In a base-year lease, the operating expenses for a designated year (often the first year of the lease) establish a baseline. The landlord covers expenses up to that base amount, and in subsequent years the tenant reimburses its pro-rata share of any increase over the base. Base-year structures are common in office leases as an alternative to full triple-net pass-throughs; they limit the tenant’s exposure to the growth in expenses rather than the full amount.
How a base year works
The mechanics center on the increase over the baseline:
- The base-year operating expenses set the baseline the landlord absorbs
- In later years, the tenant pays its share of expenses above the base
- A higher base year generally benefits the tenant (more is absorbed)
Base year vs expense stop
A base year sets the baseline using a specific year’s actual expenses. An expense stop sets the baseline as a fixed dollar amount per square foot. Both cap the landlord’s share and pass increases to the tenant — they just define the threshold differently.
A lease has a 2025 base year with operating expenses of $10.00 per square foot. In 2026 expenses rise to $10.75 per square foot, so the tenant pays its pro-rata share of the $0.75 increase over the base.