Why am I Paying Rent on 10,000 Square Fee When I Only Occupy 9,000 Square Feet?
Commercial leases usually have 2 definitions for square footage, but only 1 of the definitions is used in calculating a tenant’s rental obligation. If a tenant is unfamiliar with these definitions, there will be some confusion and sticker shock when the rent comes due.
Usable Square Footage (“USF”) is important to the tenant because this is the amount of space that the tenant actually occupies. The demised premises are measured from wall to wall (length times width). Everything within the walls is included. Any “dead space”, such as support columns or entry ways within the premises, is included within the calculation. However, the building’s or shopping center’s shared spaces or common areas are not included within the USF calculation. Yet the landlord still has to pay taxes, insurance, maintenance and debt service on these parts of the property. But these costs must be allocated to all tenants.
Rentable Square Footage (“RSF”) accounts for this issue. It allocates the shared space costs to each tenant by adding a common area factor or “load” to the USF and the resulting sum is the RSF. Therefore, the RSF is greater than the USF (sometimes we see referred to as gross and net square footage).
The load is calculated by dividing the property’s total RSF by the property’s total USF. So, if a building has 150,000 RSF and 125,000 USF, the load or common area factor will be 12%. If a tenant signs a lease for 9,000 USF, the RSF will be 10,080. Where rent is $25 per foot, the difference in annual rent is $27,000. This could be a big number for a tenant who is only focusing on the USF.
When comparing office or retail space, tenants should consider the load to determine the true cost of the lease. Common area maintenance will also be affected by the load because CAM charges are generally based on the RSF as well. A good tenant broker will break all of these costs down in presenting properties and we, as attorneys, are able to analyze the lease language to assure tenants are properly charged.