What is the purpose of a step-up clause in a lease?

A step-up clause in a lease serves to establish specific rent increases that are to occur at designated times during the lease term. This type of clause provides both landlords and tenants with a clear understanding of how and when rent will be adjusted, thus facilitating budgeting and financial planning. By outlining the predetermined rent increases, the clause helps avoid disputes over rental amounts and provides predictability for both parties.

This is especially beneficial in long-term leases, where fixed rent may not reflect changes in the market value over time. Instead of allowing for variable increases based on market conditions or other factors, a step-up clause defines clear increments, allowing tenants to anticipate their rental costs while ensuring landlords can maintain consistent revenue growth. The predetermined schedule of increases can be adjusted to match inflation or other economic indicators as agreed upon in the lease, making it a strategic tool for financial planning in property management.