If you go into the grocer and purchase, for example, three pounds of salmon, you can be relatively certain that you now possess three pounds of salmon. However, if you lease 30,000 SQFT of space in an office building, can you be relatively certain that you possess 30,000 SQFT? Absolutely not.
Here’s why: To start, there is the concept of “rentable” and “usable” space. In summary, “usable space” is the space actually contained within your walls, and “rentable space” is the same number plus your proportionate share of all common elements such as elevator lobbies, bathrooms, fire stairs, and mechanical rooms. If you lease half of a floor, the rentable calculation would apportion half of those elements for your use and add that amount to your usable calculation.
The American National Standards Industry (ANSI) has created very detailed specifications on how to create accurate measurements. For example, dimensions are taken from the interior of glass windows to the midpoint of the wall for any walls shared in common with other tenants, etc. This standard has been adopted by The Building Owners and Managers Association (BOMA) and some landlords agree to adopt these standards. Fair enough.
But there is another scenario which can cost you thousands, perhaps even tens or hundreds of thousands of dollars over the term of your occupancy: Phantom Space. This is when either the usable or the rentable numbers or both are inflated above the actual or proper numbers. Sometimes this occurs because the Landlord or their representatives choose to ignore the ANSI/BOMA standards in favor of their own. These may be based on a measurement of the landlord’s choosing (the drip line of the roof, for example) or could be, well, anything that they decide which may or may not be based on a real metric. Illegal? No, because all aspects of a lease are negotiable — including the basis for measurement — and the landlords that do this almost certainly have very smart attorneys who put language in the lease that will indemnify them and prevent recalculation to any reality-based standards.
Do you think this is a low risk concern? A May, 2014 article in the Wall Street Journal details how the MetLife Building has somehow grown from its original 2.4M SQFT in 1979 to 3M SQFT today. Indeed, NYC is notorious for floor measurements that have in some cases exceeded the outside measurement of the actual building. Many real estate firms, including one quoted in the article that purports to represent tenants, turn a blind eye to the practice and shrug it off with the attitude, “It’s an important enough market that they (the Landlords) can make their own rules”.
How do you protect yourself? Take these precautions:
1. Insist that measurements and rentable adjustments be done in accordance with ANSI/BOMA standards. Note that The International Property Measurement Standards Coalition mentioned in the article is working towards a global standard, although it will likely be years before it is adopted in any significant way — and more likely never by unscrupulous landlords.
2. Hire your own architect, rather than relying on the Landlord’s architect. The architect, like most professionals, has a fiduciary responsibility to their client. Make sure that you have someone on whom you can rely for accurate and honest representations.
3. Include language in the Lease document that affirms measurement to to ANSI standards and allows for adjustment if a discrepancy is discovered.
4. Be certain that you have a tenant representative that insists on the items above, manages the transaction to meet ANSI compliance, and will not passively accept the non-conforming measurements of unscrupulous landlords.
When it comes to Phantom Space, Less is More.
