What is a Base Year?
Most office leases include Base Year language. A Base Year is selected (usually the first year of the lease) in the original lease. The landlord agrees to pay the property’s expenses for the Base Year. The landlord then continues to pay the property expenses at the base year level and the tenant agrees to pay its pro rata share of any increases in property expenses over the Base Year. If the property expenses for the base year are $400,000 and the expenses increase to $410,000 for the year 2, a tenant with 10% of the square footage would pay $1,000 (10% of the $10,000 increase) in Year 2 in addition to the tenant’s base rent. This is usually estimated and paid monthly. In this case the tenant would pay $83.33 per month in addition to their Base Rent.
What is the common area of a building?
The common area of a commercial office building would include corridors, hallways, lobby, restrooms outside of a tenants space, electric rooms, elevators and other spaces provided for the comfort and use of all occupants, owners, tenants, or users of a building or building complex.
What is a common area expense (CAM)?
The common area expenses may include maintenance and repairs of the common walkways and parking lots, security, property management and utilities for common areas. It may also include property taxes and property insurance. This would be outlined in your lease. The lease clauses dealing with CAM expense spell out in detail what building expenses the owner is allowed to “pass through” or “escalate” to the tenants.
What is a prorata share?
A tenant’s pro rata share is based on the square footage of the tenant’s rentable square footage as compared to the total rentable square footage of the property.