Understanding BOMA Standards – Measuring Commercial Real Estate
When renting an office space or other commercial real estate, it’s not always immediately obvious what you’re paying rent for.
There are several types of commercial leases, each with their nuances about the rights and responsibilities of the tenants and landlords. Just as a quick overview, here are the most common types:
- Net lease – This lease allocates building costs and responsibilities between the landlord and tenant. The most common type is the triple net lease, where the tenant pays all taxes, insurance and maintenance for the building, in addition to the monthly rent.
- Gross lease – The landlord pays for all repairs, building taxes and insurance. The tenant is only responsible for paying rent, however, it is usually elevated to account for all these expenses.
- Modified gross lease – These are commonly found in real life situations. Landlords keep some responsibilities, like paying the taxes, insurance, and major repairs (for example roof renovations). However, the tenant is responsible for maintenance and minor repairs, like painting and decorating.
Regardless of the lease type, rent is always calculated from the square footage of the leased floor area. As a tenant, you will always try to negotiate the best (lowest) rent price. However, it’s just as important to have a complete understanding of how this area is being measured.
- Do you measure from the outside wall or the inside wall?
- Are support columns excluded from the area?
- Are electrical, mechanical and janitorial rooms excluded or included? Why?
- What about the toilets and staircases?
Depending on where you put the tape measure, you’ll get slightly different square footage. Multiply that by all the floors in the building and you get a wild discrepancy, that’s directly linked to your rent.
There is no universal, legally defined method to measure a commercial building. However, there are the BOMA Standards.
BOMA Standards
BOMA stands for Building Owners and Managers Association. Over 100 years ago, in 1915, BOMA created and published the first standard for measuring floor area in commercial real estate. In the last century, the standards have evolved parallel to the industry and BOMA has established itself as the global authority in building measurement.
BOMA standards are not a regulatory requirement. They are entirely voluntary, however, they are recognized and trusted by the American National Standards Institute (ANSI). Therefore, the majority of commercial landlords, developers and lease contracts use them regardless.
Today there exist several different BOMA standards for measuring various types of commercial property:
- Industrial
- Gross Area
- Multi-Unit Residential
- Retail
- Mixed-Use
- Office
You can purchase the latest edition from the BOMA website. Each is designed in accordance with the specific needs of that industry as well as the specific architecture of the measured buildings. Below, we’ll take a look at the standards that are used for measuring an office building.
Measuring an industrial building using the BOMA Industrial Standard
In 2019, BOMA updated its Industrial Standard.
The previous version, published in 2012, gave different recommendations for single-story, multiple-story, single-occupancy and multiple-occupancy buildings. The old standard furthermore defined two different methods for measuring buildings – the External Wall Method – Method A and the Drip Line Method – Method B, each of which contained multiple exclusions. This created considerable confusion for landlords and tenants who had to navigate complicated scenarios to pick out the most appropriate method for measuring a building.
The new 2019 BOMA Industrial Standard combines all the best features from both deprecated methods and offers a single unified way to measure an industrial building.
The new method measures all areas used to conduct “Industrial activities” that are also covered by a permanent roof. The measured area is practically the same as when measured via Method B (Drip Line Method) from the old standard, as it measured the external footprint of the roof and anything within the perimeter was included.
However, since Method A was more popular and commonly used for enclosed buildings with solid exterior walls, new areas are now included such as covered loading docks, therefore increasing the rentable area of the buildings.
“Industrial Activities” are defined in such a way to allow more styles of buildings to be measured using the 2019 version of the standard, compared to previous versions, which offered limited support.
Measuring an office building using the BOMA Gross Area Standard
In 2018, BOMA updated it’s Gross Area Standard to define four new methods of measurement that replace the older definitions. The two most relevant for negotiating commercial leases are Gross Area 1 and 4.
BOMA Gross Area 1 – Leasing Method
Gross Area 1 – Leasing Method replaces the deprecated Exterior Gross Area or EGA.
Gross Area 1 defines all areas inside of the building, as measured from the outer edge of the external walls. The standard also accounts for areas that fall outside of the building, but are developed and provided to the tenant for their exclusive use.
This method was specifically designed for cases when the entire building is leased by a single tenant. If both parties agree to use the method, much simpler measurements are needed to calculate the floor area of the building and therefore the rent price.
