October 16th, 2014, By Don Catalano
Some of the most confusing commercial lease terms come in how an office space’s area is determined area. Gross, rentable and usable square feet are all different, and impact your occupancy costs.
Most office spaces are leased out on the basis of their size. All things being equal, a bigger space should cost more than a smaller space. Usually, spaces are measured in square feet. For instance, if a space measures 40 feet long and 50 feet wide, it would be 2,000 square feet. To find the square footage of the space, multiply its dimensions together, assuming that it is a square or rectangle.
Believe it or not, you would probably never see that 2,000 measurement as a part of your commercial lease terms. That measurement is called the usable area, and is technically defined as the total area inside the demising walls of the space. You might use 2,000 square feet and think of it as your office, but it isn’t what you pay rent on.
Usually, landlords charge rent on your rentable square footage. This is your usable square footage plus your share of the space on your floor (or in your building) that everyone shares. Because this is one of the most confusing commercial lease terms, let’s walk through an example.
Imagine that you are occupying a 40-by-50 foot space in a single-story building that measures 100 feet square. The building has a total gross area of 10,000 square feet. Inside the building are four spaces just like yours — 40-by-50 — totaling 8,000 square feet. In the remaining 2,000 square feet are a set of restrooms, a lobby, a break room and a 50 square foot hole where a set of stairs go down to the basement.
The building’s shared area is equal to 1,950 square feet, which is the 2,000 square feet of left over space less the 50 foot vertical penetration. Since your usable space represents 25 percent of the total space in the building, you would also pay rent on 25 percent of the common area. This means that your total rentable square footage would be the 2,000 feet of usable space plus the 488 feet of common area, totaling 2,488 square feet.
The Building Owners and Managers Association — usually referred to as BOMA — defines the commercial lease terms that get used to measure space. While the example here outlines the basics, BOMA’s standards leave a great deal of space for interpretation and flexibility. For instance, a building with exterior corridors might be able to include those corridors in the total rentable area if they are in a part of the country where exterior corridors are usable throughout the year.
Building owners also have some flexibility as to how they apply common areas in a multi-story building. For instance, picture a five-story building with a large open lobby area that spans the center of the first and second floors. Under the latest BOMA standards, the building’s ownership could charge that large common area to the first and second floors or could choose to calculate common area on a building-wide basis, increasing every space’s rentable area and spreading the cost of the lobby over all five floors.
While space measurements are some of the most complicated and subtle commercial lease terms, they are also some of the most important. Small variations in language and in definitions can cause significant variations in your overall occupancy cost.