuring that regular changes to residential rents occur at reasonable intervals.

The association also criticises the bill’s explanatory notes for not discussing experience with similar rent controls abroad, which it says have had negative effects in many places.