Typically, index leases have four components: a base rent, a usage index, a rate of increase, and a growth cap. We`ve taken a moment to clarify each of them below so you can get a better idea of how to structure your index leases in the future. When it comes to terminating a lease, there are many ways to terminate a lease. This can be a mutual agreement or destruction of the property, or a breach of contract by the landlord or tenant. These are typical ways in which a lease can be terminated. Price index according to the Consumer Price Index (CPI), all household series, When it comes to real estate leases, there are many clauses that should be included in a typical lease. The clauses to be included in the lease would be the duration of the lease or any option with the lease, e.B. an option to renew the lease or possibly a purchase option. In addition, the lease must specify all the rules and regulations to ensure that the landlord and tenant are aware of all the terms of the lease. We found that the average indexing percentage over the past few years (2018-2019) is approximately 2.6% to 2.9%. Nowadays, the decision to use an index lease, especially a lease linked to the CPI index, can be a gamble.
That is, it is an extremely fair method of enforcing rent increases. To this end, deciding whether or not to use an index lease as a commercial lease is a personal decision. Use this article as a guide to decide if using an index lease might be the right choice for you. After all, as a landlord, you probably won`t want to have a growth cap in your lease, but tenants often try to negotiate it, so it`s important to make sure you`re aware of the concept. A growth cap is an upper limit at the height of your rent escalation clause. The main rule is that you are only allowed to index the rent once every twelve months. As the name suggests, you`ll also need to specify how often you want your variable payments to be increased. To put things in context, a new CPI index is released every two months, but six rent increases in a single calendar year would likely prove to be very confusing.