Commercial Property Management/CPI-U increase

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Question
I have a lease contract that stipulates that the base rent shall increase every two years by the rate of 2% per annum. What exactly does it mean?  The base rent is $2520 per month. Thank you.

Answer
Bernice:

I am sorry that the calculation of your increased rent is unclear to you.  Many, but far from all, leases clarify any chance for ambiguity by actually including a definitive written month-by-month or annual graphic Base Rent schedule of the future rent increases through the full lease term as part of the lease rent provision.   

I interpret this provision to mean that your Base Monthly Rent will increase by 4% every two years (2 years x 2%), i.e. after every consecutive 24 month period during the full lease term.   That is, your Base Rent becomes $ 2,620.80 ($2,520 x 1.04 = $ 2,620.80) per month at the beginning of your third (3rd) lease year (i.e., on the first day of the 25th month of your lease term), monthly rent will increase again to $2,725.63 ($2,620.80 x 1.04 = $ 2,725.63) at the start of the fifth (5th) lease year(starting on the first day of the 49th month of your lease term), increase to  $2,834.65 ($2,725.63 x 1.04 = $2,834.65), at the start of the seventh lease year, etc.   As you see, simply multiply your Monthly Base Rental by 1.04 every two years (at the end of every 24 month period) to arrive at your new monthly rate.  (If you calculate and compound the 2% annual increase on a yearly basis the increased monthly rent for the 3rd, fifth and seventh month will be very slightly greater at $2,621.80, $2,727.72 and $,2,837.92.  

Note that you will not receive monthly Base Rent increases during lease year two (2), four (4), six (6) etc. however your lease may provide for some other kind of "additional rent" payments such as common area maintenance reimbursements, utility reimbursements, tax increase charges, etc.

Please contact me again with any further question.


Good luck,

Jim  

Commercial Property Management

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Jim Avancena

Expertise

Any question involving commercial (non residential) property management or commercial leasing.

Experience

You can see all my information as your expert under commercial real estate "investment" which I have been reponding to for some time now. My expertise however is really commercial leasing and property management (for which I am a Certified Property Manager "CPM"). I though I should more accurately be listed under Property Management or Commercial Leasing which you do not have a category yet. I would be most help answering questions involving Commerical Leases as that is what I do the most of in real life.

Education/Credentials
BA Political Communications, University of Memphis Certified Property Manager ("CPM"), Institute of Real Estate Management, Chicago

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