What will this tenant actually be paying in year 5?

It's the part of a commercial lease that says how base rent changes over the term. Instead of one rent for the whole lease, the tenant pays a schedule: for example $8,420 a month in year 1, rising 3% each lease year after that. Escalations protect the landlord against inflation and rising costs over a multi-year term, and they're common in retail, office, and industrial leases of three years or longer.

A fixed-percentage clause raises rent by a set percentage each year, commonly somewhere around 2% to 4%, so the dollar increase grows a little every year. A fixed-step clause adds a set dollar amount, such as $0.50 per square foot per year or $250 a month, so each increase is the same size. A CPI clause ties the increase to the Consumer Price Index, often with a floor and a ceiling (for example, CPI but not less than 2% or more than 5%), so nobody knows the future rent until the index is published. This calculator handles the first two. For a CPI lease, enter an assumed rate to see a range, and replace it with the actual adjustment each year.

Almost always, yes: each year's increase is calculated on the prior year's rent, not on the original rent, so a 3% clause over five years raises rent by about 12.6%, not 12%. Some leases instead apply the percentage to the base-year rent every year (a simple, non-compounding increase), which produces the same dollar step each year. If your lease works that way, choose the dollar-step option and enter the year-1 rent times the percentage. This calculator compounds percentage increases and rounds each year to whole dollars, the way most rent schedule tables are written.

Most leases step the rent on the anniversary of the rent commencement date, at the start of each new lease year. That isn't always the same as January 1, the date the lease was signed, or the date the tenant took possession, especially when there was a free-rent period or a build-out before rent started. Some leases align steps to the calendar year or list exact dates in a rent table. Check the definitions of commencement date, rent commencement date, and lease year. This calculator works in whole lease years and doesn't model a partial first year.

Look in the base rent section and any rent schedule exhibit for four things: the type of increase (percent, dollar amount, CPI, or a written table), the starting rent it applies to, when increases happen, and whether they continue into renewal options. Phrases like "increase by three percent (3%) over the rent for the immediately preceding lease year" mean compounding. A rent table with exact figures by year overrides any summary elsewhere. Renewal options often reset rent to fair market value or a stated amount rather than continuing the same escalation.

Each step raises scheduled base rent, so the rent roll should show the current rent and the next step with its date, and your budget and net operating income (NOI) should use the rent in effect for each month of the year, not the rent on the day you built the budget. Lenders and buyers look at in-place rent and the contractual steps when they underwrite a property. A step that's in the lease but never billed is lost income, and it's one of the most common misses on small properties because nothing forces a review on the anniversary.

Usually not. Escalation clauses normally apply to base rent only. In a net lease, CAM, property taxes, and insurance pass through at actual cost, so they rise or fall with the real expenses, sometimes subject to a cap on controllable CAM. Enter only base rent here; use the CAM or NNN calculators for the pass-through charges.

It projects one uniform increase across whole lease years. It doesn't model mixed steps (a flat step for two years, then a percentage), skipped or deferred increases, free-rent months, a partial first lease year, actual CPI history, percentage rent on sales, or a reset at a renewal option. For those, enter the lease's rent table directly into your own schedule; you can download this projection as a CSV and edit it.