Advice on Avoiding Misunderstandings in Premises Measurement

While the calculation of square footage may appear to be an easily defined effort, in reality it often is not. There are many different methods of measurement of leased square footage, depending on the type of space, the geographical market in which the space is located, and the landlord. A lease that does not clearly define the method used in measurement of the space could become a battleground.

Office Leases: BOMA Standards

The first standard for office space measurement was developed by the Building Owners and Managers Association (BOMA) in 1915. It was revised in 1952 and became an American National Standard in 1955. It has since been revised several times, including a 1980 revision. The current version became effective on June 17, 1996, and is cited as the Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1-1996 (the “BOMA Standards”). Although not a mandatory method of measurement, the BOMA Standards are a widely accepted standard of office space measurement, and typically appear in a lease via a certification by the landlord that the rentable and usable areas of the premises and building were measured according to BOMA Standards. This gives the tenant the ability to confirm with its own architect that the square footage stated in the lease is accurate. Unless the standard by which a landlord first measures the areas is stated, it is impossible for a tenant to verify the square footage, because to do so without reference to a standard of measurement could be an exercise in comparing apples with oranges.

While an in-depth discussion of the various BOMA Standards is beyond the scope of this article, several concepts are worth noting. First, the BOMA Standards generally measure leased premises in two different ways: 1) the rentable area, which takes into account common areas but should exclude vertical penetrations such as elevators; and 2) usable area, which measures the actual area of the premises that can be occupied (think of it in terms of how much carpet the tenant will need). The load factor, also known as the loss factor or conversion factor, is the percentage of space on a floor that is not usable, expressed as a percentage of the usable area. Because calculations made by two different architects may vary, the BOMA Standards allow a variance of up to 2% between differing calculations. If the variance is greater than 2%, it is recommended that a third party be consulted to reconcile the difference. Last, the practitioner should be aware that the BOMA Standards are not used in all areas, and should consult its client's broker to confirm which standard of measurement is customary for the location.

Industrial Space

While most office brokers and landlords are accustomed to using the BOMA Standards, they are not used for measurement of industrial space, and the office landlord's industrial counterpart may not necessarily measure space with reference to any particular published standard of measurement. Nevertheless, there are two standards which have been promulgated: the AIR Industrial Building Standards (the “AIR Standards”), published in March 1993 by the American Industrial Real Estate Association; and standards developed by the Society of Industrial and Office Realtors (SIOR) and currently under consideration by the American National Standards Institute for approval as a module to the BOMA Standards (the “SIOR Standards”). If approved, the SIOR Standards would be cited as “BOMA/SIOR-ANSI Z65.2.” However, industrial real estate brokers and landlords use several different methods of measurement, and the choice appears to depend on the particular geographical area, the particular landlord and broker, the type of building (is the building basically a box, or does it include recessed areas and/or projections, or a mezzanine?), and the bargaining power of the parties. The lack of reference to a published standard gives the landlord and its broker tremendous latitude to measure the space according to their own criteria. Therefore, it is important that the tenant, its broker and its lawyer understand the differences between measurement standards and negotiate for the most favorable method possible. Furthermore, the lease should be drafted to provide the landlord's certification of the method of calculating the area of the premises and the building. If the space is not measured by a published standard that is referenced in the lease, the tenant must obtain from the landlord a representation of exactly how the space is measured, so the tenant will know what the square footage on which it is paying rent includes.

'Dripline' Measurement

One method of measurement of industrial space often used is the “dripline” standard of measurement. Tenants beware ' it is not defined by any published standard of measurement, and is landlord-friendly because it typically measures the building from the point directly underneath the dripline of each wall. Measuring a building using the “dripline” method can result in square footage that is greater than square footage measured by other methods. If the space underneath awnings, overhangs, canopies or dock shields is included, the tenant should question whether that space is appropriate to include in the square footage on which it pays rent. If the “dripline” standard is used, it should be carefully defined so that the tenant knows exactly what is included.

Exterior-to-Exterior Measurement

Many landlords measure space from the exterior of each exterior wall. Although tenants with more bargaining power may wish to negotiate for measurement from the centerline or interior of each wall, smaller tenants may not be able to do so. The exterior wall method of measurement is often used, and may be acceptable for a building of simple design ' no projections, recesses or mezzanine space ' but may not work as well for a more complex building. For example, the tenant must determine whether the square footage stated in the lease includes any mezzanine and the stairway leading to it, whether the exterior of the exterior walls includes projections, and so forth. This is why published standards are helpful, as they outline which parts of a particular type of building are included in the square footage calculation.

