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

Which lease provision provides for increases in rent over a specified time period?

1. Step Lease

2. Escalation Clause

3. Percentage Lease

4. Rental Adjustment Clause

The correct answer is: Escalation Clause

The provision that provides for increases in rent over a specified time period is known as an escalation clause. This clause allows for predetermined increases in rental payments, which can be based on various factors such as inflation, increases in operating costs, or specific time intervals. Including an escalation clause in a lease agreement offers landlords a way to ensure that rental income keeps pace with inflation and other economic variables. This is particularly important in long-term leases where static rent could lead to losses in purchasing power over time. In contrast, a step lease typically establishes specific increases at set intervals, but it is more formal and defined in its structure than an escalation clause. A percentage lease ties rent to a percentage of the tenant's sales, which is common in retail settings, and a rental adjustment clause may refer to conditions that trigger a change in rent based on other criteria, but it doesn't directly imply a systematic increase over a defined timeline in the way an escalation clause does. Thus, the escalation clause is the most relevant provision for rent increases over time in lease agreements.