Saturday, March 19, 2011

Tips for Using CPI Rent Adjustments

Rental adjustment provisions are a common component of most leases. Often such adjustments are linked to the rise and fall of the Consumer Price Index (CPI). Sometimes referred to as a cost of living adjustment (COLA), these adjustments typically occur annually on the anniversary of the start date of the lease.  The adjustments parallel the increase, or decrease, in the CPI over that same period. For example if the CPI increases 3% then the rent will increase 3% as well.

One inherent problem with using the CPI as an index for adjusting rent is that landlords are forced to wait a few months before billing tenants for the newly adjusted rent.  This problem is a result of the fact that there is a delay in the publication of the CPI. In other words, the CPI for January may not be published until March because the Government must gather and analyze data prior to releasing the index to the public. This forces landlords to bill tenants retroactively for the adjustment in rent each year. If January is used as the month that the rent adjusts each year, then landlords must wait until the CPI for January is published at some later date in order to know exactly how much to increase, or decrease, the rent. Besides being inconvenient, retroactively billing a tenant causes budgeting problems and accounts payable issues for tenants not to mention cash flow planning problems for landlords.  

One solution is to set the CPI index date as a date prior to the rental adjustment date. In other words, separate the two dates. If a lease begins in January and the landlord would like to bill and collect the adjusted rent annually in January, he should set the CPI index date as the month of November (i.e. two months prior). In doing so, the landlord can be assured of having the published CPI index by the time he is ready to bill the rent for January. The difference between the November CPI and January CPI will be almost certainly be negligible, so there is little downside for either the tenant or landlord.

Conceptually, and in an abbreviated form, the lease language might read: "The monthly rent shall be adjusted annually in the month of January. The adjustment will be based upon the difference in the CPI between the months of November 2011 and November 2012…"


For more information about the Consumer Price Index you can visit:



5 comments:

  1. What happens if a Landlord never bills for CPI increase during most or all of the lease period even though in the lease he's allowed CPI increases, can he go after CPI that he never billed the Tenant claiming "he forgot?"

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  2. Let me qualify my comments by saying that I've not seen the lease nor am I an attorney.
    Now with that out of the way, I'd say that I see no reason why the tenant shouldn't be obligated to pay all past due increases.
    Most leases do not require that a tenant receive an invoice in order to pay rent. Many landlords do send out invoices, but this is purely a courtesy. The failure of a landlord to provide an invoice does not relieve the tenant of their obligation to pay rent. In fact, a landlord could actually tell a tenant that the lease is their invoice.
    Hope this helps.

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  3. what happen if the landlord never say anything about CPI and then all of a sudden bills you 3 years worth of CPI which totaling to 10,000

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  4. The Landlord may only be able to collect for the previous 12 month period. Check with your legal adviser on this very specific piece of law.

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  5. The Consumer Price Index (CPI) measures the average change in the prices paid for a market basket of goods and services.CPI the most widely used measure of price change to adjust payments for changes in prices.Well i have enjoyed it thoroughly, great stuff and content. Hoping for same stuff in your future blogs also.

    Brian Linnekens | Brian Linnekens USA

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