One complication that appraisers may face is the variety of lease types that may be available for a particular property type. Which of the following statements best describes a "graduated" or step-up lease?
A) The monthly rent remains fixed over the entire lease term.
B) The lease establishes schedule of rental rate increases over the term of the lease.
C) Rental rate increases are indexed to the general rate of inflation.
D) Rental rates are a function of the sales of the tenant's business.

Question

Quizplus · Accepted Answer

A graduated or step-up lease establishes a schedule of rental rate increases over the term of the lease. The initial rent may be lower than market rent, but it will gradually increase according to a predetermined schedule. This type of lease is common in commercial real estate leases. Option A is incorrect because a fixed rent lease means the monthly rent remains the same over the course of the lease term. Option C is incorrect because an indexed lease is one where the rental rate increases are tied to an inflation index. Finally, option D is incorrect because the rental rate in a percentage lease is tied to the sales of the tenant's business, not in a graduated lease.

One Complication That Appraisers May Face Is the Variety of Lease