Base years argus mid-year lease signed

Based on the most helpful WSO content, here's how you can account for an office lease signed mid-year that recovers expenses based on a base year:

Key Considerations:

1. Base-Year Lease Structure:

   • A base-year lease is a type of modified gross lease where the landlord pays the agreed-upon operating expenses up to a set base-year amount, and the tenant pays any additional expenses above the base-year amount.

2. Mid-Year Lease Start:

   • When a lease starts mid-year, it can complicate the calculation of recoverable expenses since the base year is not a full calendar year.

Best Practices:

1. Pro-Rating the Base Year:

   • Since the lease starts on 12/1/2024, you should pro-rate the base-year expenses to reflect only the portion of the year the tenant occupies the space. This means calculating the base-year expenses for the month of December 2024.

2. Using Budgeted Expenses:

   • If you do not have a stop amount available, it is appropriate to use a budgeted expense amount for 2024. This can be done by estimating the annual expenses and then pro-rating them for the period the tenant occupies the space in the base year.

3. Base Year Stop - 1:

   • Another approach is to use the expenses from the year prior to the base year (2023 in this case) as a proxy for the base-year stop amount. This can help in estimating the recoverable expenses more accurately.

Implementation in ARGUS:

1. Setting Up Base Year Stop:

   • In ARGUS, you can set up the base year stop by entering the pro-rated or budgeted expenses for 2024. Ensure that the expenses reflect only the period the tenant occupies the space (December 2024).

2. Adjusting for Mid-Year Start:

   • Adjust the settings in ARGUS to account for the mid-year start. This may involve manually entering the pro-rated expenses or using the budgeted expenses for the base year.

Example Calculation:

• Base-Year Expenses (2024): Assume the annual expenses are $120,000.
• Pro-Rated for December 2024: $120,000 / 12 = $10,000.
• Base Year Stop Amount: Use $10,000 as the base-year stop amount for December 2024.

By following these best practices, you can ensure that the recoverable expenses are accurately captured, even with a mid-year lease start.

Sources: Types of RE Leases - A Primer, Working in FIG (Financial Institutions Group) - An Overview., I'm long office properties, Adjusting EV for Operating Lease Liabilities?, Downfall of RE