When you call your landlord to inquire about the additional costs. Your answer, “it’s all covered in your lease and we did tell you about these charges before you signed the lease.”       THEY DID!!!

Now you look at your lease and pull out your trusty calculator, everything seems to be in order, although you did take more space than you originally intended to.

Then why is your rent more than you budgeted for?

The answer is          : “COMMUNICATION BREAKDOWN”

Property owners/leasing agents and prospective tenant’s goals are different and they do not speak the same language.

Your goal, as the prospective tenant, is to make a good deal that falls within your lease budget.

Your landlord’s goal is to price their space competitively and attractively so they can lease space to tenants like you.

Let’s look back at your transaction. This time I’ll translate, take you through it step by step and help you understand some of the language of office leasing:

When you first called the building’s leasing agent, you 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:

The answer you probably got was “we have approximately what you’re looking for and we are asking $18.00 per leaseable square foot.

When you first visited the property, while looking at the space, the leasing agent mentioned that the building has a 15% common area factor.

Here are 3 vital definitions, so you understand what you have just been told:

Usable square feet: The amount of square footage within the confines of your physically occupied office space.

Leaseable or Rentable square feet: 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.

Common Area Factor: These are defined as all areas in the building that are used by or for all tenants of the building. These areas usually include: building lobby, all corridors, janitorial and electrical closets, elevator rooms and rest rooms. It does not include vertical penetrations such as elevator shafts and stairwells. The owner determines what percentage of the building these areas represent and adds that percentage to the amount of space, you, the tenant occupies.

Armed with these definitions, you now know the leasing agent has just told you 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 .

It appears the space will work for you so you ask the leasing agent to send you a proposal. The proposal contains the following:
 

Leaseable Square Feet	1,150 sq. ft.
Building Common Area Factor	15%
Usable Square Feet	1,000 sq. ft.
Rate per sq. ft	$18.00 L.s.f.
Annual Rental Increases	$1.00 per sq. ft
Lease Term	5 years
Operating Expenses	Base Year 1999 (Estimated $7.50)
Annual Operating Expense Increases	3 –  4%
Parking	Tenant will be given 3 unreserved parking spaces in our garage at a Rate of $70 per month per space.

FYI: Typically in downtown buildings parking is paid for by tenant on a monthly basis. Rates for indoor parking range from $60 - $75, outside spaces around $50 - $55. In the suburban market parking is usually free, the parking ratio per thousand square feet is usually higher, and most parking is outside.

In reviewing the terms of this proposal you can now see the original $18 per square leaseable square foot quote ($20.70 usable square feet) only represents year one. 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:

		OPERATING	COST  PER	COST  PER
	BASE RENT	EXPENSES	LEASEABLE SQ. FT.	USABLE SQ. FT.
YEAR 1	$11.50	$7.50	$18.00	$20.70
YEAR 2	$12.50	$7.80	$20.30	$23.35
YEAR 3	$13.50	$8.11	$21.61	$24.85
YEAR 4	$14.50	$8.44	$22.94	$26.38
YEAR 5	$15.50	$8.77	$24.27	$27.91

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.

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.

     SO THERE’S YOUR COMMUNICATION BREAKDOWN.

        Are you spending more than $18 per square foot?
 A lot more !!!

        Did the leasing agent/owner tell you everything up front?
Sure did !!! 

     Did you understand it?
Probably Not !!! 

     What did it cost you?
 In this case $33,150, not including Parking.

It’s important you understand this is the way commercial space is leased worldwide. Some of the terminology may vary, a bit, from market to market. It has been the norm throughout the industry for years. Until someone comes up with a more consumer friendly approach to leasing office space in order for you, the prospective tenant to protect yourself you must:

1. LEARN TO SPEAK THE LANGUAGE

2. ASK IN-DEPTH QUESTIONS

3. CONSULT AN EXPERT, IF NECESSARY

Jack Saltman is a commercial real estate broker with over 25 years of commercial leasing experience. He is an author, a consultant, a columnist and most importantly a teacher. Through his books, pamphlets, presentations, articles and seminars, Jack will share with and teach you his time proven, winning commercial leasing strategies.

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