Base Year

A base year is a cost-allocation mechanism common in modified gross and full-service leases. In the first year of the lease — the base year — the landlord absorbs the building’s operating expenses as part of the quoted rent. In every year after, the tenant pays its proportional share of the amount by which expenses rise above that base-year level, while the landlord continues to cover the base amount. This protects the tenant from paying the full weight of operating costs while still passing through inflation and increases over time. The details matter: a landlord may push for an artificially low base year (for example, one with unusually low expenses) so that increases — and the tenant’s share — start sooner and run higher. Tenants should confirm the base year reflects a normal, fully-assessed year, understand which expense categories are included, and negotiate caps on how fast their share can grow. The base year interacts directly with the lease structure and is a frequent source of reconciliation disputes.

The base year sets the baseline you pay increases above, so an artificially low one costs you sooner and more. Confirming it reflects a normal year, and capping increases, controls long-term expense exposure.

A practice signs a lease with a 2026 base year, where operating expenses run $10/sq ft. In 2027 expenses rise to $10.60/sq ft; the tenant pays its share of the $0.60 increase, while the landlord still covers the original $10 base.