A reference year - typically the first year of the lease or year of building occupancy - used in gross leases to establish a baseline for operating expenses. Tenants pay only increases above the base year's actual costs in subsequent years.
In a modified gross or gross lease with a base year stop, the landlord pays all operating expenses up to the base year level; the tenant pays their pro-rata share of any increase above that level. The base year amount is typically the actual expenses incurred in the specified calendar or lease year.
A landlord sets the base year at 2020 - when the building was largely vacant due to COVID-19 and operating costs were artificially depressed. In subsequent years, all increases above this deflated baseline were passed through to tenants, resulting in years of inflated expense-stop payments.
Negotiate to gross up the base year expenses to at least 95% occupancy. This prevents you from paying inflated escalations caused by an artificially low base established during periods of low occupancy.
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Start Free AuditThis page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.