Rent Escalations: Understanding Future Lease Costs

The rent quoted for the first year of a commercial lease is only the starting point. An escalation clause explains when rent will increase and how the new amount will be calculated. Understanding that clause helps tenants budget and compare spaces over the full lease term.

Common approaches include fixed dollar increases, annual percentage increases, scheduled rent steps, and adjustments tied to an index such as the Consumer Price Index (CPI). For an indexed increase, check whether the lease includes a minimum increase, a maximum increase, or both.

Before signing, request a year-by-year rent schedule. Compare the total base rent for each space over the entire term, and review any additional charges separately. Two leases with similar first-year rent can have very different long-term costs.

Godino Tip: Plan beyond Year 1. Understand the escalation formula and budget for the full lease term.

For help evaluating a commercial lease, contact Godino & Company, Inc.