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When calculating real GDP in the U.S., the year 2012 is currently the base year, and indexed to 100 for that year. You can compute month-over-month or quarter-over-quarter (Q/Q) in much the same way as YOY. Year-to-date (YTD) looks at a change relative to the beginning of the year (usually Jan. 1).

In a new lease, the Base Year clause is most often the year the lease is executed or the year in which the lease commences. A Base Year is a clause found in many Full-Service and Gross Leases. The Base Year is a year that is tied to the actual amount of expenses for property taxes, insurance and operating expenses (sometimes called CAM) to run the property in a specified year.

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This allows for an annualized comparison, say between third-quarter earnings this year vs. third-quarter earnings the year before. It is commonly used to compare a company’s growth in profits or revenue, and it can also be used to describe yearly changes in an economy’s money supply, gross domestic product (GDP), and other economic measurements. In a modified gross or full-service lease, the landlord has you covered and will pay the operating expenses incurred for the first calendar year—or base year—of the lease. It seems like the price would be relatively straightforward to measure, right?

  • At the end of the first year, the landlord calculates the actual per square foot operating costs for the building.
  • A base year is a reference point used in economic and financial analysis, representing a particular year from which data is collected for comparisons and calculations over time.
  • For example, you may read in financial reports that a particular business reported its revenues increased for the third quarter, on a YOY basis, for the last three years.
  • Supplemental assessments apply to real property (land, improvements, and fixtures and taxable possessory interests) but do not apply to personal property or any property not subject to Proposition 13.
  • A base-year analysis of a company’s financial statements is important when determining whether a company is growing or shrinking.

Below we will review base year in regards to both a full-service lease and a modified gross lease. ‘Base year’ is the first calendar year of a tenant’s commercial rental period. It is especially important as all future rent payments are calculated using base year. The use of base periods to index data is not constrained to financial applications.

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Another term that is often used alongside or similar to Base Year, is Expense Stop. Essentially, the Base Year amount is synonymous with the Expense Stop amount, which is the actual amount of money that comprises the property taxes, insurance and operating expenses. Just like the Base Year amount, the tenant is responsible to pay any increase in those expenses above the Expense Stop amount. It’s important to note that base year valuation is specific to property taxation and does not necessarily reflect the current market value of a property. The assessed value determined during the base year may not accurately represent the property’s current worth, as market conditions and property improvements may significantly influence its market value. The Base Year clause is a year that is tied to the actual amount of expenses for property taxes, insurance and operating expenses (sometimes called CAM) to run the property in a specified year.

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As a reminder, base year can be renegotiated if and when a tenant decides to renew their lease. For those who are interested in tips on how to renegotiate your lease, read on here. This simple index series shows an inflation rate of 3.5% in the first year. When performing a base-year analysis of any variety, it’s important to adjust an analysis for any regime changes.

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Atypical values or abnormal conditions in a base period can lead to comparisons that distort the trends in a data series. The price index for 1990 might be assigned a value of 100 and price levels for other years would have values proportionally greater (or less than) 100 in proportion to the ratio of the actual price levels of those years. Comparing each data point to the base period can be a convenient way to handle data series that consist of large or complex numbers.

What does “base year” mean in a commercial office lease?

For example, if the company raises revenue from Rs.50,000 to Rs.60,000 means that it has grown revenues by 20%, where Rs.50,000 is the base year. Although base year is simple enough to understand, the figure is calculated differently based on lease type. For those who are interested in learning more about the different types of leases and their obligations in-depth, read on here. For example, suppose the City of New York institutes new building codes that go into effect on June 1st of a given year. In the month of May, builders scramble to initiate new building projects to avoid the expense of complying with the new codes. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month.

What Is a Base Year? How It’s Used in Analysis and Example

It allows for consistency and equity in property taxation, while also enabling property owners to plan for their tax obligations and make informed decisions about their properties. If the Expense Stop amount in a lease is $10 per SF at the start of the lease, the Tenant will then pay any increase in the taxes, insurance and operating expenses that exceeds $10 per SF in year 2 and beyond in the lease. For example, tenants with excessive electrical power requirements might use a modified gross lease as some landlords might find this circumstance overly burdensome on a full-service gross lease. When constructing an index, the choice of a basis for comparison can influence how the data can be interpreted and should be chosen carefully to illuminate the desired objective that the data is being used for.

Remember, your pro-rata share of operating expenses is determined by the percentage of the building you occupy. A growth rate can be calculated by dividing the difference between the ending and starting values for the period being analyzed and dividing that by the starting value. The base year represents the starting point from which to determine growth.

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