The final step is to negotiate your escalation clause. This is the part of the lease agreement that specifies how your rent will increase over time. There are different types of escalation clauses, such as fixed increases, CPI adjustments, market reviews, and index-based increases. Fixed increases are when your rent increases by a predetermined amount or percentage at regular intervals, such as annually or biannually. CPI adjustments are when your rent increases by the same rate as the consumer price index, which measures the inflation of goods and services. Market reviews are when your rent is adjusted to reflect the current market value of your space, usually based on an appraisal or a comparison with similar properties. Index-based increases are when your rent is tied to a specific index, such as the prime rate or the LIBOR, which reflect the changes in the cost of borrowing or lending money. Each type of escalation clause has its pros and cons, depending on your budget and expectations. For example, fixed increases offer more stability and predictability, but they may not reflect the actual market conditions. CPI adjustments offer more fairness and protection, but they may not capture the specific factors that affect your industry or location. Market reviews offer more accuracy and flexibility, but they may result in significant changes or disputes. Index-based increases offer more transparency and consistency, but they may be volatile or unpredictable.
To set the perfect rent and escalation clause for your commercial lease, you need to balance your business goals
and your landlord's interests. You need to do your homework, weigh your options, and negotiate wisely. By doing so, you can secure a lease that works for you and your landlord, and that minimizes your commercial leasing risk.