Base Year
The first year makes all the difference.
Learn how the first year impacts every preceding year.
The Base Year is first year of an agreement and includes a precedent of how much a tenant pays for shared building expenses for the term of their lease.
Any given building has shared spaces and maintenance costs which the landlord works into shared fees across the tenants of the building. This can include building insurance as well as maintenance of common areas - including upgrades and repairs. Thus, these costs can actually vary and be a challenge for a business to anticipate.
Base Year Clause (CAM)
In a new lease the clause is the “floor’ for your shared amount of building expenses. Any increases you will pay into. Thus, it is important to know is this first year representative. Ask to see a history of expenses and anticipated future expenses.
Variable Expenses
As you review the history of expenses, look at the variable expenses vs. one time expenses. These are important because if the building is largely unoccupied, variable expenses will go up as the building is filled. More people equals more maintenance and operating costs. A one time expense might be an elevator replacement, which can be large. Knowing the general history of upkeep is helpful to know if you will be shouldering significant costs in upcoming years.
Gross-Up Clause
If the building is going to fill up with tenants - or even see drops - negotiate a gross-clause. This allows a recalculation of the base year if the building changes occupancy in subsequent years.
Escalation or Annual Increase
If controlling costs is key, this lever may allow you to control some of the variable. This clause is asking for a fixed increase over agreed periods of time. It could be tied to the Consumer Price Index or other factors. The lease may already have this and tie it to the base rent and allow a raise above and beyond, so be mindful if it does have it listed because it may actually be in the landlords favor. If you business can’t afford a sudden increase, negotiate a ceiling or a percent increase cap per month.
