What is a major benefit of a base year lease for tenants?

The significant advantage of a base year lease for tenants lies in the predictability of costs beyond the base year. In a base year lease structure, the landlord typically covers all operating expenses (like property taxes, maintenance, and insurance) for the year specified as the "base year." After this base year, any increases in operating expenses are passed on to the tenant. This allows the tenant to have a clear and understandable expectation of their rental costs, as they know what to anticipate moving forward. It creates a stable financial environment, especially for budgeting and financial planning, since tenants can accurately project their expenses without worrying about fluctuating costs each year or unexpected hikes in operating expenses.

This predictability is particularly valuable in commercial real estate, where tenants often sign long-term leases and seek to avoid unexpected financial burdens that could arise from rising property costs.