What Are Rent Escalations?

When signing a multi-year lease, most landlords don't want the rent to be stuck at the same level year after year, even though the fair market value of the property may be going up. Therefore, the lease often includes rent escalation clauses that set a formula in writing for how the rent for future years will be determined.

Some leases use very straightforward rent escalation clauses, such as increasing the rent a certain amount or percentage each year. Others tie the rent increase to other indicators, such as the Consumer Price Index or the cost of maintenance for the landlord. These alternative indicators are harder to predict. Have an attorney review your lease to make sure you understand how your rent will be affected in future years.