In a lease agreement, who pays for yearly increases in expenses after the base year?

In a lease agreement, it is typical for the tenant to be responsible for yearly increases in expenses after the base year. This practice is often referred to as a "pass-through" or "expense recovery" provision, where the landlord establishes a baseline or base year for expenses, and any increases in those costs thereafter are passed on to the tenant.

This arrangement is beneficial for landlords as it transfers the risk of rising operating costs, such as property taxes, insurance, and maintenance expenses, to the tenants, who are usually in a better position to manage their own budget based on fluctuating expenses. Therefore, after the initial base year, any increase in expenses is typically covered by the tenant, making them responsible for those yearly increases.

This allows landlords to maintain predictable income from the property while ensuring that expenses do not erode their profit margins. Such clauses are common in commercial leases where tenants may have varying levels of control over the space and its maintenance.