DEFINITION of 'Graduated Lease'

A type of long-term, typically for commercial property, lease in which the payments are variable and adjusted periodically to reflect changes in the property's appraised value or changes in a certain publicized benchmark rate, such as the Consumer Price Index (CPI). A graduated lease provides for periodic changes in the payments rather than employing a fixed payment throughout the life of the lease. In addition to basing payments on current and changing market conditions, the terms of a graduate lease can state that the payments automatically increase by a specified percentage or dollar amount at regularly specified time intervals.

BREAKING DOWN 'Graduated Lease'

Graduated leases are intended to protect the interests of the owner/lessor of the property. In many cases, the value of the leased property increases and the payments can be adjusted accordingly. For example, if a company has a 99 year lease on land under a graduated lease, the payments can be adjusted every 10 years to reflect the current market value of the land. If market values increase, this helps protect the land owner against losses resulting from payments that would be too low for current market conditions. In a different scenario, a graduated lease may be used to entice a company to lease a property that in the beginning has relatively small payments. As time passes, the payments increase on a regular basis, such as with an annual rent increase of 5%. This scenario is helpful to entrepreneurs who need to save money in the first few years of a lease while the business is being established.

RELATED TERMS
  1. Capitalized Lease Method

    An accounting approach that identifies a company's lease obligation ...
  2. Lease Rate

    The amount of money paid over a specified time period for the ...
  3. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
  4. Minimum Lease Payments

    The lowest amount that a lessee can expect to make on a lease ...
  5. Lease Payments

    A line item under long-term debt on a balance sheet that indicates ...
  6. Lease Utilization

    A financial ratio that measures how much a company uses leasing ...
Related Articles
  1. Managing Wealth

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  2. Managing Wealth

    When Is Leasing A Car Your Best Bet?

    Leasing a car isn't right for everyone. But it's attractive for those who want low initial payments and the ability to get a new vehicle every few years.
  3. Investing

    New Wheels: Lease Or Buy?

    These two major ways to obtain a car have very different advantages and drawbacks. Find out which is best for you.
  4. Managing Wealth

    Millennials Guide: How To Read a Lease

    Everything you need to know before you rent a home.
  5. Investing

    How Does a Modified Gross Lease Work?

    A modified gross lease is a rental agreement where, in addition to their rent, tenants pay a share of other costs associated with the property.
  6. Managing Wealth

    Rental Properties: Cash Cow Or Money Pit?

    Create a valuation system to forecast the profitability of an income-producing property.
  7. Investing

    8 Lease Clauses You Need To Know

    If you're renting an apartment this year, beware of signing contracts with these tricky clauses.
  8. Insights

    Companies With Big Hidden Debts

    Companies with off-balance sheet debt will be brought to light when new rules come into effect in 2019.
  9. Investing

    Rent-To-Own Homes: How The Process Works

    Sometimes there is an alternative way to buy a home: a rent-to-own agreement, also called lease option or lease-to-own. Lease now and pay later can work – for a select few.
RELATED FAQS
  1. You are currently reviewing the following information for JKL Corp ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
  2. At the beginning of the year, HIJ Corp. began to lease new equipment ...

    The correct answer is: b) Total Lease Payment = Interest expense + Principal repayment Step 1: Interest expense = 8.5% of ... Read Answer >>
  3. How have low interest rates affected lease rates in the automotive sector?

    Find out how and why lower interest rates for leasing new automobiles have helped spur more consumers to lease cars instead ... Read Answer >>
  4. How does the value of the real estate impact the value of a triple net (NNN) lease?

    Understand how the value of the real estate involved in a triple-net lease impacts the value of the lease both positively ... Read Answer >>
  5. What kinds of real estate transactions use triple net (NNN) leases?

    Learn how a net-net-net or triple net lease works and why it is popular in commercial real estate transactions. It is also ... Read Answer >>
  6. At the beginning of the year, ABC Corp. began to lease a major piece of equipment ...

    The correct answer is: A) Under the capitalized lease method, the lessee must treat the asset as if it was purchased with ... Read Answer >>
Hot Definitions
  1. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  2. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  3. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  4. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  5. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities ...
Trading Center