How we measure office space is changing. The most widely accepted measurement standard by the Building Owners and Management Association (BOMA) recently released a new measurement standard for office space utilizing two different methods. The biggest change is the method of creating a single-load factor for all floors in an office building; in general terms, a “load factor” is the ratio of common areas added to a space’s useable area (i.e., the actual measurement) to arrive at its rentable area (i.e., basis of rent and other economic lease terms). The other option under the new standard is a slight variation on the 1996 standard maintaining differing load factors on each floor. While the measurement of individual floors will vary under either method under the new standard, the total rentable area of the building will be the same. Below is a brief discussion of the drivers behind the change, the nature of the change, and what tenants (including those considering renewal) should be thinking of to safeguard their interests. Keep in mind that this is a voluntary standard and it will be up to the commercial real estate industry to see how it is received and adopted.
Why the Change?
Originally issued almost 100 years ago in 1915, BOMA’s office space measurement standard has been the “gold standard” in most parts of the country. It has been updated over the years where 1996 was the last significant update. The new standard is referred to as the 2010 version. The major drivers for the 2010 standard are:
- Reflect current leasing practices as they have evolved over time;
- Provide a common standard for both BOMA and IFMA (International Facility Management Association);
- Arrive at method for single load factor on all floors thereby enhancing marketability of less efficient floors; and
- To provide a clear framework for the measurement of office space
The new standard offers two measurement methods which are referenced as “ANSI/BOMA Z65.1-2010, Method A or Method B”:
- “Method A (Legacy Method)” – essentially emulates the 1996 standard with the primary exception being that the application of the floor R/U ratio (i.e., ratio of rentable to useable area on a floor) is no longer applied to building common areas. That exception reflects a more equitable apportionment. This change will result in slightly different R/U ratios. As under the 1996 standard, the load factors for individual floors will vary.
- “Method B (Single Load Factor Method)” – establishing an identical load factor for all floors assuming all floors have the same “Base Building Circulation”, regardless of multi-tenant or single tenant occupancy. While this will help inefficient floors with high load factors under Method “A” which hinders leasing, it has the potential of raising load factors on all floors and increasing rentable areas for some tenants. Put simply, Method “B” spreads the inefficiency of a floor(s) across an entire building, i.e., “sharing the pain”. It is unclear to me what impact this will have, if any, on single-floor tenants whom typically enjoy a low load factor.
- No mixing of methods in a building. One method must be consistently applied for the entire building.
- Any reference to this standard must unambiguously cite Method A or B, as “ANSI/BOMA Z65.1-2010, Method A or Method B”. Merely citing “BOMA Standard” or “Modified BOMA” is insufficient.
- These two methods result in the same building size, but different floor sizes. The building size may change, however, based upon how the building’s Gross Area is defined by ANSI/BOMA Z65.3-2009. There are two methods of measurement: (1) Construction Gross Area – which now includes, in warmer climates, unenclosed terraces, corridors, and the like which are referred to as “Exterior Circulation”; and (2) Exterior Gross Area – only the fully enclosed building. Between these two, one must be chosen and cited. As a result tenants in the Sunbelt, may find that their building’s gross area has increased if the Construction Gross Area is applied and certain outdoor common areas are now incorporated into the building’s gross area.
- “Market Load Factor” – to reflect reality of the marketplace and while applying either method, the owner in its discretion can establish a capped load factor and capped rentable areas for each floor of the building. This is a common leasing practice which was not recognized under the 1996 standard. So if a building’s load factor under either Method “A” or “B” handicaps leasing efforts, the landlord has the freedom to reduce the load factor and rentable areas. Landlords, however, cannot adjust the load factor to exceed the actual one; a scenario that has potential in tight office markets.
How tenants can safeguard their interests.
Most landlord form leases are intentionally vague on measurement standards. Many leases do not specify a standard. During the pre-lease negotiation phase, tenants should have the landlords define the measurement standard of the buildings they are considering.
Second, tenants should independently verify the measurement of the leased premises. Depending upon the transaction, they may also verify the measurement of the building.
Third, while landlords will typically use the word “approximately” in referencing the size of the premises and building, tenants should have the landlord represent and warrant the rentable area of building based upon the agreed upon measurement standard. For space that is being constructed, the actual measurement of the premises following construction may vary slightly from what was originally presented. Tenants should establish a mechanism in the lease for the tenant to verify the final measurement of the space.
Finally, as the rent and other economic terms of the lease (e.g., rent, construction allowances) hinge upon the size of the space, tenants should focus their negotiations of economic terms on a “RSF” or rentable square foot basis. Consequently, if the ultimate size of the space changes, the rent and other economic terms change accordingly.
Tenants renewing should not assume that this is a moot issue to them. These safeguards also apply to tenants who are exploring renewal. Depending upon which method is employed, they may find that the size of their space has changed. Anchor tenants, of course, should have a voice on what measurement standard is employed.