By IN YOUR SPACE BY CHRISTINA S. PORTER
Hopefully, most of you will not have to negotiate more than a few leases in your business career. A commercial real estate broker conducts lease negotiations regularly and, because of this, grasps the many components of a lease that can and/or should come into play during the negotiation process. For instance, understanding the different types of leases is a very important part of an effective negotiation, and/or renegotiation of the terms and conditions in a lease. One of the more prominent lease structures is the “full service gross” lease.
A full service gross lease is primarily used in larger “A” class office buildings. The definition of an “A” class office building varies slightly, but examples would be most of the larger office buildings in Westwood, Brentwood, West Los Angeles and Santa Monica. This does not mean that smaller building owners do not offer full service gross leases, but the utilization of this type of lease in smaller buildings is not as common.
When you agree to a lease on a full service gross basis it should include the following, general terms: ■ The landlord pays all building expenses, including electricity and janitorial. ■ You pay for parking and your “prorata” share of any increase in operating expenses over the “base year,” usually the first year of your lease term. ■ Most of the time you are on your own as far as “after hours” heating ventilating and air conditioning. Most “A” class office buildings charge as much as $100 per hour and certainly not less than $35 for after hours air conditioning. The hours that different building owners offer HVAC vary but you can expect 8 a.m. to 6 p.m., Monday through Friday, and 9 a.m. to 1 p.m. on Saturdays. If you consistently need “off hours” HVAC, it is possible to have a “package unit” installed in your suite, but this should be anticipated and negotiated as part of the initial tenant improvements if at all possible. ■ Be sure to ask if the quoted parking rates include the city tax.
Another important issue found primarily in a full service gross lease is what’s known as the “load factor.” How much is your “rentable” square feet and how much do you actually occupy? Do you know what the amount of “usable” square footage is in your office suite?
In all office buildings there is a common area the size of which, during the life of a building, may change from remodel to remodel. The common area consists of the hallways, lobby areas, bathrooms and any area of the office that is not for your exclusive use. The usable square footage is how many square feet you actually occupy, or the inside of your office.
The “rentable” square footage is calculated as follows: The percentage of the office project’s square footage that is common area added to the actual amount of square footage that you occupy in your suite.
Example: If you occupy 10,000 square feet and the load factor is 15 percent, then your rentable square footage amount — and the basis from which your base rent is calculated — is 11,500 square feet.
Even though you do not have exclusive use of the common areas, you are still paying for it via the load factor.
Most owners add a load factor close to 15 percent to be competitive — notwithstanding the fact that their building’s actual common area percentage may be much higher and occasionally lower. It is rare to find an owner who does not have a load factor to compensate for the common area in the building.
When comparing lease opportunities, the load factor is certainly an important component. (The above is for informational purposes only and not meant to be taken as advice. Christina S. Porter is in the business of leasing and selling office and industrial buildings, she (310) 806- 6104, or)
Originally published in the Santa Monica Daily Press print edition on December 8, 2004. Read the original PDF.