Graduated Lease

You're so proud. All the studying and hard work your lease put in, and now it's sitting there on stage, with the other mortgages, leases, and contracts, dressed in a cap and gown, ready to get its diploma.

One kind of graduated lease. Another kind has to do with the structure of a contract between a landlord and a tenant.

Most leases call for a flat price. You move into an apartment. You agree to pay $1,500 a month. You sign a 2-year lease that locks in that $1,500 for the course of the 24 months.

A graduated lease includes planned adjustments in the monthly payments. So you sign a 2-year lease. You pay $1,500 for the first six months. Then, for the next six months, you pay $1,750. For the final year, you pay $2,000.

These kinds of arrangements are more common for commercial leases.

You're opening up a store in an up-and-coming neighborhood. It's going to take you two months to get everything ready for your grand opening. You aren't going to have any revenue during that time, so the landlord gives you a break. Your payments are going to be smaller during those first two months, so you have time to get off the ground.

Meanwhile, you want a three-year lease. Your landlord is nervous about locking in a payment during that time, because rents in the neighborhood have been rising. The landlord doesn't want to get two years into the lease and discover they're losing money by giving you a sweetheart deal. So you agree to have the payments increase a little in the second and third years, as a way of compensating for the rising market prices in the area.

That structure represents a graduated lease.