Index Lease is a term referring to a type of lease agreement where rental payments are linked to a specific price index, such as the Consumer Price Index (CPI) or another relevant economic indicator. This type of lease is designed to protect the interests of the property owner against inflation or changes in the market.
Under an Index Lease, rental payments can increase (or sometimes decrease) over time in line with the chosen index. The lease agreement will typically outline the specific index that will be used, the frequency of adjustments, and how those adjustments will be calculated.
For instance, if the lease is tied to the CPI, and the CPI increases by 3% during a year, the rent for the following period may be adjusted upward by that same percentage. This helps landlords keep rental income in line with inflation or other economic changes, while tenants have a clearer understanding of how rent might fluctuate over time.