When should Base year stop clause be used?

Base Year Stop Clause is a lease provision commonly used in commercial office leases in which the landlord agrees to cover operating expenses up to the level incurred during a specified base year, with the tenant responsible for any increases in expenses above that base year amount.

How a Base Year Stop Clause Works

• A base year, typically the first year of the lease, is established as the benchmark for operating expenses.
• The landlord pays operating costs up to the base year amount, while the tenant pays any increases in later years.
• Increases are usually calculated annually and billed to the tenant as additional rent.
• The clause typically specifies which expenses are included, such as taxes, insurance, and common area maintenance.

When Should a Base Year Stop Clause Be Used

• When landlords want to offer tenants budget predictability during the initial lease term.
• When tenants seek protection from unpredictable early-year expense increases.
• In markets where operating expense growth is a key negotiation point between landlords and tenants.
• In multi-tenant office buildings where expense allocation needs to be clearly defined.

Best Practices for Negotiating Base Year Stop Clauses

• Clearly define which operating expenses are included in the base year calculation.
• Review the base year for any unusual one-time costs or vacancies that could skew the benchmark.
• Include audit rights allowing tenants to verify landlord expense calculations.
• Negotiate expense caps or gross-up provisions to address occupancy fluctuations.

A well-negotiated base year stop clause protects both landlords and tenants by clearly defining expense responsibilities, reducing disputes over operating cost increases throughout the lease term.