Rent Escalation Clauses in Office Leases
Fixed rent over long term leases is relatively rare, because landlords often try to build in rent escalation provisions.
Sometimes, landlords insist on annual increases based upon the percentage increases in the Consumer Price Index (CPI). If you are confronted with such a request, do two things. First, try to arrange that the CPI does not kick in for at least 2 years. Second, try to get a cap on the amount of each year's increase (for example, no more than a 3 percent increase in any year). Here is a sample clause for doing that:
Any rent increases under this Lease shall commence no earlier than two (2) years after the date of the commencement of this Lease. The maximum amount that the rent may be increased in any one year (starting in the third year of this Lease) shall be three 3% over the beginning base rent under this Lease.
If you have to live with a rent escalation clause, consider a predetermined fixed amount, like
- $2,000 a month for the first year
- $2,200 a month for the second year
- $2,400 a month thereafter
Such a provision gives you more predictability in planning your business. (Note: Make sure that your business plan projections adequately reflect such increases.)
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