What key feature differentiates an index lease from a straight lease?

An index lease is uniquely characterized by tying rental payments to a specific index, which is the essence of what distinguishes it from a straight lease. A straight lease typically involves a fixed rental amount that does not fluctuate over time. In contrast, in an index lease, the rental payments are adjusted periodically based on changes in a designated economic index, such as the Consumer Price Index (CPI). This mechanism allows the lease payments to rise or fall in accordance with the economic conditions that the index represents, making it a variable cost structure over the lease term.

The adjustments tied to the specific index provide an opportunity for rental payments to reflect inflation or other economic variables, ensuring that the lessor maintains the value of the lease over time. This feature of linking payments to an index is critical in lease agreements, especially in longer-term leases where preserving purchasing power is essential for landlords. Other options, while they may be features of different types of leases, do not define the fundamental nature of an index lease.