By Ahmad Oloumi, Real Data Management.
Most tenants who have leased office space understand the amount of space they pay rent on is typically different than the actual space they actually occupy. Applying a common area factor is way for Landlord’s to charge rent on a pro-rata share of the common areas of the building. This is an accepted industry practice.
However, millions of dollars are lost by tenants of commercial properties each year as result of inaccurate office space measurements. Tenants may feel that they are at the mercy of their landlords when it comes to determining square footages.
A key component of any lease is the accurate description of the leased space. A clear accurate description can go a long way in mitigating future landlord-tenant misunderstandings or disputes.
Most landlords do not want the tenant to have the right to re-measure the lease space. Accordingly, the lease typically includes language in the lease that effectively states the tenant agrees to the stated size.
Tenant, however, should insist upon the right to have an independent third party (either architect or space planner) re-measure the space according to some agreed upon standard. The BOMA (Building Owner and Managers Association) method constitutes such a standard.
Square footage verification can typically be done at the following times:
- When looking for new space as part of evaluation and comparison
- During negotiations of leases and renewal terms
- During the lease term to verify rents and share calculations
A reasonable landlord will typically agree to this request if negotiated at the proper time. In order to gain this right for specific times during the lease term (i.e. when you are not negotiating a new lease) then it should have been previously negotiated in the lease agreement.
Methods of Measurement
BUILDING OWNERS AND MANAGERS ASSOCIATION (BOMA)
The BOMA standard for measuring buildings was implemented in 1915 and has since been the most commonly used standard throughout major markets. The BOMA standard defines useable footage as the space within the dominant surface of the inside face of the exterior wall, minus all common space and major vertical penetrations. Since its initial installment, there have been several amendments to fine tune how properties are measured and how rentable space sizes are calculated. The latest revisions of the BOMA standard occurred in 1980 and 1996.
BOMA 1980 vs. 1996
BOMA 1980 apportioned Building common areas only to tenants located on that particular floor. For example, the main lobby of a building, though it services the entire property, was only apportioned to the tenants found on the ground floor. This resulted in certain floors having very high R/U ratios (the relationship between the rentable and usable footages of the floor) which decreased the floor efficiency. Also, any Building common space found on floors without tenants (i.e. penthouse machine rooms, basement, etc.) would not get apportioned to any tenant. BOMA 1996 allows landlords to apportion ALL Building common space (i.e. main lobby, building machine rooms, etc) to each tenant within the property regardless of the particular floor the tenant may be on. This balances R/U ratios throughout the building and captures spaces that were previously being excluded. However, it is important to note that any changes to building common spaces, such as a lobby renovation, will affect the overall calculated rentable numbers throughout the property.
The Modified BOMA standard can simply be defined as any change, edit or modifications to the BOMA 1996 standard. Landlords tend to use a Modified BOMA to either increase rentable footages or simplify/standardize a common loss/core factor throughout the property. The most common practices in a Modified BOMA are as follows:
- The use of a more aggressive method to measure useable footage. For example, measuring to the outside face of an exterior wall.
- Assigning spaces typically un-assignable or a vertical penetration as building common space. This increases total building common area which directly inflates the rentable footage of the property.
- Setting a standard loss/core factor to simplify leasing and marketing efforts.
- Artificially inflating rentable footages or loss/core factors.
REAL ESTATE BOARD OF NEW YORK (REBNY)
New York City is the only major market that does not use a BOMA or Modified BOMA method of measurement. Instead, New York City uses the Real Estate Board of New York (REBNY) standard when measuring properties. This standard is far more aggressive than BOMA, as usable space is measured to the outer face of the building exterior wall. The thickness of the demising wall between tenants and floor common areas are also included as useable footage. REBNY does not define how rentable footages should be calculated. Instead, a loss factor is applied on usable areas. This number is market driven and varies on both a full floor basis and a multi-tenant basis. Landlords in New York City use different approaches to determine what loss factor they decide to apply.
Most landlords are not with intent deceptively inflating common area factors or total rentable square footage; however their calculations are often incorrect because they rely on inaccurate or un-verified information. In today’s economy, tenants need to be savvy when dealing with rentable square footage (RSF) and Loss Factor issues. Landlords in each major market may calculate their respective property’s RSF differently from one another. The usable portion of a 50,000 square foot space in New York City will be significantly different than the usable portion of 50,000 square foot space in Houston or other markets. No matter what markets you lease office space in, verifying that the amount of rentable space is accurate by that markets accepted standard can save significant occupancy costs.
- KBA is a nationwide lease auditing service that works on behalf of commercial tenants to recover rent overcharges and reduce occupancy costs.
- RDM provides services and software to the real estate industry, including space audits and evaluations, to help tenants understand their usable footages and ensure rentable footage and corresponding loss factors are correctly calculated.