Measurement methods can make a big difference in lease negotiations.
Rent, operating expenses, tax obligations, and several other economic matters are
tied to the square footage of leased premises. Generally speaking, a higher square
footage yields higher rent and other payments for the leased premises. Therefore,
landlords and tenants often disagree on the appropriate square footage to be used in
How to Calculate
Many methods are used to calculate square footage in commercial leases. Usable
square footage refers to the actual occupied area leased. Rentable square footage is
the sum of the usable square footage and a portion of common areas and other
non-leasable building areas allocated to the area leased (often determined by applying
a percentage load factor to the usable square footage). The portion of such other areas
to be added to the space's leased usable area is negotiable.
The most widely used U.S. standard for measuring office buildings is published by
the Building Owners and Managers Association International. The BOMA standard was first
published in 1915 and has been revised various times to reflect industry changes.
Though widely used, the BOMA standard is voluntary. Landlords may choose not to use
it at all or may elect from a variety of versions of the standard to apply. The
selection of the appropriate BOMA standard version to be used isn't always
straightforward. And more importantly, when landlords and tenants disagree on which
standard to use, the difference in rent over the lease term can be substantial. For
example, in the following case, the difference in the applied standards amounted to $10
million in lease payments.
In California's largest office lease transaction in recent years, digital television
services provider DirecTV signed a 15-year, approximately 630,000 rentable square-foot
lease valued at more than $400 million for the company's corporate headquarters in El
Segundo, Calif. The lease included another approximately 89,000 rentable square feet of
must-take space to be delivered by the landlord and leased by DirecTV upon the
expiration of the existing third-party leases. Eventually DirecTV would exclusively
lease the entire three-building Kilroy Airport Center.
One major point of contention was how to measure the premises. Prior to beginning
lease negotiations, both parties agreed that the 1996 version of the BOMA standard
would be applied. However, a disagreement ensued regarding the application of that
standard during lease negotiations.
It was the landlord's position that any full buildings leased by DirecTV should be
measured as "gross building area," as defined in the 1996 BOMA standard yielding a
higher square footage than other methods. The GBA measurement includes the total
constructed area of a building and is computed by measuring to the outside finished
surface of permanent outer building walls without deductions.
DirecTV argued that, whether or not it leased a building in its entirety, GBA was
not the appropriate standard. Rather, DirecTV proposed that the 1996 BOMA standard used
for multitenant office buildings be used for all portions of their premises. The
multitenant application begins with the occupiable area of the premises and adds a
portion of the common areas but excludes from the rentable square footage the major
vertical penetrations (stairs, elevator shafts, flues, pipe shafts, vertical ducts, and
the like), and other non-usable areas.
The 1996 BOMA standard provides multiple variations as to how to measure the
premises when a building is leased by a single tenant. The landlord argued that the
1996 BOMA standard would not have provided for a GBA if BOMA did not intend for it to
be used; GBA applied specifically to and was the most appropriate method for
single-occupant buildings. In addition, the landlord argued that, where a tenant
occupies all of the rentable area of a building, it is appropriate to charge a single
occupant based upon the entire gross area as the entire building is dedicated to its
DirecTV argued that the application of GBA was not consistent with market standards
and that it should not have to pay for vertical penetrations or non-usable areas simply
because it was the single occupant (particularly given that the landlord did not have
other single-tenant offers and would likely have to lease on a multitenant basis in
The economic difference resulting from application of the two proposed measurement
methods was approximately $10 million. Given the magnitude of the economic impact at
stake, the measurement dispute led to a short stalemate in the negotiations. The
parties were eventually able to consider the desirability of completing the lease and
agreed to a compromise as to the stated square footage of the premises. The compromise
equated economically to more than the multitenant measurement but less than the gross
Delmar Nehrenberg is a partner and David Alvarado is an associate in the Century
City, Calif., office of the law firm of Allen Matkins Leck Gamble Mallory & Natsis
LLP. Contact them at firstname.lastname@example.org and email@example.com. The
authors of this article represented the landlord in the discussed transaction.