Ground Rent Escalation Clause

Ground Rent Escalation Clause

A Ground Rent Escalation Clause is a provision included in a ground lease agreement that allows the landlord to increase the ground rent at specified intervals or under certain conditions. This clause is designed to protect the landlord’s investment against inflation or changing market conditions by ensuring that the rental income keeps pace with these variations.

The escalation can occur in various ways, such as fixed increases at regular intervals (e.g., every five years), adjustments based on a percentage of the Consumer Price Index (CPI), or market-based reassessments. For example, if the lease stipulates that the ground rent increases by 3% every five years, the tenant would be required to pay a higher amount after each five-year period, reflecting the agreed-upon increase.

Ground Rent Escalation Clauses are common in commercial real estate leases and in transactions involving land where a tenant builds or operates a business on property owned by the landlord. This clause ensures that the landlord retains fair compensation over time while providing tenants with a predictable, albeit increasing, financial obligation.