The calendar year used as a benchmark in gross or modified gross leases to measure increases in operating expenses that a tenant must pay over the landlord's base amount. The tenant absorbs only costs exceeding the base year level.
In a base year lease, the landlord pays operating expenses up to the amount incurred in the base year, and the tenant pays any increases above that. If the base year is 2024 and operating expenses were $8 per square foot that year, the tenant only pays the excess in future years. A low-occupancy base year can disadvantage tenants because expenses may be artificially understated — a gross-up provision corrects for this. Tenants should also verify whether taxes and insurance are excluded from the base year calculation.
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