Over the last several weeks, we’ve looked at how to choose commercial space and negotiate a lease for your business. Now I’d like to focus on the best way to determine a fair monthly rent based on the square footage.
This may seem like a straightforward process, but the truth is it can become quite complex, depending on the method of measurement.
Before we examine how to establish calculations, I think it’s important to understand the terminology a potential landlord might use in your discussions. The following are some of the most typical terms:
- Useable Square Footage (USF) – This refers to the space you will occupy. Rental agents usually use this figure as a basis.
- Rentable Square Footage (RSF) – This number is a combination of the USF and a portion of the square footage from the common area, which includes the lobby, hallways, elevator and stairwells.
- Gross Square Footage (GSF) – This is the RSF of a property in its entirety.
- Load Factor – This is the total monthly rent. It’s often the RSF multiplied by the unit price per square foot.
How to Calculate
As you can tell, figuring out the square footage of a commercial space isn’t necessarily simple. You may encounter landlords who refer to the USF in their arithmetic. But others might make their computations based on the GSF or something in between such as the RSF.
Moreover, you could meet a rental agent who relies on the standards created by the Building Owners and Managers Association International (BOMA). Widely used as a measurement tool, this set of rules was first published in 1915 and has gone through numerous revisions over the years to maintain relevance in the industry.
However, not every building manager refers to this guideline when calculating square footage. To complicate matters even further, a landlord might pick certain parts of this document to use and ignore others.
In short, this means there is no exact science when deciding on the basis for a property’s square footage. The thing to remember is that the computation of the square footage space that your business leasing, can dramatically impact the resulting dollar amount of your rent. Thus, it is essential to do your homework to determine which measurement standard to apply and which industry practice to employ when you are doing your square footage calculation.
Once again, I strongly recommend that the actual negotiation of this issue be performed by an experienced real estate attorney. As I indicated in my previous blog, do not attempt to negotiate by yourself and then bring in your attorney afterwards, as the attorney will have no meaningful negotiation leverage to “undo” an incorrect square footage measurement on your part.