Expert: Peter Liebert, SIOR - 2/13/2004

Question
We presently rent half of an old building. It's a retail store front. Our lease is up for renewal. Out landlord wants a five year lease indexed to the cpi plus 1% per year. Also, he wants us to provide property insurance even though we only occupy half the property.
My questions: should a commercial lease be tied to the cpi or is there a better index. Also, would a co tenant normally provide property insurance in the manner suggested?

Thanks

Answer
The property insurance should be on a prorated basis for the sq. ft. that you occupy. CPI + 1% is typical, but if you need to budget for your business plan negotiate for a fixed increase (every other year may be an option for you) over whatever lease term is available. Good luck with it.