Picture this: You’re approaching your commercial lease renewal, and amid all the negotiation points, there’s one crucial element that often gets overlooked – the base year reset. It might sound like boring technical jargon, but this single factor could significantly impact your bottom line for years to come.
Key Takeaways ⭐
When renewing your commercial lease, resetting your base year is crucial because:
- It aligns your operating expenses with current market conditions rather than outdated benchmarks
- You could save significant money by avoiding payments based on old expense levels
- It provides a fair starting point for both landlord and tenant in the new lease term
- It can be a powerful negotiating tool during renewal discussions
What Exactly Is a Base Year (in Plain English)? 📊
Think of your base year as your starting point for operating expenses. When you first signed your lease, the landlord established a baseline for costs like utilities, maintenance, and property taxes. You agreed to pay your share of any increases above that baseline. It’s similar to how your utility company might offer budget billing based on your previous year’s usage – except this baseline could stick with you for years.
Why Your Old Base Year Might Be Costing You Money 💸
Here’s what many tenants don’t realize: if you don’t reset your base year during renewal, you’re essentially stuck comparing today’s expenses to costs from several years ago. Imagine if your salary stayed the same while inflation kept pushing prices higher – that’s essentially what happens when you keep an outdated base year.
Real-World Example:
Say your original base year was 2020, when operating expenses were $10 per square foot. If those expenses have risen to $15 per square foot in 2024, you’re paying that $5 difference even though current market rates might consider $15 the new normal. By resetting your base year, you could potentially save thousands annually.
A Win-Win Opportunity 🤝
Smart landlords understand that offering a base year reset can actually benefit everyone involved:
- For tenants, it means avoiding inflated operating expenses based on outdated benchmarks
- For landlords, it creates goodwill and increases the likelihood of renewal
- For both parties, it ensures a fairer reflection of current market conditions
Negotiation Tips: Making the Base Year Reset Work for You 📝
When approaching your lease renewal, timing is everything. Start discussions about base year resets early in the negotiation process. Remember, landlords are often more willing to consider this adjustment when presented as part of a complete renewal package that demonstrates your value as a long-term tenant.
Pro tip: Before entering negotiations, gather data about current operating expenses in comparable properties. This information can strengthen your position when discussing a base year reset.
The Long-Term Impact 📈
While a base year reset might seem like a minor technical adjustment, its effects compound over time. Think of it as resetting the “clock” on your operating expenses – the earlier in your tenancy you can establish this reset, the more significant the potential savings over the life of your lease.
Ready to Optimize Your Lease Renewal?
Wondering how a base year reset could impact your upcoming lease renewal? Our team of commercial real estate experts can help you analyze your current situation and negotiate terms that protect your interests. VERICRE® for a complimentary lease review.
About the Author
Meet Max Morris, Co-founder & Principal at VeriCRE, who has spent the last 20 years mastering the art of commercial real estate from every angle. As both an outside broker and in-house leasing director, Max has developed a unique sixth sense for spotting opportunities that others might miss. His secret sauce? A deep understanding of both landlord and tenant perspectives, which has helped him orchestrate more than 1,200 successful deals worth over $1.6 billion.
From healthcare giants like Scripps to retail leaders like Starbucks, Max has become the go-to advisor for businesses looking to make smart real estate decisions across Southern California’s most dynamic markets. Whether you’re in the Inland Empire, Los Angeles, Orange County, or San Diego, Max brings the same level of expertise and attention to detail that has made him a trusted partner for both Fortune 500 companies and growing local businesses.
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Ready to optimize your commercial real estate strategy? Reach out: (949) 903-5565 | max@vericre.co