Indexing, in the context of commercial real estate, usually refers to a mechanism that automatically adjusts the amount of rent over time based on some economic indicator, such as inflation.
The aim is to protect the rental value from inflation and keep the real rental value constant.
For example, if rent is indexed to the rate of inflation, and inflation for a given year is 2%, then next year's rent would increase by 2%.
The terms of indexation should be clearly stated in the lease agreement, including which indicator will be used for indexation, how often the rent will be adjusted, and how the calculation will be made.
It is important to note that while indexing can protect landlords from inflation, it can also increase costs for tenants if inflation increases faster than the growth in income or the value of the tenant's business.
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