Question

1. What is the difference between “rentable” and “usable” square feet as they pertain to a commercial lease and why a tenant and landlord may have differences of opinion as to which one is used.

Answer 1

Sol:

Usable square feet (USF) refers to the square footage the tenant actually can use in their office space. This is measured as the floor area within the perimeter walls. It is the amount of space the tenant has legal possession of and can use. This space can be looked at as the private space a tenant uses to host its business, equipment, furniture, and personnel. On the other hand, Rentable square feet (RSF) refers to everything the USF does, plus common areas of the building such as restrooms, hallways, elevator shafts, stairwells, etc. Therefore RSF number will be higher than USF.

A tenant and landlord may have differences of opinion as to which one is used due to following reasons,

As RSF is higher than USF due to which the tenant end up paying more rental per square feet. Tenants are charged for the RSF as they do use these common areas. It is also called to be the load factor or loss factor. If owner says loss factor is 10%, it means that 10% of the building is taken up by common areas. This also means that if owner is renting 1,000 USF, then tenant will be paying for 1,100 total rentable square feet. Many commercial owners just make up the number to inflate the square footage. Tenant will always prefer USF as its the actual space he is using, and RSF quoted by the owner may be inflated. Also tenant end up paying more for the area which he may never use if rent are based on RSF. However on the other end owner will prefer RSF as it will end up getting more rental per square feet and also according to him its a loss factor which needs to be bear by the tenant.

Unfortunately there is no clear cut answer to the question, as there is no rule as to which needs to be quoted (in USF or RSF). As a tenant you have to inquire how the rate is quoted so there are no surprises later. Obviously if the square feet vary 3% to 20%, so does the rental rate.