In a commercial lease setting, one of the most often overlooked (but critically important) lease provision is the method of allocating and measuring the square footage of the leased premises, as the square footage directly impacts key items such as the base rent amount, the tenant’s share of operating expenses, and any allowance for tenant improvements.
The industry standard in measuring leased space is to use the criteria developed by the Building Owners and Managers Association (“BOMA”) which is the international association founded in 1915 comprised of facility mangers, developers, and other real estate professionals. BOMA’s mission is to promote clear communications among all participants in a real estate transaction, consistent measurement of rentable square footage, and accurate comparisons through a clearly understood method of measurement.
2017 BOMA Office Standard Revisions
In late 2017, BOMA revised its BOMA Office Standard, which is used for measuring rentable space in new and existing commercial buildings. These revisions (which largely benefit landlords) were primarily necessary to address the changes in the way commercial tenants utilize their space since the standard was last updated in 2010. One of the biggest changes was to include major vertical penetrations (such as ground floor elevator shafts, floor openings for stairs and escalators, vertical ventilation ducts and pipe shafts), private balconies, covered galleries, and rooftop terraces into the usable space calculation. In the current pro-landlord marketplace, landlords are now better positioned to realize some income from these amenity-related spaces, rather than treating the same as amenity to the leased space.
Another significant change is the creation of a concept called “Inter-Building Areas” which gives landlords the ability to allocate amenity and service related areas such as loading areas and conference rooms which are in use by a specific sub-set of tenants, rather than allocating such spaces to tenants on an entire floor or to all tenants the entire building. This new concept provides landlords with additional flexibility to make sure that a tenant is not being charged rent for space in the building that it does not use. Inter-building area does not change the total rentable area of a building, but it does allow rentable areas to be distributed more fairly.
The 2017 revision also provides a landlord greater flexibility regarding how it caps the “load factor”. The load factor is metric that compares the amount of space a tenant has to pay for in a commercial lease against the amount of space they can actually use. For example, if a tenant paid for 10,000 square feet of space, but only 8,000 of that space was usable, the load factor would be 10,000/8,000 = 1.25 (or 20%). The higher the load factor, the more the landlord maximizes the income it receives from tenants. Before the 2017 revision, landlords could only cap the load factor for the entire building, but now they can cap the load factor on a tenant-by-tenant basis, thereby giving landlords more flexibility to entice clients while still meeting BOMA criteria.
While commercial landlords may elect to use the 2017 BOMA standards, nothing obligates them to do so. A tenant represented by experienced real estate counsel may be able to negotiate into the lease agreement the right to an independent measurement of the space and/or restrict the landlord’s ability to remeasure at a later date, thereby potentially saving the tenant tens of thousands of dollars over the entire lease term.