Which of the following best describes an index lease?

An index lease is best described as a lease tied to inflation rates. This type of lease typically includes a provision that allows for adjustments to the rental payments based on a specified index, often linked to inflation measures such as the Consumer Price Index (CPI). The primary purpose of this arrangement is to ensure that the rental income keeps pace with inflation over the duration of the lease. This provides protection for landlords against decreasing purchasing power due to inflation while enabling tenants to have more predictable costs as adjustments are systematically applied based on the agreed-upon index.

Other types of leases, such as fixed monthly payment leases, provide stability by having set payments that do not change over time. Leases that vary annually or have periodic adjustments may incorporate different terms and conditions that are not necessarily linked to inflation, which makes them distinct from an index lease. An index lease specifically focuses on the relationship between rental payments and economic indicators, ensuring that the lease remains relevant and equitable over time.