Texas Real Estate Sales Agent ExamContractsMedium
A property owner wants to lease their commercial building to a tenant for five years. The owner wants to ensure that the rental income keeps pace with inflation and property value increases over time, but without the complexity of tying it to a specific economic index. Which lease clause would best achieve this goal by scheduling predetermined rent increases?
- ASubordination clause
- BPercentage clause
- CEscalation clause
- DReappraisal clause
Show answer & explanationAnswer & explanation
Correct answer: C. Escalation clause
An escalation clause, particularly a graduated lease, allows for predetermined rent increases at specified intervals during the lease term, fulfilling the owner's desire for predictable growth without tying to an external index.
Why the other options are wrong
- A. A subordination clause changes the priority of liens, unrelated to rent increases.
- B. A percentage clause ties rent to the tenant's gross sales, not general inflation or property value increases.
- D. A reappraisal clause would require periodic property appraisals to adjust rent, which is not what the owner specifically requested (avoiding complexity).
Escalation Clause (Lease)
A provision in a lease that allows for rent to be increased at specified times or upon the occurrence of certain events, such as increases in operating expenses or property taxes. This can be a fixed increase or tied to an index.
- Allows for rent increases
- Can be fixed or variable (index-based)
- Common in long-term commercial leases
Memory trick: Escalate the rent, just as planned, to keep up demand.