To: Our Clients and Friends

From: Herbert S. Ford, Esq.

Date: January 2010

RE: Frequently Asked Questions about the leasing of office or industrial space


With the New Jersey office market continuing to suffer modest vacancy rates as businesses consolidate; here are some of the questions our clients want answered as they consider moving to higher quality space.

Question: My current space is no longer adequate.  How long in advance of my current lease expiration date should I start to look for new space?

Answer: Start looking as soon as soon as you realize that current space will become inadequate for your company’s needs, but not later than one year prior to your current lease expiration.  Depending on the economics of your new lease, your new landlord may assume your old lease obligation to induce you to sign a new lease.  Also, the negotiation of leases and planning and construction time for new space requires from four to six months to complete when you have decided on your new location.  So you always want to leave adequate time to comparison shop for space before starting the negotiation process over the fit up costs.

Question: Should I use a tenant’s leasing broker for my search?

Answer: Yes.  While the landlord will pay the broker, no landlord will reduce your rent if you approach the landlord without a broker.  More importantly, professional commercial real estate brokers know the going rental rate, concessions and other deal terms available in the marketplace. This is invaluable information unavailable from any other source.  If you do not know reputable leasing brokers, we can give you the names of a few to interview before you make your decision.

Question: What is the difference between a gross lease and a net lease?

Answer: A gross lease is the kind that most office buildings use.  You have a fixed rent per rentable square foot that includes the costs of operating expenses, insurance and real estate taxes for your base year (usually your first calendar year.)  After the base year, you pay your pro rata share of increases in operating expenses, insurance and real estate taxes.  In a net lease, you pay rent based on your rentable square feet of space and you also pay your pro rata share of all operating expenses, real estate taxes and insurance.  With a net lease, from the commencement date, the Landlord will invoice you monthly for the additional costs and as they increase, you pay those increases.  You can compare gross and net lease costs by finding out the current estimated cost per square foot for operating expenses, real estate taxes and insurance for a net lease including the net rent and compare that to the gross rent quoted for a gross lease.

Question: What is a “rentable” square foot of space?

Answer: This is mostly applicable to office buildings.  Every office building has a loss factor for lobbies, elevators, toilet facilities, corridors, mechanical systems and other common areas within the Building shell.  If the landlord only invoiced the tenants for the usable square feet, then the landlord would not be earning rent on these areas of the building that service the usable areas.  Rather than increase the rent to compensate for this loss, landlords gross up usable space by increasing it by the loss factor.  Therefore, if a building has a 10% loss factor (i.e., 10% common areas), and if you rented 10,000 usable square feet, you would be leasing 11,000 rentable square feet.  When you measured the space, it would only be 10,000 square feet of interior space, but you would calculate your rent on the 11,000 square feet of rentable square feet.  Every building has a different loss factor so it is important to learn that and to also determine how much “rentable” square feet your business may require in each building that you are considering as some buildings lay out better than others based on the size of their bays and window configuration. 

If you have other question about the above or any aspect of leasing, please feel free to contact: Herbert S. Ford, Esq.