AIR Standards

The AIR Standards calculate Gross Building Area according to the type of building being measured and provide five basic measurements (capitalized words are defined in the AIR Standards). Building Standard #1 measures the Gross Building Area of a building with no recesses and/or projections, and no Rentable Mezzanine, by measuring the distance between the Exterior Surface of opposing walls and multiplying building width times building depth. Building Standard #2 measures the Gross Building Area of a building with no recesses and/or projections, but having a Rentable Mezzanine, using the same method of measuring the Gross Building Area as Building Standard #1 and adding the mezzanine space. Building Standards #3 and #4 measure buildings with recesses and/or projections, and with or without a Rentable Mezzanine. Last, Building Standard #5 measures space in a multi-tenant building by measuring from the centerline of any interior Demising Wall, then applying the other four Building Standards according to the type of building.

SIOR Standards

The SIOR Standards measure a single-tenant building by measuring the ground and upper floors from the exterior wall face to the exterior wall face including the area of any projections; and a multiple-tenant building by measuring the ground and upper floors from the exterior wall face to the exterior wall face, to the center of demising walls, to the tenant side of the wall face of common area walls, and including the area of any projections such as columns. Where rentable area is to include a proportionate share of the common areas, the common areas include the corridors, interior atriums and enclosed walkways measured to the exterior wall face of such space; the electrical vaults, electrical meters, garbage, telephone service, fire sprinkler valve and storage-rooms and any other space used in common or for common benefit, measured to the exterior wall face of such rooms. There are rules for determining the inclusion of mezzanine space, balconies, and enclosed loading areas.

Summary

To protect his or her client from paying for too much square footage, and from disputes as the lease term progresses, the tenant's lawyer must understand the various methods of measurement and which method is appropriate for a particular building. A tenant should not take the landlord's statement of square footage at face value, but must understand the exact method by which it is calculated. A tenant with bargaining clout may be able to negotiate a more favorable method of space measurement. In any event, the method in which the square footage upon which the tenant pays rent is measured, whether an established, published method or not, must be clearly defined in the lease. The test for sufficiently defining the measurement standard should be whether a third person re-measuring the space would be able to determine how the measurement is to be performed. It is preferable for an architect to provide a certificate representing the square footage of the premises before execution of the lease; or to draft the lease to provide for a period of time after execution during which the tenant has the right to re-measure the square footage and adjust base rent and tenant's share of operating expenses based on the reduced square footage. In any instance requiring the measurement of square footage, whether after the completion of tenant improvements or upon the exercise of an expansion option, the landlord should be required to use the agreed-upon measurement method, and the tenant should have an opportunity to confirm the square footage and adjust the rent if necessary. If there is a variance between the square footage as measured by the landlord and that measured by the tenant, the lease should provide a mechanism to resolve the dispute. Landlords should be aware that clearly defining the measurement standard in the lease will also protect them from a possible later claim by the tenant for unjust enrichment or misrepresentation.

A copy of the BOMA Standards may be obtained by calling BOMA at (800) 426-6292, or ordered online at www.boma.org. A recommended companion document is Answers to 26 Questions About the ANSI/BOMA Standard Method of Measuring Floor Area in Office Buildings, which can be downloaded from BOMA's Web site. A copy of the AIR Standards may be obtained from the AIR Commercial Real Estate Association by calling (213) 687-8777. For a copy of the SIOR Standards, consult a local member of the SIOR.

What could be simpler, more mundane, and less worthy of a lawyer's attention than lease provisions dealing with a business term ' the square footage of the premises? However, a lawyer's failure to define the agreed-upon method of its measurement properly in the lease can lead to headaches and even litigation as the lease term progresses. Because measurement standards are not mandatory or legislated, the parties are free, depending on their relative market positions, to agree upon the method to be used in the lease. Often the measurement of square footage is referred to in terms that are imprecise and have no legal definition. Depending on the area where the building is located, measurement methods may vary and a landlord may have its own method that is a modified form of a particular standard of measurement. Without a specified measurement standard and the right to confirm a landlord's measurement, a tenant could end up paying more for its space than it intended (or budgeted); and may later find itself unable as a practical matter to contest a landlord's measurement of an expansion space.

