Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

In terms of leasing, what is an escalator?

1. A method of tenant screening

2. A scheduled rent increase mechanism

3. A type of property assessment

4. A form of lease negotiation

The correct answer is: A scheduled rent increase mechanism

An escalator in terms of leasing refers to a scheduled rent increase mechanism. This means that tenants are made aware in advance of specific times during their lease when the rent will increase, often based on a predetermined schedule or tied to an index such as the Consumer Price Index (CPI). This mechanism allows landlords to keep pace with inflation and rising costs while providing tenants with transparency regarding their future rental obligations. In commercial leasing, escalators are common in longer-term leases to adjust rent appropriately over time, reflecting changes in the market or economic conditions. This ensures that rental income for the property remains aligned with current market rates, safeguarding the landlord’s investment. The other choices, while related to the leasing process, do not accurately describe what an escalator is. For instance, tenant screening involves evaluating potential tenants, property assessments focus on determining the value or condition of a property, and lease negotiations pertain to discussions about terms before a lease is signed. None of these directly address the scheduled incremental rent adjustments, which is the essence of what an escalator represents in lease agreements.