Billboard Insider ran a couple interesting articles on lease escalator clauses recently, namely those by Andy Goodman on January 28, 2026 and by Carl Hutchinson on February 17, 2026. Andy and Carl agreed that these types of provisions, while seemingly non-adversarial and business-like, can quickly get out of control and exceed reasonable expense expectations.

Andy and Carl discussed in their articles the usual rent escalator provisions, namely an agreed percentage increase in the monthly or annual payment every few years. For example, rent that commences at $1,000 per month, might be fixed at that rate for the first 60 months, and then increase by 10% to 1,100 per month for the next 60 months, and then by another 10% to $1,210 for the next 60 months, and so on. Or, as they discussed, annual escalators have more frequently been tied to the CPI increases. Either way, what initially seemed conservative, the rent compounds quickly and unfortunately unpredictably-“and often catastrophically.”

We’ve had a couple cases recently where these challenging rent escalator clauses are combined with those in unilateral automatic lease renewal clauses. Specifically, we’re all familiar with and perhaps have provisions in leases under which the “Lease will automatically renew on like terms unless the Lessee gives notice of termination 30 days prior to the expiration of the primary term.” And, often the lease also contains a rent escalation clause, containing these types of percentage rent increases every few years. It usually follows that when the lease is renewed on “like terms,” the same percentage rent increases from the primary term will be duplicated in the renewal term as well. So, assume one had a lease with a 20 year primary term, containing a 10% escalator every 5 years, commencing at $1,000 month for the first 60 months,  then increasing by 10% (to $1,100) for the next 60 months, then another 10% (to $1,210)  for the next 60 months, and then anther 10% (or $1,331) for the last 60 months until expiration or renewal. Then, if the lease was renewed on “like terms,” the percentage rent increases from the primary term would be duplicated in the renewal period, namely during the first 60 months of the renewal would be increased by 10% (to $1,464) ,  then another 10% increase (to $1,610)  for the next 60 months, then another 10% (to $1,771) for the next 60 months, and another 10% (to $1,948) for the last 60 months. Once again, as Andy and Carl warned, this can get out of control real quick!

But, instead  of this type of percentage rent escalator, the lease contained a specific monetary schedule of increased rent over the primary term. For example, assume the same lease containing a 20 year primary term and unilateral automatic renewal provision commencing at $1,000 per month, but the lease went on to state expressly that the monthly rent increased to $1,100 after 60 months,  then to $1,210 for the next 60 months, and then to $1,331 for the last 60 months. If this lease was renewed on “like terms,” what’s the amount of rent owed during the 20 year renewal period? Is it the highest rent paid during the primary term, $1,331, for all 20 years? Or, is there  some sort of implication of increases every 60 months over the 20 years of the renewal, by the same percentages or monetary amounts as observed in the primary term? How about this: if the renewal is supposed to be on the same “like terms” as the primary term, the rent for the first 60 months of the renewal is $1,000 per month, then increased to $1,110 for the next 60 months, then to $1,210 for the next 60 months, and then to $1,331 for the last 60 months of the renewal—just like in the primary term?

We’ve argued that last alternative, namely that a renewal on “like terms” means the duplication of the rent observed in the primary term. This is obviously the best financial result for our clients. But, a Court is likely to rule that the parties’ mutual intention on the amount of rent owed will be determinative. And, if there’s a disagreement on this amount, the Court will scrutinize the lease and the standards in the industry to determine what is the most reasonable interpretation of the parties’ intentions. This judicial examination is usually fact intensive, requiring expensive depositions and other discovery costs on what was intended in the lease by the lessor and lessee. The best way to avoid this uncertainty and expense is to include in the lease the exact amount of rent due during the renewal period, if the lease is renewed, as well as during the primary term.

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