Gross Area 1 – Leasing Method sums up all following areas as measured from the outer edge of their exterior walls. Spaces are classified as follows:
- Space Classification A: Floor Area, Parking Area, and Connectors
- Space Classification B: Balconies, Exclusive Use Covered Galleries, and Finished Rooftop Terraces
- Space Classification C: Unenclosed Occupant Circulation and Roofless Structured Parking
If you’re negotiating a lease based on the BOMA Gross Area 1 method, consider that many areas that are not usable for conducting business will be charged with rent – the area of the external walls, restrooms, corridors and hallways, maintenance areas, electrical and mechanical rooms, elevators, staircases, etc. Keep that in mind when negotiating the rent charge.
BOMA Gross Area 4 – Construction Method
BOMA Gross Area 4 – Construction Method replaces the deprecated Construction Gross Area or CGA.
Gross Area 4 defines a larger area, that includes Gross Area 1, as well as any areas within the property that are not enclosed structures, but have a floor, or are covered under a roof or canopy. This measurement method gives a more complete look at the building in terms of construction and replacement costs. However, it is not typically used to calculate rent in commercial leases.
Gross Area 4 – Construction Method sums up all following areas as measured from the outer edge of their exterior walls. Spaces are classified as follows:
- Space Classification A: Floor Area, Parking Area, and Connectors
- Space Classification B: Balconies, Exclusive Use Covered Galleries, and Finished Rooftop Terraces
- Space Classification C: Unenclosed Occupant Circulation and Roofless Structured Parking
- Space Classification D: Public Use Covered Galleries and Sheltered Area (Industrial)
- Space Classification E: Building Voids
- Space Classification F: Other Rooftop Areas, Unenclosed Connectors, Decks, and Plazas
Measuring an office building using the BOMA Office Standard
In order to understand how this standard works, we need to make two important definitions: Usable Area and Rentable Area
Usable Area
Usable area is the physical area that tenants can use to conduct their business. This is space to locate desks, working stations, furniture, equipment and personnel. The usable area is measured from one of three points:
- The office side of the common corridor wall
- The inside of the external wall of the building
- The middle of partition wall, separating two adjacent tenant spaces
The usable area does not include: restrooms, elevator shafts, fire escape stairwells, public corridors, janitor rooms, maintenance rooms and other functional areas that are not available for business purposes.
Many tenants will make the assumption they are paying only for the usable area and don’t need to care about all the deductions listed above. And they will be wrong.
All these common areas are an integral part of the building. You can’t have a roof if there are no walls and you can’t run an office if there are no toilets, electricity or running water. The landlord has no choice but to pay for building and maintaining these areas, so the law gives them the right to include them in the rentable area.
Rentable Area
Rentable area is all the interior space of the building, except for the elevator shafts and fire escape stairwells.
The rentable area is measured from the:
- Inside surface of the exterior building wall
- Office side of walls of major penetration – stairs, elevators, escalators, flues, pipe shafts, and vertical ventilation ducts
Since the last update in 2017, the BOMA Office Standard now also lists balconies, terraces, and roof spaces as rentable space, because these amenities are highly desirable by office workers for resting.
The majority of commercial leases are structured based on the rentable area of a building and this creates the need to define one more parameter – load factor.
Load Factor
The load factor of a building is simply the percentage difference between the rentable and usable space. When the building is leased to a single, this calculation is very easy to make. If there are multiple tenants sharing the building, then the load factor is calculated based on their respective shares of rentable space.
We have a separate guide about Understanding Core Factor, Loss Factor and Load Factor
BOMA Standards also use another metric, called the R/U Ratio. This the ratio of rentable space to usable space and you calculate it by dividing the former with the later. You get a number like 1.03 or 1.17. The higher this number is, the more rentable space is lost to common and service areas. So, as a tenant, it’s beneficial to look for a building with a lower R/U ratio.
Why should you care about building measurements
Tenants who are not aware of these building measurement standards could make the mistake of renting an inadequate space for their business, assuming that all rentable space is available for use, or paying much more than anticipated to rent the space they actually need.
It’s critically important to discuss and verify with the landlord which building measurement method is used to define the area. Before signing the lease, it’s recommended to have the building measured by a professional surveyor to verify the numbers provided by your landlord.
These extra steps will help you avoid confusion, disappointment and potential disputes with the landlord.
