Learning Centre

Commercial landlords often ask me why they should measure the square footage of their property. The answer is not as easy as it seems. As I’ve said before, cash flow is what drives the value for your property and having a good lease will help you drive your cash flow.

Property managers distinguish between Rentable Area VS. Usable Area.

Usable Area is the area that the tenant actually occupies. Rentable Area is the Usable Area that is grossed up to take into account all the common areas of the building and added to the tenants space on a proportionate share basis.

For example, if you own a small commercial property that has hallways and common area washrooms- the square footage of this area can be added on the tenant’s square footage. If you are not doing this as a landlord, you are losing money that you are entitled to and you should consider adjusting your methodology. This has the potential of increasing your rents by up to 15% in some cases.

A good quality lease should define what rentable and usable is. It should also outline the methodology for measuring buildings. The most current standard is the 2010 BOMA standard and there is a separate standard for Office, Industrial, Retail and Mixed Use buildings.

Sometimes landlords make alterations to their properties and a good lease will allow for re-measurement after the work has been performed.

But there are other reasons why you should measure your building.

1. If you sign a lease with a tenant based on rent per square ft and the space is larger than you realize, then as a landlord you are short changing yourself.
2. Another reason why you should measure your space is that tenant often will and if there is a discrepancy your tenant will be looking to you for a partial refund of their rent. It is always best to know in advance what you are and are not entitled to.
3. There are companies that actually audit leases for commercial tenants to ensure that they are not overpaying their rent and operating costs based on incorrect measurements. As a landlord you don’t want to be surprised by being on the receiving end of one of these audits.

You should review your leases with your property manager to ensure that you are fully covered off and to ensure you are maximizing your cash flow.