An add-on factor is a term that is often used in real estate circles and refers to the difference between the space that is considered rentable by the tenant and any space within the building that is considered unusable in terms of being limited to the private use of a single tenant. Rentable, or usable, space is generally considered to be the area that the tenant is able to use freely without sharing the space with other tenants, while any other space that is considered common areas of the facility will be part of the add-on factor. Generally, the rent or lease payments that tenants agree to pay focus mainly on the rentable space while also taking into consideration this factor as a means of allowing limited use of the common spaces.
A basic formula used to calculate the add-on factor calls for identifying the total amount of usable square footage within the building as well as the amount of footage that is considered rentable. Typically, the usable footage is divided by the rentable footage to determine the ratio. This ratio can then be used by the owner to set rental rates for individual units within the space.
Since the add-on factor has to do with both space that is available for renting or leasing as well as space that is considered a common area, it can be helpful to define what is mean by common space. This is typically one or more areas of the building that are not directly leased by tenants, but is still available for common use. This includes the space set aside for stairways, elevator shafts, front lobbies, and even the hallways that are used to reach each of the rental units within the building. While none of the tenants have exclusive use of those spaces, they are used by tenants regularly, and are accounted for when calculating the cost of renting or leasing space within the building.
Determining the add-on factor is helpful for both owners and tenants. For owners, identifying the footage involved in the non-rentable areas of the building makes it easier to allocate an additional percentage to each of the rental units within the building as a means of covering the costs of upkeep on these common areas. Tenants can also make use of this type of space assessment, since it can have an effect on the amount of the monthly rent or lease payment. From there, the tenant can determine if the additional cost is equitable or if seeking rental space in a different facility would be a good idea.
