Understanding Office Space Electricity Costs

3 Ways Electricity is Billed to Commercial Tenants

• Rent Inclusion

  When landlords bill tenants with rent inclusion, they charge tenants monthly electricity at a fixed amount per square foot.​​ When electricity is billed as rent inclusion, energy costs are modestly marked up, and the landlord may make a small profit.

  Energy costs for spaces smaller than 2,500 SF are usually billed as rent inclusion, so smaller tenants tend to receive this billing method. It simply does not make economic sense for a landlord to install separate electric meters in small spaces.

• Direct Electricity

  Direct electricity is typically the most cost-effective electricity billing method. This method permits the tenant to buy electricity directly from the utility company, so they pay for exactly the amount of electricity they use. However, an electricity meter must be present in the space for this to be an option.

  Full floors or large commercial spaces always have electricity meters, and spaces in loft buildings or former manufacturing buildings also tend to.

• Sub-meter

  Under this method, the demised space has its own electric meter, which the landlord reads monthly. The landlord bills the tenant for the electricity consumed plus an administrative fee ranging from 5% to 20% of the base electricity costs.

  In some cases, the landlord of a large building may be able to negotiate better rates with the utility company than a tenant could. Thus, despite the administrative fee, it’s still relatively cost-effective.