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In the Spotlight: Square Footage in Leasing Transactions

By Sam Walker and Abigail Lamb

Square footage is an important concept in leasing because, more often than not, the agreed-upon amount of square footage in a leased premises will dictate the economic terms of the deal, including the base rent and the operating expenses and taxes (so called CAM or OpEx) owed by a tenant. In determining base rent, landlords and tenants often agree to pay fixed rent on a cost per square foot. Additionally, with respect to the CAM or OpEx, tenants generally pay their percentage share, which is determined by dividing the square footage of the tenant's premises by the total square footage of the building.

Since all of the economic terms are tied to square footage, it is critical that tenants and their attorneys understand how such square footage is calculated. For example, a tenant may believe that it is getting a fair rental rate per square foot for the leased space, but not realize that the square footage of the premises is inflated to include space beyond the four walls of the premises. Although the focus is often on the rate that a tenant will get per square foot, tenants and their attorneys should also pay close
attention to how the square footage of the premises is actually measured in the lease, because it is often not as simple as one might believe.

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