Encyclopedia
Base year
In some leases, the year whose operating costs set the baseline. The tenant pays only increases above that year.
For example: An office tenant with a base-year lease checks whether the base year was a normal year, not one with unusually low costs. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say your gross lease uses a base year, so you pay only increases in building costs above that year’s level. The first year of the lease was unusually cheap because the building was half empty, so later bills look large. Because we asked for the base year to be adjusted to a fully leased level, your increases stay fair.
What I’d tell a friend
If your lease uses a base year, check that the base year reflects normal costs, not an unusually low year.
Why it matters to you
Your share of cost increases is measured from the base year. If the base year was unusually cheap, for example a half-empty building, you'll pay more every year after.
How to use it in your deal
Tenants should ask for a base year that reflects full operations: if the building is partly empty or newly built, the base year should be grossed up so you're not hit with large increases later. Check which costs are included and whether taxes have a separate base year. Ask for the base year actual costs in writing once known.
Landlords should set clear definitions and gross-up rules. Buyers should check base years across leases to forecast recoveries; old base years mean higher recoveries, recent ones less. Owners should watch for one-time savings in a base year that make later increases look larger to tenants.
A quick example of the trap: if a property tax appeal cut taxes in the base year, the next normal year looks like a big jump, and the tenant pays all of it. Tenants can ask that the base year exclude unusual items like an appeal refund or a year with no snow removal. Landlords who reset the base year at renewal should say so clearly, because tenants often assume it stays the same.
Mistakes I see
Low base year costs from unusual savings. Not grossing up. Unclear definitions. Forgetting taxes.
In BC and Vancouver
The lease controls.
Official sources: CanLII (court decisions)
How it works
In a lease with a base year, the rent includes building costs at a set year’s level. If costs rise after that, you pay your share of the increase.
This gives you predictable costs in the first year, with exposure to increases after.
What to watch
A base year with unusually low costs means larger increases later. Ask for costs to be grossed up to a normal occupancy level.
Ask what is included in costs and whether you can review the figures each year.
Questions to ask before you sign
- What's the base year?
- Is it grossed up?
- Which costs are included?
- Is there a separate tax base year?
- When will I see the base year costs?
Record the base-year amounts in writing
A base-year stop is not a fixed comfort number for life. The landlord typically pays the base year; you pay increases afterward. If nobody records what year-one taxes and operating costs actually were, later reconciliations turn into arguments.
At year end, put the base-year figures in writing with the landlord. On renewal, watch whether a new base year resets your share.
Your accountant can help tie the reconciliation to the lease.
Keep reading
Related terms: Operating costs, Modified gross lease, Gross lease
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.