Many local commercial leases use the Portland-area consumer price index (“CPI”) to calculate periodic rent adjustments. That index was discontinued in 2018. For commercial landlords and tenants whose leases rely on the now-discontinued Portland-area CPI, discussing how to handle rent adjustments now can prevent tension later.
A consumer price index is an economic indicator measuring the change in the average cost of common goods and services. The Bureau of Labor Statistics (“BLS”) publishes a national CPI and many different sub-sets for different demographics, products, and regions. Last year, BLS discontinued publishing a Portland-area CPI (officially named the “Portland-Salem OR-WA CPI” at the time of its discontinuation), explaining that Portland no longer met the population threshold under BLS’s updated statistical model.
Using the percentage change of a CPI over a set period of time is a common measure for rent adjustments in commercial leases, with many using a more localized index, like the Portland-area CPI, to tie rent adjustments to the local market. The Portland-area CPI should no longer be used in preparing commercial leases, and landlords and tenants should not sign a lease that contains a rent adjustment clause that uses it. But other localized options remain after the discontinuance of the Portland-area CPI. A CPI is separately calculated for the Seattle-Tacoma-Bellevue metropolitan area, the Pacific Division (covering Alaska, California, Hawaii, Oregon, and Washington), and the West Region, (comprising the Pacific and Mountain Divisions, including all states as far east as Colorado).
Leases that use a localized CPI should provide that another index be used if the primary CPI is discontinued, such as a national CPI. The most commonly used national CPI is the CPI-U, All Items, U.S. City Average (1982-84 = 100), either as a primary rent adjustment measure, or a back-up to a local CPI. If an alternative CPI is included in a lease, it may be seamlessly used for the next rent adjustment. A lease might contain another alternative method, like a simple percentage increase from the prior rent rate, or landlord and tenant negotiating a fair market value rate with an arbitration by a local appraiser if they cannot agree.
While the national CPI probably will not be discontinued anytime soon, a clear, reliable alternative method of calculating rent is a must in any lease that uses a third-party publication as means of calculating rent increases. Without a clear alternative measure, the only certainty is uncertainty. Landlord and tenant may each suggest the most advantageous rent adjustment method for themselves, and the tenant might even argue there are no further rent escalations while insisting they hold options to extend the lease for years or decades. The specific language of each lease will determine who is right. Recognizing and discussing potential issues relating to the now-discontinued Portland-area CPI in advance can avoid time, resources, and uncertainty later when it’s time to adjust the rent.