Use of Escalation Clauses for Operating Costs on All GSA Leases

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Use of Escalation Clauses for Operating Costs on All GSA Leases

Since November 1973 GSA has used escalation clauses for building operating costs in long-term leases of 5 years or more, or 5 years with the option to renew. In April 1978, GSA implemented a new escalation clause which provides for annual escalation on all new or superseding leases. Potentially the clause will apply to 7,024 active leases on May 1, 1978. GSA has suggested the use of changes in the Consumer Price Index as a basis for making annual adjustments of lease operating costs. GAO believes escalation clauses should be used sparingly in GSA leases and certainly should not be required for all leases. GAO does not consider the Consumer Price Index to be an appropriate standard for determining adjustments to building operating costs.