As 2025 winds down, it’s time for tenants and brokers to double-check the Base Year in any new leases, renewals, or expansions.
We often see tenants commit to terms that start in late 2025 or early 2026, only to find out later that the lease uses 2025 as the Base Year. That decision can increase future costs. It’s even more concerning when landlords don’t reset the Base Year at all on extensions, leaving tenants stuck with outdated benchmarks.
What Is a Base Year?
A Base Year commercial lease is one in which tenants pay their share of operating expense increases above a set baseline—the Base Year. This is typically negotiated as the calendar year in which the lease begins. No operating expenses are paid during the Base Year. Operating expenses usually increase year over year, so increases over the Base Year amount are then paid by the Tenant.
Base Year for Leases Beginning in January (Simple)
If your lease starts in January 2026, the Base Year should be 2026. It makes sense that the baseline year for operating expenses would be the first 12 months of the lease. With a 2026 Base Year, no operating expense payments are made until January 2027 when budgeted annual operating expenses surpass the 2026 amount.
If the Base Year was 2025, then operating expense payments would begin on the first month of the lease, since the baseline expenses are the year prior.
Base Year for Leases Not Beginning in January (Not as Simple)
What should the Base Year be when the first 12 months of the lease aren’t the same as the calendar year operating expenses? If a lease begins in September 2025 and the Base Year is 2025, then the tenant only gets the benefit of 4 months of no operating expense payments until they begin paying in January 2026. Doesn’t seem fair to have to start paying expenses earlier than someone with a lease beginning in January just because of unfortunate term start dates. What can a tenant do to receive the full base year benefit?
Ask for a 2026 Base Year
We’re now at the time of the year where Tenants should be pushing for a 2026 Base Year for all leases or extension beginning in 2025 or early 2026. With a 2026 base year, a Tenant will have the benefit of not paying any operating expenses until January 2027 when the budgeted expenses suprass the 2026 Base Year amount. For a lease beginning in September, that means 17 months of no operating expense payments (versus 4 with a 2025 Base Year).
As a lease administration company, we see thousands of commercial lease. With leases beginning later in a year, Landlords are often willing to accept the base year as the following year. Unless the tenant raises the issue in negotiations, landlords will likely default to 2025 as the Base Year. That simple oversight can cost tenants thousands over the lease term.
Back-Up Option
If the landlord refuses to accept a 2026 Base Year in negotiations, the next best option is to request 12 months of no pass through expenses. For example, if the lease begins in September 2025 and the Base Year is 2025, then instead of paying operating expenses beginning in January 2026, no operating expense payments are due until September 2026.
Higher Stakes on Renewals
On renewals, it’s even more critical that the base year is reset. If the Base Year isn’t reset, a tenant will pay operating expenses over an outdated comparison base year. This means both that operating expenses are due in the first month of the extension, and even worse, the comparison year could be against a lease signed five or even ten years ago when expenses were much lower than current operating expenses.
What You Can Do
Ask your broker or landlord directly:
“Will this lease use 2026 as the Base Year?”
Better yet, involve a tenant-side lease advisor. Professionals spot these red flags early and protect your bottom line.
If you’re unsure about your Base Year or lease terms, we’re here to help. At National Lease Advisors, our team reviews thousands of leases each year. We’d be happy to walk you through the details and make sure your interests are protected.