In multi-tenanted office buildings, especially those more then one story in height, there is space within the tenanted areas referred to as "demised premises" and there is space outside of the demised premises known as "common area". It is comprised of the lobbies, corridors, common restrooms, janitor's closets, electric and telephone closets as well as other spaces used in common with other tenants.
When a lease for office space in a multi-tenanted office building is prepared, there is usually reference to "rentable" area. This means the useable space within the demised premises in addition to the common area. Tenants in these buildings collectively must pay for the common space since without it they could not use the building. Typically, when a building is designed by an architect, the common area is laid-out and a calculation representing the percentage of the common area within the building is determined. It can be expressed as an "add-on" to the useable area or a "loss factor" which is a percentage of the rentable area that is attributable to the common area. Either way, the tenant needs to know that they are paying for space not contained within their demised premises.
Some buildings have expansive lobbies and generous corriodor widths which increases the common area. This adds to the ambiance of the building and to its prestiege. At the same time, it adds to the cost of space to the tenants since the rentable space the tenant will pay for in this type building will be greater then the rentable space in a more efficiently designed building. For example, if building "A" has a greater amount of common area, say 20% add-on and building "B" has only 15%, then the same useable 1,000 square feet will be 1,200 rentable square feet in "A" and 1,150 rentable square feet in "B". So, if both buildings charge $20.00 per square foot you will pay $24,000 per year in "A" versus $23,000 in "B".
If one building quotes an add-on of 15% and another building quotes a loss factor of 15% which is more costly to the tenant? The answer is the one that quotes the loss factor will cost you more. Here's why: If you have a rentable space of 1,000 square feet, the loss factor of 15% means that 85% is useable = 850 square feet. Now, if you use the add-on calculation you start with the useable square feet of 850 and add 15%, or 127.5 to get 977.5 rentable square feet (which is less then the 1,000 rentable square feet above). The 15% loss factor is actually equivalent to a 17.64% add-on.
Good stuff. Thanks. Landlords sometimes think this is a profit center rather than just passing along actual costs. Are vacancy factors going to cost me money now in this environment? And what do you think is an acceptable range for management fees in CAM? How do you keep them honest so that CAM doesnt end up acting like a rent increase?
Posted by: David Weiner | April 21, 2009 at 12:33 PM