What does a 'CPI' adjustment refer to in lease agreements?

A 'CPI' adjustment in lease agreements refers to the Consumer Price Index. This adjustment is commonly used in commercial leases to account for inflation and increases in the cost of living over time. By linking rent adjustments to the CPI, landlords can ensure that the rental income keeps pace with inflation, protecting their revenue from losing purchasing power. The Consumer Price Index is a widely recognized measure that tracks changes in the price level of a basket of consumer goods and services, thus making it a reliable index for such adjustments in lease agreements. Such adjustments are typically detailed in the lease contract, ensuring both parties are aware of how the rental terms may change during the lease term based on the economic climate reflected in the CPI.