What Does Base Year Mean When Leasing Office Space?

base yearWhen leasing office space most landlords pass along all the operating expenses (taxes, insurance, repairs, maintenance, utilities, etc.) to tenants in the form of either a Triple Net or Base Year lease.   Why they choose either one is personal and depends on how they prefer to do their accounting.  Landlords like these types of leases because it covers them in the event operating costs increase.  If operating expenses increase then tenants get billed.  If operating expenses decrease then tenants typically get credited.

When a tenant signs an office lease contract the base year is typically determined during the first 12 months of that tenant’s occupancy (actual operating expenses).  The landlord is agreeing to cover all of the operating expenses up to a certain amount and the tenant will be responsible for their pro-rata share for any increases in subsequent years.

For example let’s say on January 1st, 2015 you lease 5,000 sf of office space in Southwest Austin.  The actual operating expenses at that time were $10.00 sf. so essentially $10.00 sf becomes your base year.  The following year in 2016 if the actual operating expenses end up being $10.50 sf then the tenant gets billed for $0.50 sf or $2,500.  If the actual operating expenses decrease then you MIGHT get a credit at the end of the year.

January 1st, 2015 will always be your base year until your lease renewal comes up and the base year is renegotiated.

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