Step-Up Lease

AAA

DEFINITION of 'Step-Up Lease'

A step-up lease is a lease agreement which stipulates that the rental rate will increase by predetermined amounts at various points in the future. Through the rent increases in the future, the lessor hopes to hedge against various risks such as inflation and other cost increases.

INVESTOPEDIA EXPLAINS 'Step-Up Lease'

Step-up leases are typically employed in longer-term leases spanning several years into the future. In these situations, the lessor incurs considerable risks by locking in a fixed rental rate while inflation and other costs remain variable.

In residential real estate, such as apartment complexes, lessors can mitigate these risks by offering only one or two year fixed-rate leases and adjusting rates when leases come up for renewal. But in commercial and industrial real estate, firms require long-term leases due to the costs involved in setting up operations and value of establishing a well-known location.

RELATED TERMS
  1. Month-To-Month Tenancy

    A type of rental agreement. Month-to-month tenancy is based upon ...
  2. Slow Loan

    A loan that a lender considers at risk for nonpayment. Banks ...
  3. Lessee

    The person who rents land or property from a lessor. The lessee ...
  4. Lessor

    The owner of an asset that is leased under an agreement to the ...
  5. Triple Net Lease

    A lease agreement that designates the lessee (the tenant) as ...
  6. Leasehold

    An accounting term used to classify an asset on a company's balance ...
Related Articles
  1. Tips For The Prospective Landlord
    Home & Auto

    Tips For The Prospective Landlord

  2. Rental Properties: Cash Cow Or Money ...
    Home & Auto

    Rental Properties: Cash Cow Or Money ...

  3. Tax Deductions For Rental Property Owners
    Taxes

    Tax Deductions For Rental Property Owners

  4. Simple Ways To Invest In Real Estate
    Home & Auto

    Simple Ways To Invest In Real Estate

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center