What does an index lease specifically allow for in terms of rental payments?

An index lease specifically allows for adjustments in rental payments based on changes in an economic index, such as the Consumer Price Index (CPI). This type of lease is particularly designed to account for inflation and the rising costs of living, ensuring that the rental payments remain fair and reflective of current economic conditions over time.

By linking the rent to such an index, landlords and tenants have a clear and objective method for adjusting the lease payments, providing both parties with a measure of predictability regarding future costs. This mechanism can help protect landlords from the devaluation of rental income due to inflation, while also helping tenants by setting baseline expectations on how rent will change in relation to the economy.

While fixed rental payments do not allow for any adjustments, payments based solely on operational expenses would not incorporate broader economic factors like inflation. Market-rate adjustments typically refer to changes based on current market conditions rather than a systematic index, lacking the stable reference an index provides.