The answer depends on the commercial agent representation you have and the property owner/leasing agents dedication to patient and open communication.  It also depends on your own commitment to stay involved in the process.  Let’s look at a typical leasing situation.  When your tenant’s agent first called the building’s leasing agent, he or she asked if they had the amount of square feet you needed and how much it would cost. Let’s say you were looking for 1,000 square feet (SF).  Now you’re thinking that the 1,000 SF is the amount of space you can actually use.  But it’s really called “usable square feet”: The amount of square footage within the walls of the space you will occupy.  So the agent replies “we have approximately what you’re looking for and we are asking $18.00 per leaseable square foot. Now while you like most heard only “square foot” … the key word is “leaseable: which means the space you physically occupy (Usable space) plus the percentage of common area in the building. This is the amount of space you will pay rent on.

Now when you first looked at the property the leasing agent said that the building has a 15% common area factor.  What is this? Common area is defined as all areas in the building that are used by or for all tenants of the building. These areas usually include the building lobby, corridors, janitorial and electrical closets, elevator rooms and rest rooms. The owner determines what percentage of the building these areas represent and adds that percentage to the amount of space, you, the tenant occupies.

So the result of this information is that you must now know that in order to occupy 1,000 square feet, (usable space) you will be paying rent on 1,150 square feet (leaseable square feet). The $18.00 quote has now increased 15% to $20.70. You now ask your agent for a proposal. 

It contains the following:

The term of this lease will be 5 years and it includes annual increase in rent and operating expenses. Let’s see how this affects the rate:

By the way, parking is usually paid for by the tenant on a monthly basis. Rates range from $50 to $100 depending on several factors. In suburban buildings parking is usually free and most parking is outside.  The average leaseable rental cost on 1,150 square feet over the 5 year period is $21.42 per sq. ft. The average usable rental cost (the 1,000 sq. ft. physically occupied) over the 5 year period is $24.63.

But now another cost has crept into the picture. Operating expenses are what the landlord charges each tenant for operating and maintaining the building. This includes electricity, water bill, light bulbs, taking care of the outside and inside plants and landscaping, keeping the air conditioning system running, etc. etc.  The landlord estimates usually each year based on last year’s expenses, adds it all up, and then divides the total cost by the leaseable square feet. So in Year 1 above the landlord quoted your share for operating expenses as $7.50. The good news is that it was already quoted as part of the $18.00 lease rate.  These figures do not include your cost of parking. For 3 spaces at $70 per space your cost would be an additional $2,520 per year. This means you can add $2.19 per square foot to the leaseable total or $2.50 to the usable square footage total.

What did it cost you? By Year 5 your cost is the $27.91 per usable SF plus the $2.50 parking cost totaling $30.41 or $30,410.  Not the $18,000 you may have thought going in right?

 *Howard Willis is a realtor with Esslinger-Wooten-Maxwell Realtors and a principal of the Allegra & Howard Willis Real Estate Group.  Howard has a law degree and specializes in providing real estate sales and services to premium home and condominium owners. Call with your questions and comments to (954) 949-0444 or to @thewillisgroup.com. Learn more about Allegra and Howard at www.thewillisgroup.com.