In an indexed lease, how is rent determined?

In an indexed lease, rent is determined by tying it to an inflation index. This means that the rent amount can increase or decrease over the lease term based on changes in the specified index, often reflecting the cost of living or inflation rates. This structure provides a way to ensure that rental income keeps pace with economic conditions, offering a level of protection for landlords against inflation.

Unlike a fixed lease where the rent remains constant throughout the lease term, or a lease based on market rental rates that can fluctuate based on current market trends, an indexed lease specifically adjusts based on predetermined economic factors. Similarly, while a percentage of tenant's sales might benefit landlords as tenants succeed, it does not provide the automatic adjustments tied to inflation that an indexed lease offers. Therefore, tying the rent to an inflation index provides a predictable and systematic method of adjusting rent in response to economic changes, which is the essence of an indexed lease.