The GLA should refer to the entire property, including the space that each tenant occupies, and any common or shared areas, such as parking lots, restrooms and hallways. The GLA is the denominator in the equation the landlord will use to determine a tenant’s proportionate share of any shared costs. The numerator will be the square foot measurement of the premises the tenant is occupying. This formula will be used to determine how much any is tenant’s share of taxes, insurance, and common area/operating expenses (individually, each of these are referred to as a “net”) that it will pay under its commercial real estate lease.
Sometimes, the landlord will determine that there is a usable or rentable size vs. the leasable area in reference to calculating the tenant’s contribution. This is another way of breaking down the GLA vs. the size of the tenant’s premises, and the difference is the number the landlord uses to calculate the tenant’s proportionate share of the shared costs, or nets.
So, tenant will pay a proportionate (or pro rata) share of the NNN commercial lease expenses. The numerator is the rentable or leasable square foot measurement, and the denominator is the GLA, or the leasable area of the property, such as an office building or shopping complex.
GLA Formula
For example, if the tenant occupies 1,000 square feet within a 10,000 square foot shopping center, or office building, then 1,000/10,000 = 10%. The tenant’s proportionate share of any shared costs is ten percent.
The GLA can change. The landlord could add or take away parking, reconfigure the shopping center, or construct new buildings or demolish old ones. The tenant’s rentable square feet won’t change , but the GLA does, so this change in the denominator changes the calculation under the equation, which could increase or decrease the tenant’s proportionate share of costs.
Also, a large tenant might pay a cost directly, so it would be excluded from the GLA calculation. If a large grocery store or big box chain decides to be responsible for maintaining the parking lot its customers use, then it will pay to repave that part of the parking lot, but the other tenants will split the cost of the remaining parking area. There’s less area to repave, but there are also less tenants to share the cost.
Finally, the size of the premises might change , because a tenant adds on additional space as it become available, or relocates within the building to a space of a different size, for example. Then the numerator of the equation would change, which would again affect how much NNN cost the tenant pays.
GLA Calculation
The GLA calculation is very important, especially in a retail setting. If a tenant is in a particular location because of the foot traffic or the accessibility to its client base, the tenant is counting on the other tenants in the shopping center to pull their weight and attract the foot traffic and customer dollars. If a tenant, or many tenants, don’t renew their commercial leases and leave the complex, and the occupied amount of the GLA falls below a certain percent, there could be a reduction in that customer traffic, which in turn reduces the gross sales that the remaining tenants can make. So, if the tenant counts on customers walking in the door, be sure to ask for a rent reduction or a termination right if the occupied GLA falls below a certain amount, or if a key anchor tenant leaves.
Don’t confuse gross leasable area with gross sales or a gross lease. A gross lease is all-inclusive; the tenant pays one flat price and doesn’t separately pay its proportionate share of the triple net costs. Gross sales are the total amount of sales from the tenant’s premises.
It’s a lot of definitions, but The Law Office of Jenna Zebrowski, PLLC knows all of them and can help control your commercial real estate costs, so schedule a no-obligation discovery call today!
