How Office Lease Payments Are Structured in NYC: The Bill, Line by Line

The monthly bill, line by line

• Base rent. Multiply the asking rate by the rentable area, then divide by twelve. It is the largest line and the only one a listing shows.
• Fixed escalation. Base rent rises each year, usually by 2.5 to 3 percent, and each rise builds on the last.
• Operating expense increase. Your proportionate share of any growth in the building's running costs above the base year, billed monthly on an estimate and settled after the year closes.
• Real estate tax increase. The same calculation, on its own line, against a base tax year.
• Electricity. Metered on a submeter or charged at a flat rate. Budget roughly $2 to $4 a square foot annually.

What the base year is, and why it decides the later bills

The base year is the reference year for the two increase lines, usually the first calendar year of the term. Costs at or below that year's level stay with the landlord. Anything above it is divided among the tenants, and your portion is billed to you. The base stays fixed while the building's costs generally rise, so over a long lease the choice of base year can matter more than the escalation rate.

A finance lead has two checks to make. First, the base year ought to be the signing year, or the first complete calendar year of the term, and never an earlier one. Second, it should be a full, normally occupied year, because a base set while the building ran light makes ordinary costs read as increases later. Escalations shows how the fixed step and the pass-through stack.

Year one against the later years

Two dates set when payments begin. The lease commencement date starts the term, and it normally coincides with the landlord handing over the space. The rent commencement date starts base rent, and it falls later whenever a free rent period or construction time comes first. A common pattern on a direct lease is one free month per year of term, taken at the start.

So year one can show several months with no base rent, only electricity, and nothing yet on the increase lines. Year two shows twelve full months at the stepped-up rate plus the first increases. Check which commencement date starts the escalation clock. If it runs before the rent does, the first step arrives sooner than a simple model assumes.

A worked budget for the base rent line

As a worked example, say a floor of 6,000 rentable square feet asks $65: base rent is $390,000 a year, or $32,500 a month. Electricity, at $2 to $4, would add between $12,000 and $24,000 annually. At a 3 percent escalation the rate in that example reaches about $67 in year two and just over $73 in year five. The increase lines cannot be modeled from a listing, so ask the landlord for the building's recent tax and operating history.

The block below supplies the base rent line from real floors: the range of asking rents across everything we list, the citywide median and a sample of floors. What office space really costs adds the one-time items: the deposit, furniture and any construction above the allowance.