How does an index lease determine rent increases?

An index lease determines rent increases by tying them to an economic index, such as the Consumer Price Index (CPI) or other relevant economic indicators. This mechanism allows for adjustments in rent based on inflation or changes in the cost of living, making it a flexible option for both landlords and tenants. When the specified index indicates an increase in costs, the rent is adjusted accordingly, which helps to maintain the purchasing power of the rental income over time.

This approach contrasts with fixed annual rates, which do not account for economic fluctuations, offering less adaptability in terms of market conditions. Similarly, basing increases on the number of tenants or property appreciation would not provide a systematic or predictable method for determining rent adjustments, as these factors can vary widely and are not directly linked to the economic environment in the same way as an index.