Gross Leases: Measuring Space

By Attorney Janet Portman

Leases all begin by charging for the space itself—an amount that's usually tied to the size of the space you'll be occupying. Landlords may charge on a square-footage basis and that's it. That's a flat rate you pay each month and no other calculations need be made before you write the rent check. This deal is known as a "gross lease." Other landlords want you to help pay for operating costs, such as the real estate taxes, property insurance and building maintenance and operation expenses. This system is known as a "net lease."

Read your lease carefully to determine whether you have a gross or a net lease. The charges you have to pay aren't always clearly labeled as rent. You may see a rent clause that specifies a rate per square foot but says nothing about your responsibility for taxes, insurance, or maintenance costs—but that may be because these items are covered in separate clauses elsewhere in the lease.

How Landlords Measure Space

Strange as it may seem, many landlords—especially in office buildings—take their measurements from the middle or even the outside of exterior walls. When a landlord uses this method of measurement, you'll wind up paying not only for usable space but also for some or all of the walls.

If you're comparing two properties, and one landlord includes wall thickness in the square-foot figure but the other doesn't, you'll need to recompute the size of one of the properties so that it's measured the same way as the other. This is the only way to realistically compare each property's cost. Sometimes you'll find that a space with a higher per-foot price is actually cheaper than a space that charges less per square foot but charges you for the thickness of the walls.

Example: Landlord A advertises 1,000 square feet in Building A for $20 a square foot per year. Landlord A doesn't include the walls' thickness, which means that Tom Tenant will get 1,000 feet of usable space for $20,000 per year.

Landlord B advertises 1,000 square feet in Building B at $17.50 a square foot per year. However, Landlord B measures from the outside of the exterior walls and does not subtract the thickness of several interior walls. Tom will be paying $17,500 per year—but is this really a better deal than the one offered by Landlord A?

Before beginning lease negotiations, Tom Tenant takes his tape measure to Building B and, with the help of a space planner, remeasures the space from the insides of the exterior and interior walls. He now has measurements for Building B comparable to the way that Building A was measured. In Building B, he finds that he will have only 800 square feet that he can actually use. At $17,500 per year, this means that Tom would really be paying $21.87 per foot of usable space. On the basis of rent per square foot of usable space, Building A turns out to be a better deal.

This article was excerpted from Negotiate the Best Lease for Your Business by Janet Portman