Base Rent - June, 2014
The vast majority of commercial leases call for Base Rent to increase during the lease term. There is no set formula for the timing or the amount of the increases. That said, it is most common that Base Rent increase annually. Increases can be either a fixed dollar amount, say, $.75 PSF per year, or the increase may be expressed as a percentage of the prior year’s Base Rent. For example, Base Rent could increase 4% annually over the prior year. This results in a compounding effect and, over time, results in higher rents than if increases are a fixed dollar amount. In some cases, increases in Base Rent are tied to the Consumer Price Index (CPI). As the CPI index increases, Base Rent increases at the same rate. If the parties agree to tie Base Rent increases to CPI, sometimes they further agree to place an annual cap and/ or a floor on the increase. Essentially, this allows the Landlord to get the benefit of increasing rent as inflation increases, but also protects the tenant from unlimited increases in rental payments. Larger national tenant are often successful in negotiating leases with no increases or small and less frequent increases. As is always the case, “fair’ is whatever the landlord and tenant agree to.