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It's all in the measurement... 

By the Commercial Real Estate Group at Clark Wilson LLP
July 5, 2004

For almost 100 years, the Building Owners and Managers Association has sponsored a Standard Method for Measuring Floor Area in Office Buildings. The BOMA "standard" has undergone a number of revisions over the years but remains a widely recognized industry standard for measuring the amount of "rentable area" in an office building.

The BOMA standard has been amended in response to changing architectural designs and leasing concepts. Today, there are two BOMA standards prevalent in the commercial real estate market. The BOMA standard released in 1980 is commonly referred to as "BOMA 80" and the BOMA standard released in 1996 is commonly referred to as "BOMA 96".

Under BOMA 80, "rentable area" of a tenantís premises is comprised of the aggregate floor area occupied by such tenant and a share of the unallocated areas on the same floor. Under BOMA 96, the Landlord is permitted to include not only a share of the unallocated areas on the same floor, but also a share of all of the common areas of the entire building. A tenantís rentable area under BOMA 96 will therefore include a proportionate share in spaces such as lobbies, exercise facilities, storage rooms, conference rooms, loading docks, utility rooms and any other areas in the building that can be said to benefit the tenants generally.

Simply put, if rental rates remain the same, a tenant will pay more basic rent under BOMA 96 than BOMA 80, perhaps considerably more. In a report at Globeinvestor.com, Toronto area surveyors reported that they have seen gross up values on common areas increase anywhere from 5% to 15% with BOMA 96.

The genesis of BOMA 96 is rooted in the general trend of office building design towards providing larger common areas, for which the landlord should be compensated. BOMA 96 effectively accommodates this additional common space in the building and reflects it in rentable area.

A change in measurement, of course, does not necessarily mean that a tenant will pay more total rent. Market factors will govern notwithstanding the method of measurement. As with any lease negotiation, as long as the parties understand what is and is not included in rentable area, the tenantís recognition that the BOMA 96 standard is being used to measure their premises may provide the tenant with some leverage to negotiate for a reduction in face rents.

It is estimated that less than 20% of the Vancouver market has converted to BOMA 96 (as opposed to an estimated 60% in Toronto). As a result, it is difficult to currently measure the impact, if any, on rents in Vancouver.

Anne Tanner, a Commercial Office Leasing Agent at Royal Lepage Commerical , has expressed the view that as the commercial real estate market heats up, more of the Vancouver market will move to BOMA 96. According to her, "the office leasing market in the Downtown core has a vacancy rate of 11.7%Öthe vacancy rate will decrease over the next year and a half to 9.82%. As the vacancy rate decreases, landlords will gain more leverage in the marketplace." With this increased leverage, we should expect a move to BOMA 96 on new leases.

Sandy Cruickshank Regional Manager of Royal Lepage Commercial, reports that some buildings are operating with both BOMA 80 and BOMA 96 in effect. During the transition period from BOMA 80 to BOMA 96, it will be necessary to use both, as leases come up for renewal or expiry. Landlords might well consider including re-measurement clauses in their leases, and whether adopting BOMA 96 is possible upon renewal.

In any event, reliance on a standard like BOMA provides greater certainty for everyone.

(with research from Mike Jaworski, Articled Student)

 

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