Lease Structure

Identification and description of the property (e.g., type - office, retail, etc. - size, location, land parcel details) that is the subject of the Lease and most importantly the portion (“Premises”) and proportion (“Pro-rata Share” percentage (%)) of the Property to be leased by the Tenant. Each property type poses a different challenge for auditors and provide different opportunities for errors, misapplication and interpretation.  The higher the number of types in a single property, the greater the complexity of administration and accounting for the costs of operation and therefore, the greater the possibility that errors would occur.  As such, an auditor should understand the types of costs that are typical for the different types of properties.

Schematically, a Property can be segregated into three (3) parts namely: premises (leased by tenants), common area (physically used in common by tenants, occupants and guests) for no fee and base building (areas used by the building and the landlord to serve the premises and the common areas).  Functionally, for Rent payment purposes, there are two (2) major segments: (1) usable area (“UA”) and (2) rentable area (“RA”), both of which are within the gross area (“GA”) (wall-to-wall without regards to functional characteristics).  The UA is the part of the Property that includes the floor areas of premises, but excludes all common and base building floor areas of the Property (including the premises), columns, conduits, stair wells, mechanical, common area lobbies, etc.  A UA’s size is always smaller than, or equal to, the corresponding RA’s size and can be converted to the RA size by multiplying the UA size by a “common area” or other factor which represents the numerical ratio of the internal/enclosed non-premises area (usually common area) to the entire internal/enclosed area of the Property.  If the common area is 20% of the property, the common area factor is 1.20. As such, a UA of 1,000 square feet will convert to a RA of 1,200 square feet.  In most Leases, the RA is what’s used to represent the size of the Premises or the enclosed area of the Property.  UAs are more common in warehouse and industrial properties than they are in office properties.