Office Space NJ

Common Area

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. 

Should I renew my lease for X years?

A good friend, who happens to be an attorney, just asked me the other day over lunch whether he should renew his lease for a five year term or less. He told me he had concerns over his partners ability to keep his end of the bargin going in these uncertain economic times. I asked him if would prefer having flexibility concerning the length of the committment or having a locked-in lease rate that would save him money two to five years down the road. After he thought about his answer to the question he said that he would have more comfort in knowing that if his partner were to leave, he would not be tied into a long term lease. So I said, "you now have your answer". "Renew for one year, even if it is at the same rate you have been paying versus a two dollar reduction since this will give you the peace of mind to protect you if your concern over your partner becomes reality".

You should ask yourself the question that will unlock the correct answer. You know, the one thing that worries you the most...What happens if...Once you have the answer that is correct for you and your business situation then the length of renewal term will be obvious.