June 16th 2025
Square footage. It’s an important parameter in real estate. Both in residential and in commercial. In residential, square footage is an important factor when it comes to computing value. You see two properties on the market. Both 3 bedroom bungalows. All things being equal: location, condition, amenities. But the one is 1,040 sq. ft. in size, the other 1,200 sq. ft. The larger bungalow should be worth more. Realtors and appraisers when doing an Appraisal or Competitive Market Analysis (CMA) compute value by comparing similar properties that have sold recently and make adjustments for condition, location, amenities and size. And even when using the cost approach, builders have a general cost per sq. ft. they go by factoring in quality of material, whether custom grade or spec grade. A lot of Boards require sq. footage be included in the listing information. It is helpful to salespeople and buyers alike.
But as useful as sq. footage is in evaluating value in residential real estate, it is even more useful when it comes to commercial real estate, not so much as a measuring stick for value as for rent being charged.
Generally speaking, commercial space is rented out on a cost per sq. foot basis. And in addition to the base rent, because most commercial space is rented on a triple net basis with the tenants paying TMI as additional rent, this too is charged back on a per sq. ft. basis. So, two spaces, side by side in a strip plaza for example, one being 1,500 sqft and the other 2,000 sq. ft., the larger space will pay 1/3 more than the smaller one, both in base rent and in additional rent covering taxes, maintenance and insurance.
And so, accurate measurement of commercial space becomes critically important. And it can be a little tricky. With residential property, square footage measurement is simply the exterior of the building. And while it can be somewhat convoluted with 1.5 storey properties and structures like tri-levels, with commercial space there are a number of factors to take into consideration. For example, when measuring the space, you measure to the inside surface of exterior walls unless they are at least 1/2 glass. In that case you measure to the glazed surface. And when it comes to the demising wall between two adjacent tenants, the measure goes to the middle of the wall. In cases where there is some common space such as a mezzanine, hallways, washrooms, etc. these too have to be taken into consideration. The rentable area for each tenant is 
comprised of their useable area plus their proportionate share of the common area. These have to be measured as well.
Because each square foot is a factor in the rent charged, it is important to get it right. When a landlord advertises a space as 1,500 sq. ft., is it exactly 1,500? Or is it 1,483? Or is it 1,511? How is it established and what if the landlord and tenant don’t agree. Can it be challenged?
The Standard O.R.E.A. (Ontario Real Estate Association) Commercial Agreement to Lease contains this clause:
| “The fixed minimum rent shall be adjusted if the actual measurement of the leased premises differs from the approximate area. The actual measurement shall be agreed upon and failing agreement, calculated by an Ontario Land Surveyor/Architect using the current Building Owners and Managers Association standard form of measurement and shall be binding on both parties.” |
I’ve seen heated arguments between landlords and tenants erupt over sq. footage. After documents have been signed and keys have been provided. That’s never good. And no one looks forward to the expense of Architects or Surveyors. So, there’s a simple process I’ve followed when renting out my own commercial space that has served me well.
The first thing I do is cross out the aforementioned pre-printed clause in the O.R.E.A. Agreement to Lease. Then I replace it in the body of the Offer to Lease as well as in the actual lease document with this clause:
| “While the rent for the demised premises was promoted on a cost per sq. ft. basis, it is understood and agreed that if there is any discrepancy between the sq. ft. calculations and the gross rental figures stated in the lease, the gross rental figures shall prevail.” |
So, what I’m saying is “Look. You’ve seen the space. You know what you are getting and you know the cost. If you are interested, this is what it is.” They look at the space. They know the cost being charged. And this is what we are agreeing to. Tenants understand it, and there has never been a problem. I calculate the space to a rounded number maybe 1,650. It’s possible I’m out a few feet either way, everybody understands that and it removes the possibility of an argument later, because we’ve dealt with a potential problem up front.