Are You And Your Landlord On Same
Square Footage Terms?

There are several ways to measure the square footage your rent is based on. If you and your landlord are not on the same terms, you could be in for a surprise.

How are square footage's determined for an office or retail space? There probably are as many ways to determine this as there are tenants and landlords. But some common methods have turned into a standard that most landlords use. This is called the BOMA Standards or method for determining floor area, especially in office buildings. Boma Stands for Building Owners and Managers Association. Here is a quick synopsis.
The first method and term is Gross Building Area. It is usually only used when someone is renting an entire building. It means just what it says. The total building area measured from outside walls per floor, and no other deductions. Your rent is this square footage times the lease rate.

More common in our area is Floor Rent able Area. In this case, the area subtracts out any vertical penetrations such as elevator shafts and stairways. The square footage is measured from 1/2 of the outside walls except for ground floor street frontage, where it is measured from the outside wall. This is usually used when someone rents an entire floor.

Most common, especially when leasing a suite, is Usable Area. Here the vertical penetrations plus the common areas such as rest rooms and lobby areas, are subtracted. Again, measurements are based from the center line of your suite walls, except for first floor street frontage, where it is from the outside wall.

As you can see, in this brief discussion on BOMA Methods, it can make a difference on what your total lease payment may be. Just make sure you and your landlord are talking the same amount of square footage that you are basing your lease on and there should not be any major surprises.

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TI'S or Tenant Improvements & Leasing

When negotiating a lease, more often on new or worn space, you may see the term TI's being used and spoke about. This is in reference to Tenant Improvements, or what sort of build out will make the space useful to your needs.

This could include quite entailed construction of walls, office space, common and reception areas, rest rooms etc. to something as simple as touch up paint and cleaning carpets. Whatever the amount there will be a cost factor and someone, you or the Landlord, will need to pay for it.

In new space, the TI's are usually expressed as a one time per square foot rate to be paid by the landlord. For instance, you are leasing a 5,000 sq. ft. office space and the TI's are $20 per sq. ft. That gives you $100,000 to finish off your space to your needs. If it is more than that you are responsible. Often times the Landlord will pro rate this extra cost into the monthly lease payments.

This takes us to the other method, usually for space that is adequate, but you would like to have changes made for your use. Here, if agreed upon ahead of time, the landlord will have the work finished for you and again just pro rate the cost over the life of your lease, usually being paid in your monthly lease payment.

Again it is important to discuss the tenant improvements or TI's, and how they will be handled with your Commercial Real Estate Agent. That way, everyone is assured of what they consist of, who is responsible and how payment will be made.

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Commercial Condominiums Are In The Region

You probably have noticed the explosion of Residential Condominiums in the Capital Region. What you may not have noticed is the Commercial Condominiums following suit. In the last several months, Commercial Condos have gone from a handful in our region to dozens and many new projects and developments are close behind. This type of property ownership has spilled over to the commercial sector for most of the same reasons they have become so popular in the residential arena.

First and always in real estate, is location, location,location. Just as residential condo's took off because of the availability of land in congested central cities, the price of land and availability of great locations, the same is true with commercial condominiums. As less and less land becomes available in certain commercial and industrial/office-warehouse zoning districts, the appeal of commercial condos rises. You share common amenities and this way may need only a few rest rooms, parking and loading facilities etc. You can be close to an airport and other public transportation as well as Highways and Interstates for your business needs.

Second is the price factor. Because of the usually smaller footprint of land for condominiums ( residential high rise etc.) and the use of common areas,condominiums can be somewhat less expensive. Commercial land in certain zoned areas is hard to come by. You may just want your 2,000 or 4,000 sq. ft. space and not a lot of land
and parking around it. You can share those amenities with other owners such as conference rooms, loading areas, parking lot, rail spur, ingress and egress options, trash and refuse removal, elevator etc., at a much lower expense. Your mortgage payment and common area expenses may not be more than what you would pay in a leasing situation.

Finally, you are building equity, paying yourself or company per se' and reaping those rewards in the future. The other side of the coin is the risk factors. What if you need to expand operations or you require new zoning for production and a mired of things. Well, possibly there will be another unit to purchase in the same complex, or you can sell yours at anytime and hopefully buy a larger commercial unit. It is like any other real estate ownership. Supply and demand drives the market.

All though not best suited for everyone, overall, commercial condos are here to stay. They will give many a small and medium size venture the option of real estate ownership instead of being the tenant and leasing space from someone else.

