California Real Estate Practice Exam

The U.S. Bureau of Labor Statistics publishes a cost of living index. If a lease contains an escalator clause, which requires periodic adjustments in relation to changes in the index, the lease is called a(n):

1. Federal lease

2. Fixed lease

3. Graduated lease

4. Standard lease

The correct answer is: Federal lease

A lease that includes an escalator clause, which adjusts the rent based on changes in the cost of living index published by the U.S. Bureau of Labor Statistics, is specifically known as a graduated lease. A graduated lease is designed to gradually increase the rent over time according to predetermined criteria, such as inflation or cost of living, ensuring that the rental amount keeps pace with economic changes. This type of lease is beneficial for both landlords and tenants: landlords can ensure their income keeps up with inflation, while tenants can sometimes negotiate limits on how much the rent can increase. It provides predictability in terms of future costs for tenants and revenue protection for landlords. The other options do not accurately reflect a lease that incorporates an escalator clause related to a cost of living index. Federal leases relate to federally managed properties, fixed leases specify a constant rent amount for the lease term without adjustments, and standard leases generally do not include specific clauses for periodic rent adjustments.