Q: Do you know how the square footage of your office space is measured?
A: Usable Square Feet refers to the area within the four perimeter walls of your suite. Let’s say this is 1,000 square feet. Rentable Area is the area that you pay rent on, which is typically greater than the Usable Square Footage? Why? Because all tenants share in the common areas such as lobbies, restrooms, and common hallways. Therefore the Landlord adds a ‘rentable factor’ to the usable square footage to arrive at the Rentable number. Rentable factors for most multi-tenant office spaces in the Detroit metro area range from 10% to 15%. So if your usable area is 1,000 square feet and the rentable factor is 10%, then 1,000 x 1.10 = 1,100 Rentable Square Feet.
Q: Is your office rent considered Gross, Modified Gross or NNN?
A: A Full Gross lease is where the landlord pays for all expenses of the property, including all utilities consumed in the leased premises. A Modified Gross lease means that the tenant pays for its proportionate share of expenses in excess of a Base Year (typically the first year of your lease). The tenant may or may not pay for separate electricity or other utilities in this scenario. A NNN lease (Net, Net, Net) means the tenant is paying for its proportionate share of real property taxes, insurance, common area maintenance, and utilities. Leases can have a varied definition of these standards, so be sure to understand what you are expected to pay and the anticipated costs.
Q: What is the average density of employees per square foot of office space?
A: Most office buildings in the Detroit area were built in the 1980’s and earlier. These office buildings were designed with HVAC and parking lots to accommodate an average of four (4) employees per one thousand rentable square feet of office space. Due to technology, the way people work has changed. More and more businesses are using smaller work areas and so the density can be far in excess of four (4) employees per one thousand square feet of office space. Some landlords will allow a slight increase in average density, but be careful about the ramifications of a highly dense office space. Issues can range from excess heat loads that may exceed the design capacity of a heating and cooling system, excess parking requirements, increased utility costs, etc.
Q: How far in advance of your office lease expiration is the optimal time to look for new office space?
A: Generally, you should be looking for new office space six (6) to twelve (12) months prior to your lease expiration. The planning, negotiating, design, construction and move in process can take several months. You want to have enough time to make decisions and leverage the negotiations. Tenants that wait too long may not have enough time to get the most out of the opportunity!
Q: Does your office lease include a “gross up” provision for purposes of operating expenses? Is a “gross up” provision beneficial to a tenant?
A: A “gross up” provision, when used correctly, will benefit the tenant. A “gross up” means that in the initial calendar year and all subsequent years during the lease term, all variable expenses will be grossed up as though the building is substantially occupied. This protects a tenant from variable expenses increasing during the term based on an increase of occupancy. Janitorial costs are a good example of a variable expense based on occupancy of the building.
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