How Will Electricity Be Charged Under Your Office Lease?

Direct metering, submetering and rent inclusion can look like utility details. They can materially affect lease economics and operating costs.

Originally published September 2011. Updated October 2026 to reflect current owner-side considerations when evaluating electricity provisions in an office lease.

When evaluating office space, electricity can seem like one of the smaller items in the lease.

The lights will turn on. The computers will work. The monthly bill will get paid.

But how the tenant is charged for that electricity matters.

The three arrangements commonly encountered are direct metering, submetering and rent inclusion. The terminology sounds straightforward, but the financial implications can be different depending on the building, the lease language and the tenant’s actual electrical requirements.

The question I would ask isn’t simply:
“How much does electricity cost?”

It’s:
“How will we be charged for what we use?”

Direct Metering

With direct metering, the tenant’s electrical consumption is separately metered and the tenant typically purchases electricity directly from the utility or energy supplier under the applicable arrangement.

Conceptually, this is the cleanest structure.

The tenant can see its consumption and the charges associated with it without the landlord calculating a separate electricity charge.

But direct metering isn’t necessarily available for every space.

The building’s electrical distribution and metering configuration matter. A full-floor or large tenant may be easier to meter independently than a smaller tenant occupying a portion of a floor.

That is something worth determining during due diligence rather than assuming during lease negotiations.

Submetering

With submetering, the tenant’s electrical consumption is measured separately, but the landlord typically purchases the electricity and then charges the tenant according to the provisions of the lease.

That distinction matters.

The meter may tell you how much electricity you used.

The lease tells you how much you pay for it.

The electricity clause should therefore be reviewed for more than the presence of a submeter.

• What constitutes the landlord’s cost?
• Is there an administrative charge or other markup?
• How are utility rate changes handled?
• How frequently is the tenant billed?
• Can the tenant review the underlying calculations or supporting information?
• What happens if the meter fails or the accuracy of the reading is disputed?

Those are commercial questions, not electrical-engineering questions.

Rent Inclusion

Under a rent-inclusion arrangement, electricity is incorporated into the rent or charged as an additional amount established under the lease rather than billed directly from the tenant’s measured utility consumption.

That may make the monthly charge predictable.

It doesn’t necessarily mean the charge remains unchanged throughout the lease term.

The lease may provide mechanisms for adjusting the amount based on changes in electrical rates, connected load, hours of operation, equipment or the tenant’s use of the space.

That makes the assumptions behind the original charge important.

An office designed around laptops, LED lighting and ordinary business equipment may have a very different electrical profile from a workplace with supplemental HVAC, production equipment, significant audiovisual systems, dense technology or other high-demand uses.

The tenant should understand what electrical use the lease assumes—and what happens when actual operations exceed it.

The Lease Provision and the Electrical Design Need to Agree

This is where an apparently financial issue becomes a project issue.

The lease may establish one set of assumptions about the tenant’s electrical requirements while the design team develops another.

Perhaps the tenant requires additional panels.

Perhaps supplemental HVAC introduces new electrical loads.

Perhaps a technology room, trading operation, production function or specialized equipment changes the demand.

Perhaps the landlord’s base-building service simply doesn’t provide the capacity the tenant expected.

Those conditions can affect more than the monthly electric bill.

They can affect the design, construction cost, schedule and even whether the space can support the intended operation.

Before the lease is finalized, I want the project team to understand both sides of the equation:

What electrical capacity does the tenant require?

and

How does the lease say the tenant will be charged for it?

Don’t Use an Old Rule of Thumb

When I originally wrote about this subject in 2011, it was common to discuss office electricity using rough per-square-foot benchmarks.

I wouldn’t rely on those numbers today.

Rates vary by utility territory, building, tariff, supply arrangement and time. More importantly, workplace electrical demand has changed.

The better approach is to evaluate the actual space, the proposed lease language, available historical information and the tenant’s anticipated operations.

If the economics matter to the transaction, model them.

A seemingly small difference in an electricity provision can compound over a long lease term.

Understand the Provision Before You Price the Deal

Electricity clauses can easily get pushed behind the larger transaction issues—rent, term, concessions, tenant improvement allowance and commencement.

But the electrical provision is part of the occupancy cost.

And the building’s electrical infrastructure is part of the project’s feasibility.

That makes this a good example of why lease negotiations and project planning shouldn’t operate independently.

• The broker may negotiate the economics.
• The attorney may document the provision.
• The engineer may determine the electrical requirements.
• The project team may identify infrastructure upgrades.
• The tenant knows how the business intends to operate.

Someone still needs to connect those conversations.

Before accepting an electricity provision, I would want a clear answer to three questions:

How is our consumption measured?

How is our charge calculated?

Does the building have the electrical capacity our operation actually requires?

If those answers are clear before the lease is signed, electricity remains what it should be: an operating expense rather than a project surprise.