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What Is an Add-On Factor?

Malcolm Tatum
By
Updated May 16, 2024
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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.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum , Writer
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

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Discussion Comments

By Fa5t3r — On Dec 23, 2013

@KoiwiGal - I don't actually think anyone would notice though. It's common enough for something to be relatively cheaper per unit of space when it gets bigger, so people renting bigger places are probably not going to be paying as much per square foot as people paying for smaller places (all other things being equal of course).

Every building has to maintain the public spaces and that money has to come from somewhere. So it's always been a part of the rent, one way or another.

By KoiwiGal — On Dec 23, 2013

@Iluviaporos - I have to say that would annoy me far less than the fact that they calculate rent by adding on all the common areas. I mean, I very much doubt that they do that in a way that is fair, which means that a smaller place is going to end up paying a relatively bigger percentage of their rent to the general building.

Since you will probably have fewer people in a smaller place, then it's really not fair that they have to pay more than people who have a bigger place.

I mean, I feel like access to stairs and elevators should just be taken for granted. And anything extra like gardens and that, should be optional and you only have to pay for them if you want them, like parking spaces often are.

By lluviaporos — On Dec 22, 2013

It's particularly nice when there is a bit of add-on space that can be used as a garden. It's so difficult to find room for a garden when you live in an apartment in the city and I would definitely look twice at any place that had either a balcony area for pots, or even a little bit of space for each tenant to grow their own food or flowers.

Malcolm Tatum

Malcolm Tatum

Writer

Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
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