CPI Rent Escalation

A form of contractual rent increase determined by changes in the Consumer Price Index, a common index used to measure inflation in the United States. Most long-term leases in commercial real estate include periodic rent increases. These rent increases are included in leases, in part, to ensure that the value of the lease does not diminish over time due to inflation.

Generally, the amount or percentage of the increase is pre-defined (e.g. $2/SF/YR, 2.5%/year, 10% every five years, etc). However, in some cases the landlord and tenant agree to use the change in the Consumer Price Index to determine the periodic increase.

So if for instance the lease calls for annual CPI rent escalations, the rent due to the landlord will increase each year by the amount that CPI increases each year.

Note that while the Consumer Price Index is administered by the U.S. Bureau of Labor Statistics and in real estate is most commonly seen in US-based leases, it is not uncommon to also see CPI rent escalations in non-US leases when those leases are denominated in US Dollars (e.g. USD-denominated Industrial Leases in Mexico).

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