If you have ever been faced with this question regarding your real estate lease, then you may have wondered, “what’s the difference.” Well, there can be a huge difference! Recently, one of my clients needed to know what this meant to him. Here's my explanation:
If you are in a situation where you are looking at leasing new office space or you are renewing your lease and you come across these terms, pay close attention. The term “usable” will be the actual size of the Premises in which you rent and can actually use. For examples sake, if you have a 50’ x 50’ office, that means you are renting 2500 sqft and that is your “usable” square footage. However, in the office building you are renting from, there is a nice plush lobby and several common areas totaling 10,000 sqft.
Who pays rent on that space? The Landlord is giving you that space for free, right? No. You and your comrades (other tenants in the building) pay for that. Using the same example above, say there are 20 total tenants in the building comprising of 100,000 sqft of leaseable space. To get your proportionate share of that 10,000 sqft, divide the number of sqft you occupy by the total number of leaseable sqft in the building. Therefore we end up with 2,500/100,000, which equals 2.5%. We then take 2.5% of the total common area (10,000 sqft) and get your share which equals 250 sqft.
So, now we find that you have 2,500 sqft of “usable” sqft, but have 2,750 sqft of “rentable” sqft. Now you say, “250 sqft isn’t that much.” You may be right, but you still have to pay rent on it. If you are in a Class A office building, that rent might be quite expensive.
If you have been quoted $25/psf and are budgeting to pay $25/psf for your 2,500 sqft that you picked out, it might be quite a surprise when you find out you actually have to pay on 2,750 sqft. On 2,500 sqft your rent per month would be $5,208.33 and after you tack on the additional sqft you are now paying $5,729.17. That’s a difference of $6,250 per year!
Just think if you were renting a larger space in the 15,000-20,000 sqft range! That additional sqft, known as the “load factor” would be exponentially larger and more expensive. Combine that with annual rent percentages and these costs could get out of hand quickly.
What you can do is to make sure you know the difference between Rentable and Usable. Then, you can make sure your Landlord provides you with: 1) the total sqft of the building, 2) the total amount of common areas in the building, and 3) request this information in writing and to be reflected in the lease. Once you have this information, you will be better informed to negotiate the lease and request a cap on any increased in common area expenses.
Additional lease negotiation tips.
Saturday, February 10, 2007
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