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Paying Rent For More Space Than You Occupy

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Tenants and some real estate professionals alike have a hard time understanding the concept of how square footage in a lease is actually calculated.

The formula includes both the usable square footage plus the tenant’s share of common area maintenance in the building known as “CAM”. Usable square footage is the amount of space you actually occupy. For smaller size tenants this means that usable square footage is the space they use as if columns or entrances/exits weren’t there. However bathrooms, closets, lobbies and public hallways are a shared expense square footage wise with other tenants in the building. For full floor or multi floor tenants, useable square footage is everything inside the glass windows inclusive of closets, mechanical rooms, bathrooms and the like. These bigger tenants still pay common charges for common areas like the lobby however.

A number called the common area factor refers to shared space on a floor as well as the building as a whole. This gives us both the floor common area factor and then the building common area factor. The floor common area factor generally is around 8% while the building common area factor is around 6%. This is expressed as a number starting with 1 and then the percentage, for a factor of 1.08 and 1.06 respectively. Usually when quoted a common area factor by the landlord it is composed of the addition of the floor common area factor and the building common area factor. Thus the total common area factor of most buildings is around 12-20% depending on the building’s layout.

Rentable square footage is the area of the space other than things like elevators and stairwells. It is the space you can use inclusive of things like closets, restrooms and electrical rooms. What you pay for in rent then is the rentable square footage multiplied by the lease rate. For smaller and larger tenants, rentable square footage is found by usable square footage times the floor common area factor which is then multiplied by the building common area factor. Some markets use a common area factor in place of an add-on or loss factor. It is prudent to find out how the landlord makes his calculations in order to be clear on the lease agreement. These calculations can be checked by an accepted method such as the “BOMA” standard to insure the numbers are reasonably accurate.

Keep in mind buildings have different designs and floor plans so it is best to compare buildings using a cost per useable square foot formula to keep things uniform when comparing spaces.

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