Glossary
Caps & Limits
Base Year Cap
A cap measured against the base year dollar figure instead of the prior year's actual. Every future ceiling traces back to that one number, so an error in the base year follows the lease for its full term.
Firm impact
Before your firm accepts any cap ceiling built off the base year, check the base year figure itself. A base year set too low, often from a partial-occupancy year with no gross-up, understates every ceiling that follows.
How this gets abused
The base year was recorded during a year the building sat 60% occupied, with no gross-up applied. Every later cap ceiling is calculated off that artificially low number, so the landlord can claim large percentage increases even when actual cost growth was normal.
Practitioner note
Verify the base year expense was grossed up to stabilized occupancy (95% is the common target) before accepting a cap ceiling calculated from it. A bad base year poisons every year's cap test that follows. This overlaps with Base Year Error review.
Related terms
FAQ
Questions about base year cap
Why does the base year matter for a base year cap?
Because every future ceiling is a percentage of that one number. If the base year is wrong, every cap calculated from it is wrong too, for the entire lease term.
What should my firm request to check a base year cap?
Request the base year's actual expense detail and its occupancy rate. If occupancy was below 95% and no gross-up was applied, the base year figure likely needs correction before any cap math can be trusted.
You know the term. Now check the math.
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