Legal Definitions - index lease

An index lease is a type of lease agreement where the rent increases or decreases based on changes in the consumer price index. The consumer price index is a measure of the average change in prices of goods and services over time. If the index goes up, the rent will increase, and if the index goes down, the rent will decrease.

For example, let's say a tenant signs an index lease for a commercial property with a base rent of $1,000 per month. The lease agreement states that the rent will increase by 2% for every 1% increase in the consumer price index. If the index increases by 3%, the new rent will be $1,020 per month (2% increase x 1.5% increase in index = 3% increase in rent). If the index decreases by 1%, the new rent will be $980 per month (2% decrease x 0.5% decrease in index = 1% decrease in rent).

Index leases are commonly used in commercial real estate to protect landlords from inflation and ensure that the rent keeps up with the cost of living. They can also benefit tenants by providing more predictable rent increases and decreasing the risk of sudden rent spikes.