Fixed rent, in the context of the real estate investment industry, refers to a type of lease agreement where the tenant pays a pre-determined, unchanging amount of rent for a specified period of time. This amount is typically set at the start of the lease and doesn’t change, regardless of market fluctuations or operational costs related to the property.
The primary benefit for property owners is the certainty of income. They know exactly how much money they’ll receive each month, which can aid in budgeting and financial planning.
For tenants, a fixed rent provides cost certainty, knowing that the amount they need to pay won’t change over the lease period. This can be advantageous in areas where rents are rising rapidly.
However, this type of arrangement also has some drawbacks. For landlords, if the market rents rise significantly, they won’t be able to increase the rent in response during the fixed period. Conversely, for tenants, if the market rents decrease, they will still need to pay the agreed higher fixed rent.
This contrasts with a variable rent lease, where the rent can be adjusted over the lease term, often based on a set of pre-agreed factors such as market conditions or the Consumer Price Index (CPI).