3. WHAT WILL THE COSTS BE?

The cost of space will be a combination of your "base rent" and any "escalation provisions" associated with your base rent. These are figured on the basis of footage. However, because square footage is often approximated, landlords are sometimes unwilling to state it in a lease. It is used simply for negotiating a business deal (a lease).

Square Footage
Two important terms are usable and rentable square feet. Usable footage is the floor area within the exclusive control of the tenant. Rentable footage is determined by adding usable footage to the tenant's proportionate share of the common areas of the building. Methods of calculating rentable square feet vary from building to building. The difference between the usable and rentable footage, expressed as a percentage of the rentable footage, is the loss, or load, factor.

Try to locate a building with the smallest loss factor possible, since rent is usually based on rentable square footage, and ask the landlord to include a floor plan with your lease. Loss factor is not the only important factor, it is more important that the building suit your needs. You or your architect may wish to measure the actual rentable and usable square footage for verification, so that it matches "1996 BOMA" - the standard measurement method for all commercial buildings In some instances, however, 1996 BOMA measurements will actually increase the amount of common area counted in the rentable square footage, so always consult your architect. Don't be afraid to bring a roll of measuring tape with you when looking at spaces.

The quoted rental generally does not include electricity costs, cleaning services or future increases stemming from escalations (see question 4, "Will the monthly costs rise over the term of the lease?"). In addition, as mentioned earlier, the base rent, additional escalations and the cost of alterations are typically determined through negotiations.

Base Rent
Office space in San Francisco is generally quoted at a price per rentable square foot of space per year. The quoted rental generally does not include electricity costs, cleaning services or future increases stemming from escalations, but variations of this rent structure are common. In Class A, high-rise office buildings, the quoted rent is often inclusive of all operating costs and does not include annual escalations. In more industrial-type buildings in SOMA, Potrero Hill, etc., rental rates are often quoted on a triple-net (NNN) basis, meaning the rental rate does not factor in real estate taxes, insurace, or operating costs. Depending on a number of variables, base rent may or may not begin on possession (see below) and may not include the cost of alterations.

Questions to ask about base rent include:

1. What is the base rent and what services are included in the base rent?
2. What are the rentable and usable square footage areas to be covered under the leased premises? What is the base rent per usable square foot?
3. What maintenance and repairs does the base rent include? Is a complete schedule of cleaning specifications attached to the lease? How often will the windows be washed -- both inside and outside? Are soap and towels provided in the toilet rooms free of charge?

Electricity charges
In addition to rent, the tenant is responsible for the cost of electricity. This is measured in one of three ways: directly metered, submetered, or rent inclusion.

Under direct metering, the tenant pays the utility company directly for the electricity.

Under submetering, the tenant's electrical usage is measured by a meter, and payment plus a service fee or "markup" is made to the landlord. Different properties are submetered at different rates.

Under rent inclusion, electrical consumption is based on a price per square foot which is mutually agreed to in the lease. In addition, both the landlord and the tenant typically retain the right to survey the tenant's electricity usage which can result in a change if the tenant has extraordinary changes in usage.

Questions to ask about electricity charges include:

1. Can the tenant get direct or submetered electricity?
2. Will the electricity be charged on a square foot basis and added to the rent?
3. How is the electricity usage surveyed and what control will the tenant have over the survey?
4. If electricity is included in the base rent, will the tenant be charged additionally for air conditioning?
5. Upon what are the landlord's charges for electricity based?
6. Are the building's tenants in effect paying for all the electricity charges of the building, including power for elevators and public areas?
7. What are the after-hours charges for air-conditioning, if any?

Real estate taxes
As a tenant, you pay your proportionate share of the difference between the current year's real estate taxes minus the base year's real estate taxes. While you are a nonprofit, you will only be exempt from real estate taxes if the building is owned by a nonprofit organization which has applied for and received exemption for the facility (currently, for-profit building owners cannot get exemptions for the portions of their properties occupied by nonprofit tenants). The actual tax is determined by multiplying the assessed value of the building by the local tax rate.

Questions which you may wish to address are (also see "Real estate taxes" section in question 4, "Will monthly costs rise over the term of the lease?"):

1. How is the tenant's proportionate share determined?
2. As buildings are currently assessed based on an income and expense statement, what is the occupancy rate of the property?

Overtime services
Some commercial buildings do not provide basic services during the evenings and weekends, such as heat, air-conditioning, porters, and security -- including 24-hour access or even "full service" buildings. Tenants are typically charged a surcharge to keep these buildings open after hours. If your agency is one that requires overtime services, be sure to negotiate this into your lease, including charges, if any, or check the normal hours of operation.

Hidden extras
A landlord is sometimes obligated to provide certain building services such as heat, air conditioning, cleaning, security, elevators, and reasonable hours of access. However, some of these may be hidden extras in the lease:

Air conditioning
Be sure to find out who controls the heating, ventilation and air conditioning (HVAC) services in the building. If you are not in control, find out if these services are available at all hours. If your floor or office has its own central air-conditioning unit or window units, find out who is responsible for maintenance. You may have to pay for an annual maintenance contract.

Make sure this and other utilities are in good working order before moving in. Find out whether the system is air- or water-cooled. Air-cooled systems are more flexible, particularly if you have lots of evening and weekend activity. While quieter and generally more efficient, you may not be able to control a water-cooled system after hours. It may be subject to city drought emergency rules, and its use may be restricted. Depending on your needs, you may want to install air conditioning for certain parts of your space if your building does not provide it.

Cleaning and other services
Find out what services are included, if any, such as cleaning, repairs, security, etc. Expect to pay 12 - 15¢ per square foot extra each month for cleaning services and garbage removal, and possibly for a security alarm system as well. Sometimes you can get the owner to include cleaning services and/or garbage removal in the rent, but this reduces your control over the quality of service. If you are a very small tenant you may elect to handle cleaning on your own.

Insurance
You will be required to take out property and fire insurance, often a very high amount, and make the landlord a co-insured. Be sure you have enough coverage to protect yourself, but consider negotiating a reduction in the required coverage.

Security Deposits
Be prepared to provide at least 2 months' rent for security (sometimes as much as a year's rent is held for security), perhaps more if your credit is weak, funding shaky, or the landlord will be doing renovations. This will be held by the landlord until the conclusion of your lease and is his "protection" against your lack of rental payments and/or destruction of his property. The landlord might ask for more money to increase the security deposit as rent increases, although you'd prefer to avoid this if possible.

Hours
If your staff needs to work evenings or weekends, it will be important to find out if the building is normally open during those hours. If this happens only occasionally, you may have to pay extra to keep it open. If you consistently work odd hours, find out if arrangements can be made for you to have access to the building.

Other Extras
Look out for hidden clauses in the lease which charge you extra monthly costs for water, sprinkler systems, sewers, etc.

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