Base Year

A base year is the calendar or lease year whose operating expenses are treated as already covered by base rent. In every subsequent year, the tenant pays its pro-rata share only of the amount by which expenses exceed that base.

How it works

Suppose a lease has a 2022 base year, and the tenant’s pro-rata share of 2022 operating expenses came to $9,180. In 2025, the tenant’s share of actual expenses is $34,142. The tenant owes:

$34,142 - $9,180 = $24,962

The base-year amount is deducted every year for the life of the lease. It does not reset, and it does not escalate unless the lease specifically provides for it.

Base year versus expense stop

The two are closely related and often confused. A base year sets the reference to whatever expenses actually were in a stated year — the figure is not known until that year closes. An expense stop fixes the reference as a specific dollar amount negotiated up front, typically expressed per square foot.

A base year is more common in office leases; an expense stop is easier to underwrite because the number is known at signing.

Why the base year matters at negotiation

The base year is one of the most consequential terms in an office lease and one of the least examined. A base year during an unusually low-expense period — a year with mild weather, deferred maintenance, or low occupancy — produces a low reference and therefore high recoveries for the entire term.

This is also why gross-up matters so much in base-year leases. If the base year is grossed up but subsequent years are not, or vice versa, the comparison is not like-for-like and the tenant pays for the difference.

Order of operations

The base-year deduction is applied to the tenant’s share before any cap is tested. Testing the cap first is a common spreadsheet error that lets through a larger increase than the lease permits.

See how the deduction sequences in the CAM reconciliation calculator.