Use ‘Deemed’ Not ‘Approximate’ Square Footage Amount in Lease

Sometimes a tenant may demand that you describe its space in the lease by a square footage amount. If you agree to this, you may describe the space as being “approximately” a certain square footage to avoid being pinned down to an exact amount. But using the word “approximately” can cause you problems if the tenant later challenges your calculation of the square footage, warns New York litigation attorney Joshua J. Grauer. A court could rule that you misrepresented the amount of space in the lease, and potentially could reduce the tenant's rent and operating expenses (or CAM costs) to reflect a lower actual square footage or force you to give the tenant rent credits, he says.

‘Approximate’ Amount Weakens Owner's Position

Grauer represented an owner whose lease said that the space's square footage was “approximately” a certain amount. The tenant sued the owner, claiming that it was overpaying its rent and CAM costs because the approximate square footage amount stated in the lease was higher than the actual square footage. The tenant demanded that the owner return part of the rent and CAM costs it had already paid. The tenant claimed that the owner misrepresented the actual amount of space. It also claimed that it hadn't negotiated the approximate amount with the owner, but rather agreed to the rent based on that square footage. According to the tenant, it later learned that this amount was off by more than 1,000 square feet. After the court refused to dismiss the case before the trial started, the parties settled for a nominal amount. If the case had gone to trial and the owner had lost, it would have been devastating—probably hundreds of thousands of dollars in rent credits and deductions would have been due the tenant during the rest of the lease, Grauer says.

Solution: Use ‘Deemed’ Square Footage

A better approach than stating an approximate square footage is to say that the square footage is “deemed” to be a specific amount, says Grauer. The word “deemed” shows that you and the tenant agreed to the amount regardless of what the actual amount is, he says. Then, if the space turns out to be smaller than the agreed-upon size, the tenant won't be able to claim that you misrepresented the size, he explains.

To “deem” the square footage for the space, Grauer recommends including the following language in the lease clause describing the space:

Model Lease Language

For purposes of this Lease, the rentable square footage area of the Premises shall be deemed to be [insert #] square feet.

Two New York cases show how using this lease language to describe the tenant's space can help if there's a dispute with the tenant.

Case #1: The lease stated the square footage because of the way the tenant paid rent increases. The lease said that the square footage of the space was “deemed to be 660 square feet.” When the owner tried to evict the tenant, the tenant claimed that the owner had misrepresented the size of the space—that it was only 414.22 square feet. The New York court ruled that the owner hadn't misrepresented the size of the space. The court noted that since the lease said that the space “will be deemed to be 660 square feet,” the parties had agreed to that amount, despite the actual size of the space [Wohl v. Owen].

Case #2: A lease said that the building was deemed to be 145,000 square feet. This figure was used to calculate the tenant's share of operating expense escalations. The tenant argued that it was overbilled, because the building was actually 150,000 square feet (which would have reduced the tenant's share of operating expenses.) The New York appeals court dismissed the tenant's overbilling claim. It said that the use of the word “deemed” in the square footage description amounted to an agreement between the owner and the tenant that the building would be considered 145,000 square feet, “regardless of the building's actual size” [S.R. Leon Co., Inc. v. Towers].

CLLI Source

Joshua J. Grauer, Esq.: Partner, Cuddy & Feder & Worby LLP, 90 Maple Ave., White Plains, NY 10601-5196; (914) 761-1300.