When a landlord and tenant contemplate entering into a lease, one of the first business terms they discuss is the number of square feet that will comprise the premises. The square footage of the leased premises is of extreme economic importance in several instances. First, square footage is typically used in calculation of base rent, whether so stated in the lease or not. Second, the tenant's proportionate share of operating expenses for a multi-tenant building is determined based upon the ratio between the square footage of the premises and that of the entire building. Third, any tenant improvement allowance will normally be based upon the number of leased square feet.

The question of measurement comes into play in various ways during the drafting and negotiation of a lease. The parties must first agree to the square footage of the premises prior to entering into the lease. If the premises are shell space to be built out, both parties may desire the ability to re-measure the square footage of the finished space. Finally, if a lease includes the tenant's right to expand into adjacent space, the method of measuring and defining the expansion space must be specified in the lease to prevent later disagreements about the expansion square footage.

While the calculation of square footage may appear to be an easily defined effort, in reality it often is not. There are many different methods of measurement of leased square footage, depending on the type of space, the geographical market in which the space is located, and the landlord. A lease that does not clearly define the method used in measurement of the space could become a battleground.

Office Leases: BOMA Standards

The first standard for office space measurement was developed by the Building Owners and Managers Association (BOMA) in 1915. It was revised in 1952 and became an American National Standard in 1955. It has since been revised several times, including a 1980 revision. The current version became effective on June 17, 1996, and is cited as the Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1-1996 (the “BOMA Standards”). Although not a mandatory method of measurement, the BOMA Standards are a widely accepted standard of office space measurement, and typically appear in a lease via a certification by the landlord that the rentable and usable areas of the premises and building were measured according to BOMA Standards. This gives the tenant the ability to confirm with its own architect that the square footage stated in the lease is accurate. Unless the standard by which a landlord first measures the areas is stated, it is impossible for a tenant to verify the square footage, because to do so without reference to a standard of measurement could be an exercise in comparing apples with oranges.

While an in-depth discussion of the various BOMA Standards is beyond the scope of this article, several concepts are worth noting. First, the BOMA Standards generally measure leased premises in two different ways: 1) the rentable area, which takes into account common areas but should exclude vertical penetrations such as elevators; and 2) usable area, which measures the actual area of the premises that can be occupied (think of it in terms of how much carpet the tenant will need). The load factor, also known as the loss factor or conversion factor, is the percentage of space on a floor that is not usable, expressed as a percentage of the usable area. Because calculations made by two different architects may vary, the BOMA Standards allow a variance of up to 2% between differing calculations. If the variance is greater than 2%, it is recommended that a third party be consulted to reconcile the difference. Last, the practitioner should be aware that the BOMA Standards are not used in all areas, and should consult its client's broker to confirm which standard of measurement is customary for the location.

Industrial Space

While most office brokers and landlords are accustomed to using the BOMA Standards, they are not used for measurement of industrial space, and the office landlord's industrial counterpart may not necessarily measure space with reference to any particular published standard of measurement. Nevertheless, there are two standards which have been promulgated: the AIR Industrial Building Standards (the “AIR Standards”), published in March 1993 by the American Industrial Real Estate Association; and standards developed by the Society of Industrial and Office Realtors (SIOR) and currently under consideration by the American National Standards Institute for approval as a module to the BOMA Standards (the “SIOR Standards”). If approved, the SIOR Standards would be cited as “BOMA/SIOR-ANSI Z65.2.” However, industrial real estate brokers and landlords use several different methods of measurement, and the choice appears to depend on the particular geographical area, the particular landlord and broker, the type of building (is the building basically a box, or does it include recessed areas and/or projections, or a mezzanine?), and the bargaining power of the parties. The lack of reference to a published standard gives the landlord and its broker tremendous latitude to measure the space according to their own criteria. Therefore, it is important that the tenant, its broker and its lawyer understand the differences between measurement standards and negotiate for the most favorable method possible. Furthermore, the lease should be drafted to provide the landlord's certification of the method of calculating the area of the premises and the building. If the space is not measured by a published standard that is referenced in the lease, the tenant must obtain from the landlord a representation of exactly how the space is measured, so the tenant will know what the square footage on which it is paying rent includes.

