National Real Estate Exam (PSI)ContractsHard
A tenant signs a five-year graduated lease for retail space. Rent is $1,800 per month for the first two years, increases by $200 per month for years three and four, and increases by an additional $300 per month for year five. What is the tenant's total rent obligation over the entire five-year lease term?
- A$108,000
- B$112,800
- C$118,800
- D$124,800
Show answer & explanationAnswer & explanation
Correct answer: C. $118,800
Years 1-2: $1,800 × 24 months = $43,200. Years 3-4: rent increases $200 to $2,000 × 24 months = $48,000. Year 5: rent increases another $300 to $2,300 × 12 months = $27,600. Total: $43,200 + $48,000 + $27,600 = $118,800.
Why the other options are wrong
- A. This total omits the year-5 step-up increase.
- B. This figure results from applying only one rent increase incorrectly across too few months.
- D. This overstates the total by miscalculating the final rent tier across too many months.
Graduated (Step) Lease
A lease in which rent increases at scheduled intervals over the lease term, often used in long-term commercial leases to account for anticipated cost increases.
- Rent increases are predetermined and stated in the lease, not tied to sales or index
- Calculate total rent by summing each period's monthly rent times number of months
- Differs from a percentage lease, which ties rent to tenant revenue
Memory trick: 'Step up, add it up' — break the lease into rent tiers, multiply by months, then total