BOMA Floor Measurement Standards are very well known throughout the commercial real estate industry. They are so well recognized, that it is common practice to include a reference to BOMA floor standards in standard lease language. Any reference in a lease should be specific as to the method and year of publication of the standard, such as ANSI/BOMA Z65.1-2017, Method B.
The following recommendations are provided for consideration to implement accurate measurements for a building. The process of measuring, then implementing the standard is a step-by-step process and will take time and commitment.
The building is an investment. Everything in the building is measured by square footage. Construction costs, lease rates, operating costs, contact services, management services, lending practices and sales calculations are all measured based on the square footage of the building, so why would an owner not want the building measurements used to be verified and correct? It is important that the company you engage to measure the building fully understands the BOMA floor measurements so that accurate calculations will be received. Ensure to utilize the services of a true metrologist (measurement professional).
Questions you may ask include:
While you may be utilizing excellent property management software, an Excel spreadsheet tends to be the best solution to track variances in measurements for planning purposes. In Excel, identify each tenant suite, tenant name, the new square footage, the leased square footage, and the lease expiration date. Make sure you have accounted for all building square footage, including vacant suites. With the building laid out this way, you can start to develop a strategic plan on how best to handle the variances. An example of a tracker format follows recommendation # 5.
Since the lease is a contract between the tenant and the landlord, it is paramount you review and understand provisions that address building and space size. What does your lease language state? Does it state the suite is a fixed square foot amount or does it state the square footage is approximate? Does it outline that rent is a fixed price per square foot or does it outline a monthly rental amount based on an approximate square footage? Is there language to address changes to the building denominator or to the suite size? Understanding your leases should be a consideration as you develop your strategy.
Your strategy will likely depend on the outcome of the building measurement. You will want to consider how long each tenant has leased space at the building, when their leases will expire, when the building might be placed on the market for sale, how many vacant spaces there are, how profitable the building is, what the goals and objectives of the ownership entity are, how open to a change in measurement the owner is, and what kind of restrictions the lender may have placed for the loan to be secured.
If the overall square footage of the building increases: The most typical approach is to implement square footages over time. For example, it may be determined to immediately implement new square footages for vacant suites. A ‘dummy’ suite can be added to the building in your property software to encompass the additional building square footage so that the building denominator will reflect the new, accurate amount on the rent roll. As tenants renew their leases you might add the square footage to their lease at that time and reduce the square footage of the dummy suite accordingly. Make sure the building denominator does not change with these adjustments. Using this methodology, eventually every lease will reflect the correct rentable square footage.
Another option is to change the suites all at one time and draft a lease amendment to reflect the adjustment with each tenant. This can be accomplished by adjusting the space square footage but keep the tenant’s monthly payment schedule the same through the lease term. That will lower the rental rate per square foot, but that rate can grow quickly upon lease extension.
If the overall square footage of the building decreases: Understandably, this is the most difficult problem to address. No owner wants to make a good tenant disgruntled if they feel they have been overcharged, yet it is doubtful the landlord will desire to refund any rent collected over the lease term, either. This is a situation in which lease review is most crucial. Calculating the amount of rent that was collected based on the inaccurate square footage is a useful tool in determining how best to address the issue. Findings may be discussed with the tenant and square footages adjusted accordingly if the lease states rent as a flat monthly fee for an approximate amount of square feet. Perhaps the landlord will consider providing some rent abatement in lieu of a refund. Communication and transparency are paramount.
Some landlords elect not to inform tenants that the lease states a greater amount of square footage than what the verified measurement truly is. They may prefer to wait until the current tenant moves out of the building to change the suite measurement. Be aware that it is not proper practice for a landlord to lease out more area than exists in the building.
Whatever option might be chosen, this is an owner business decision that requires research, review of options and financial implications of each, thoughtful strategy and good tenant communication when implementing.
Once you have determined the strategy to implement correct floor measurements, track your progress by color coding your tracker accordingly. Use one color for suites that are using the new square footage and another to indicate the strategy as to when the adjusted square footage will be implemented. See the sample below. In this example, the building has a 16.2-percent load factor, but the market can only bear a 15-percent factor. The vacant spaces and building denominators were adjusted immediately. A dummy suite was added to capture the difference in building square footage so that the building denominator is correct. In the ‘Comments’ column, the strategy is outlined. Any suite that now reflects the correct square feet has a note as to when it was implemented. The suites that still need to be updated are so noted as well.
Using a tracker such as this will help you keep on track as you roll out your implementation strategy. Be sure to note on the tracker which version of the BOMA standard was used.
In general, an as-built measurement has a greater likelihood of increasing a building’s rentable area than decreasing it, but it is critical to know either way.
Accurate measurement of a building provides the owner with factual data which is used to make critical decisions in the course of leasing, managing, buying and selling real estate. Implementing a new standard or implementing accurate measurements should not be performed without having first analyzed factors such as leases, expiration dates and lending requirements. An implementation strategy should be developed with the property owner and the leasing/management team.
This strategy will determine if the measurements will be revised immediately or if they will be applied over time. A tracker should be utilized as this process evolves. When future changes are made to the building, include the measurement professional who provided the new computations, so they can maintain in their records for future use.
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