'Dripline' Measurement

One method of measurement of industrial space often used is the “dripline” standard of measurement. Tenants beware ' it is not defined by any published standard of measurement, and is landlord-friendly because it typically measures the building from the point directly underneath the dripline of each wall. Measuring a building using the “dripline” method can result in square footage that is greater than square footage measured by other methods. If the space underneath awnings, overhangs, canopies or dock shields is included, the tenant should question whether that space is appropriate to include in the square footage on which it pays rent. If the “dripline” standard is used, it should be carefully defined so that the tenant knows exactly what is included.

Exterior-to-Exterior Measurement

Many landlords measure space from the exterior of each exterior wall. Although tenants with more bargaining power may wish to negotiate for measurement from the centerline or interior of each wall, smaller tenants may not be able to do so. The exterior wall method of measurement is often used, and may be acceptable for a building of simple design ' no projections, recesses or mezzanine space ' but may not work as well for a more complex building. For example, the tenant must determine whether the square footage stated in the lease includes any mezzanine and the stairway leading to it, whether the exterior of the exterior walls includes projections, and so forth. This is why published standards are helpful, as they outline which parts of a particular type of building are included in the square footage calculation.

AIR Standards

The AIR Standards calculate Gross Building Area according to the type of building being measured and provide five basic measurements (capitalized words are defined in the AIR Standards). Building Standard #1 measures the Gross Building Area of a building with no recesses and/or projections, and no Rentable Mezzanine, by measuring the distance between the Exterior Surface of opposing walls and multiplying building width times building depth. Building Standard #2 measures the Gross Building Area of a building with no recesses and/or projections, but having a Rentable Mezzanine, using the same method of measuring the Gross Building Area as Building Standard #1 and adding the mezzanine space. Building Standards #3 and #4 measure buildings with recesses and/or projections, and with or without a Rentable Mezzanine. Last, Building Standard #5 measures space in a multi-tenant building by measuring from the centerline of any interior Demising Wall, then applying the other four Building Standards according to the type of building.

SIOR Standards

The SIOR Standards measure a single-tenant building by measuring the ground and upper floors from the exterior wall face to the exterior wall face including the area of any projections; and a multiple-tenant building by measuring the ground and upper floors from the exterior wall face to the exterior wall face, to the center of demising walls, to the tenant side of the wall face of common area walls, and including the area of any projections such as columns. Where rentable area is to include a proportionate share of the common areas, the common areas include the corridors, interior atriums and enclosed walkways measured to the exterior wall face of such space; the electrical vaults, electrical meters, garbage, telephone service, fire sprinkler valve and storage-rooms and any other space used in common or for common benefit, measured to the exterior wall face of such rooms. There are rules for determining the inclusion of mezzanine space, balconies, and enclosed loading areas.

Summary

To protect his or her client from paying for too much square footage, and from disputes as the lease term progresses, the tenant's lawyer must understand the various methods of measurement and which method is appropriate for a particular building. A tenant should not take the landlord's statement of square footage at face value, but must understand the exact method by which it is calculated. A tenant with bargaining clout may be able to negotiate a more favorable method of space measurement. In any event, the method in which the square footage upon which the tenant pays rent is measured, whether an established, published method or not, must be clearly defined in the lease. The test for sufficiently defining the measurement standard should be whether a third person re-measuring the space would be able to determine how the measurement is to be performed. It is preferable for an architect to provide a certificate representing the square footage of the premises before execution of the lease; or to draft the lease to provide for a period of time after execution during which the tenant has the right to re-measure the square footage and adjust base rent and tenant's share of operating expenses based on the reduced square footage. In any instance requiring the measurement of square footage, whether after the completion of tenant improvements or upon the exercise of an expansion option, the landlord should be required to use the agreed-upon measurement method, and the tenant should have an opportunity to confirm the square footage and adjust the rent if necessary. If there is a variance between the square footage as measured by the landlord and that measured by the tenant, the lease should provide a mechanism to resolve the dispute. Landlords should be aware that clearly defining the measurement standard in the lease will also protect them from a possible later claim by the tenant for unjust enrichment or misrepresentation.

A copy of the BOMA Standards may be obtained by calling BOMA at (800) 426-6292, or ordered online at www.boma.org. A recommended companion document is Answers to 26 Questions About the ANSI/BOMA Standard Method of Measuring Floor Area in Office Buildings, which can be downloaded from BOMA's Web site. A copy of the AIR Standards may be obtained from the AIR Commercial Real Estate Association by calling (213) 687-8777. For a copy of the SIOR Standards, consult a local member of the SIOR.