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Subleasing Can Offer Opportunity Although Some Risk

Subleasing can offer you additional opportunities when looking for commercial space to lease. But along with those opportunities comes some complications and risk.
First, let's look at some of the main advantages.

Subleasing can give you the opportunity to lease space that may otherwise not be available. You may want to locate your retail or commercial space in a certain area that has the right demographics for your business. Their are no available spaces to lease. But by asking around or having your real estate broker search for you, there may be a current tenant who will move out for various reasons. By subleasing from the current tenant you can step into their lease and take over the payments.

Subleasing may give you a reduced rate for the monthly lease payments. If the current tenant needs to move they may offer you a reduced rate on the lease. This means you pay a certain amount and they will pay the balance. You may also be stepping into an older lease rate that was negotiated years ago, hence your rate could be under market rents for the duration of the sublease.

What are some of the problems? You will no doubt need to get the landlords permission to sublease. Most leases have this clause. The current tenant may not be released from liability on the lease if you do not pay. Also, make sure that you have a new lease when the sublease term expires. What if after the end of the sublease, say 1 year from now, the landlord does not renew the lease with you? You could be out of luck. It is best to negotiate a new lease now that will go into effect when the sublease expires. That way there will be no unexpected surprises or drastic changes in your rate, length of term and possibly having to move out in a short period of time.

Subleasing can offer you many opportunities but requires a bit more work and due diligence on everyone's part.

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Year End Is Good Time To Review Your Lease

When the year is ending and you are reviewing your financials for your business don't forget to review your current lease.

Here are some key elements to look at.
When does your lease expire? It may be sooner than you think. It is never too early to think about renewing or even changing your location. Many leases require a 60 to 90 day notice that you do not intend to renew, or that it goes to a month to month. That may make you vulnerable to having the landlord lease to someone else.

Is the space adequate? You may need to expand or even get a bit smaller and more efficient. Possibly a more or less visible location is needed. Maybe a loading dock or being near public transportation and linkages is crucial to your business.

What will be the new lease rate? Are there built in escalators each year that will be activated. Are you responsible for a portion of the real estate taxes, insurance and common area expenses. What or how much will they be. Are you paying the correct amounts or being over charged or under charged. Can you ad then to your rental rate and pay them off monthly.

Finally, do the payments fit your budget. Can your business make a profit at this location. If it is tight , you may want to talk with your landlord or your commercial real estate agent on these key areas before a small problem becomes a large one.

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As a Tenant, Can And Should You Make
Improvements to Your Space?

As a tenant, there may come a time when you need to change the space you now lease. It could be to ad another office, a sales room, break room or just the basic layout of some retail space. You don't expect the landlord to pay for it, so you arrange to have it done on your own. BUT WAIT A MINUTE! NOT SO FAST!

The first thing you need to do is check your lease and with your Landlord. It may stipulate that you cannot make improvements to the space or that you need the landlords permission. This could be as simple as a written yes or an approval of what work is going to be done or, it could be as complicated as the landlord needs to approve everything and even use certain contractors for the work. So be sure to check the lease and talk with your landlord.

Now, even if he says sure go ahead there may be another roadblock further down
the road. Many times a lease will state that the premises at the end of the lease be returned to the landlord in the same condition and layout that it was when the lease commenced. This re-work could make your improvements more costly than you thought and may not be even worth the trouble. Even though you think what you have done is very useful and well constructed, the landlord may feel it would be the opposite and a hindrance to him leasing out the space to a new tenant. So he may ask you to return it to its original state.

Again, the best way to avoid any problems is to check your lease and then discuss the improvements with your landlord. Usually, things work out for the both parties involved by doing so.

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Don't Let Signage Clause Handcuff
Your Business Plan

Your business name is important to you. It not only tells people who you are but where you are. To some Businesses the name needs to be displayed in the right manner, in the right place so clients are able to locate you. To others the business name and signage can also act as a billboard for marketing purposes. Therefore before you locate your business you need to take some time and plan ahead to determine what type of signage is important to you. Secondly, and usually where the crux is, what will the landlord let you do.

Once you have determined your basic needs, you must review the proposed lease to see what type of signage clause you must work with. Many times the landlord has definite restrictions or guidelines in what you can and cannot do in or on the premises. It may be as simple as" in accordance with city guidelines and review", or as strict as the type and coloring of lettering, size and exact location of signage. This may not only include outside but inside suite and office detailing, what can be placed in windows etc.

Again, before you sign a lease for your business, review the signage clause with the landlord carefully. Be certain it will fit within your business plan and not handcuff you with inadequate exposure.

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