A leasehold agreement where the base rent changes is called a stepped rent lease.
A stepped rent lease is a type of leasehold agreement commonly used in commercial real estate. Under a stepped rent lease, the rent amount for the property is adjusted at specific intervals during the lease term. This adjustment can be based on numerous factors, such as inflation, market demand, or the landlord`s expenses.
The purpose of a stepped rent lease is to provide a measure of predictability for both the landlord and tenant. The tenant can budget for the rent increase in advance, and the landlord can adjust the rent to reflect changes in the market or their own financial costs. Additionally, this type of lease can be beneficial for landlords who are hesitant to agree to long-term leases at a fixed rate.
In a stepped rent lease, the rent increase can be calculated in one of several ways. The most common methods are fixed-step and indexed-step increases. Fixed-step increases are predetermined increases in the rent amount at fixed intervals, such as every year or every five years. Indexed-step increases are usually tied to an external factor, such as inflation or the Consumer Price Index. In this case, the rent will be adjusted based on the increase in the external factor, rather than a fixed amount.
It is important for tenants to carefully review a stepped rent lease before signing, as the rent increases can have a significant impact on their financial position. Tenants should ensure that they fully understand the calculation of the rent increases and how they will be applied. They should also consider negotiating a cap on the rent increase to protect against unexpected and potentially unaffordable increases.
In conclusion, a stepped rent lease is a type of leasehold agreement where the base rent changes at specific intervals during the lease term. This type of lease can be beneficial for both landlords and tenants, providing a measure of predictability and flexibility. However, tenants should carefully review the lease agreement before signing to ensure that they fully understand the implications of the rent increases.