Commercial Leases: A Few Points to Ponder

Real Estate Finance

PUBLISHED ON: May 2, 2005

Download PDF

This article originally appeared in Anderson Kill's Real Estate and Construction Advisor (Autumn 2004).

Besides finding an acceptable tenant for its space, a landlord must consider many matters in negotiating the lease, some of which are discussed below.

Measurement of the Space

The annual fixed rent is commonly described as an agreedupon rate per square foot, and the determination of the area of the leased space will have financial implications. Landlords will include a portion of the building’s common area in order to establish the “rentable square feet.” Tenants will focus on the “usable square feet” within the four walls of the leased space. Because the rent will be calculated on the rentable square feet, tenants need to know the loss factor to determine the real cost per usable square foot. Of course, other considerations, such as the layout and utility of the space, are also very important to the parties. For new leases and even for renewals of existing leases, a landlord may be able to increase its rental income through an updated, accurate re-measurement of the leased space.