Texas Real Estate Sales Agent ExamContractsMedium
A property owner wants to lease their commercial building to a tenant for five years. To account for potential increases in operating costs over the lease term, the owner wants a clause that ties rent adjustments to a recognized economic indicator. Which type of clause should be included in the lease agreement?
- AHoldover Clause
- BNon-disturbance Clause
- CIndex Lease Clause
- DSubordination Clause
Show answer & explanationAnswer & explanation
Correct answer: C. Index Lease Clause
An Index Lease Clause links rent adjustments to a specific economic indicator, such as the Consumer Price Index (CPI). This allows the landlord to adjust rent periodically to keep pace with inflation and rising operating costs over a long lease term.
Why the other options are wrong
- A. A Holdover Clause specifies the terms if a tenant remains in possession after the lease expires.
- B. A Non-disturbance Clause protects a tenant's leasehold interest if the landlord's mortgage is foreclosed.
- D. A Subordination Clause establishes the priority of liens, not rent adjustments.
Index Lease Clause
A provision in a lease agreement that allows for periodic rent adjustments based on changes in a predetermined economic index, such as the Consumer Price Index (CPI).
- Common in long-term commercial leases.
- Protects landlords against inflation.
- Provides a predictable method for rent increases.
Memory trick: Indexes Increase Income for Landlords.