Final answer:
A lease where the rent adjusts with inflation and deflation is known as an index lease or inflation-adjusted lease. It is designed to maintain a real price consistent with the market value, using measures like the CPI to adjust rents accordingly.
Step-by-step explanation:
A tenant is leasing a commercial building where the rent on the building increases with inflation and decreases with deflation. This type of lease is most commonly referred to as an index lease or inflation-adjusted lease. An index lease is designed to protect both the tenant and the landlord from the effects of inflation or deflation. The rent is typically tied to an acknowledged measure of inflation, such as the Consumer Price Index (CPI).
This allows the rent to adjust periodically to reflect changes in the cost of living. For sellers and buyers, such contracts ensure that they get a fair value over time without the risk of being locked into a price that becomes unfavorable due to shifts in inflation. Therefore, the lease guarantees a real price that reflects the true market value, rather than just a nominal price set at the beginning of the lease term.