Step-Up Lease

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.

BREAKING DOWN '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. Lessor

    The owner of an asset that is leased under an agreement to the ...
  4. Lessee

    The person who rents land or property from a lessor. The lessee ...
  5. Graduated Lease

    A type of long-term, typically for commercial property, lease ...
  6. Lease

    A legal document outlining the terms under which one party agrees ...
Related Articles
  1. Home & Auto

    Simple Ways To Invest In Real Estate

    Owning property isn't always easy, but there are plenty of perks. Find out how to buy in.
  2. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
  3. Home & Auto

    Rental Properties: Cash Cow Or Money Pit?

    Create a valuation system to forecast the profitability of an income-producing property.
  4. Taxes

    Tax Deductions For Rental Property Owners

    Besides creating ongoing income and capital appreciation, real estate provides deductions that can reduce the income tax on your profits.
  5. Retirement

    Are You Ready to Rent?

    If you think it's time to test your wings and leave your parents' nest, read on.
  6. Investing Basics

    The Complete Guide to Financing an Investment Property

    If you're considering adding an investment property to your portfolio, you need to know what your options are for financing its purchase.
  7. Investing Basics

    10 Habits Of Successful Real Estate Investors

    Enjoying long-term success in real estate investing requires certain habits. Here are 10 that effective real estate investors share.
  8. Investing Basics

    5 Types of REITs And How To Invest In Them

    Real estate investment trusts are historically one of the best-performing asset classes around. There are many types of REITs available.
  9. Investing Basics

    5 Simple Ways To Invest In Real Estate

    There are many ways to invest in real estate. Here are five of the most popular.
  10. Investing

    Why We’re Bearish On U.S. Housing

    Hedgeye analyst Josh Steiner discusses the reasons behind our decision to go from bullish to bearish on the U.S. housing market.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Full Answer >>
  3. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
  4. Can hedge funds outperform the market?

    Generating returns that exceed those provided by the broader market is the goal of nearly every investor. However, the methods ... Read Full Answer >>
  5. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  6. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center