How Do Electricity Charges Work in NYC Office Leases—Submetered vs. Rent Inclusion?
Why Electricity Billing Confuses Tenants
For Manhattan office tenants, one of the most confusing (and overlooked) sections of a lease is how electricity is billed. Unlike base rent, which is clearly stated per square foot, electricity charges vary widely depending on whether a building uses submetered billing or rent inclusion.
Get this wrong, and you could end up paying $2–$4 per square foot more than you expected, or thousands extra in annual pass-throughs.
Rent Inclusion: The Flat-Rate Model
How it works:
With rent inclusion, the landlord adds a fixed electricity factor on top of base rent—typically $3.00–$4.25 per RSF annually—to cover electricity for lighting, outlets, and normal business use.
Example:
- Tenant leases 10,000 RSF at $70/SF = $700,000/year base rent.
- Add rent inclusion at $3.75/SF = $37,500/year.
- Total = $737,500/year (regardless of actual usage).
Pros:
- Easy to budget—same charge every month.
- No surprises from seasonal usage or heavy IT loads.
Cons:
- Heavy users (trading desks, media firms, design shops with high electrical load) can “win” by paying less than actual cost.
- Light users (law firms, nonprofits, small consultancies) often overpay, subsidizing heavier tenants.
Submetering: The Pay-for-What-You-Use Model
How it works:
Landlord installs a meter (or submeter) to measure a tenant’s actual electricity consumption. Tenants pay monthly based on usage, often at Con Edison’s commercial rate plus a small administrative surcharge (5–15%).
Example:
- A 7,500 RSF tenant with modest IT and lighting bills uses ~20,000 kWh/month.
- At $0.23/kWh (including surcharge), monthly bill = ~$4,600, or ~$0.74/SF.
- Annualized, that’s ~$8.90/SF usable (or ~$6.50–$7.00/RSF after adjusting for loss factor).
Pros:
- Fairness—light users save money.
- Transparency—actual bills reflect consumption.
- Efficiency incentive—tenants who conserve benefit.
Cons:
- Monthly bills can fluctuate, harder to forecast.
- Landlord surcharges add hidden cost.
- Heavier users (e.g., trading floors, call centers) can end up paying well above flat-rate inclusion.
Comparative Cost Ranges in 2025
- Rent Inclusion: $3.00–$4.25 per RSF annually, fixed.
- Submetered: Wide variance; light users ~$2.00–$3.00/RSF, heavy users $5.00–$8.00+/RSF.
Case Study:
A 10,000 RSF Midtown East law firm paid $36,000/year under rent inclusion ($3.60/SF). After relocating to a submetered building, annual bills dropped to ~$24,000 ($2.40/SF)—a savings of $12,000.
By contrast, a 12,000 RSF hedge fund with 24/7 trading desks saw submetered bills of ~$90,000/year ($7.50/SF), far above the inclusion rate.
Tenant Negotiation Strategies
- Ask Up Front: Clarify whether electricity is rent-inclusion or submetered before signing LOI.
- Negotiate Caps: With submetered billing, push for a cap on landlord surcharges (no more than 5–7% above Con Ed’s rate).
- Audit Rights: Secure the right to review metering methodology and billing.
- Adjust Rent Inclusion Factor: In weak markets, ask landlords to reduce the $/SF factor, or freeze it for part of the term.
- Benchmark Usage: Have your broker benchmark your industry type—light users should avoid inclusion, heavy users may prefer it.
Tenant Takeaway
Electricity billing can swing your true occupancy cost by $1–$3/SF annually.
- Rent Inclusion = predictable, but risky if your company is a light user.
- Submetering = fair and often cheaper for small offices, but exposes heavy users to higher bills.
The smartest tenants compare models during negotiation and align with their expected usage profile.
Where We Fit In
We help tenants model the real cost of electricity in each building—not just face rent. We’ll:
- Benchmark inclusion factors across Midtown and Downtown towers
- Audit submeter surcharge language
- Negotiate caps, freezes, or lower factors to save your business money
Contact us to make sure your Manhattan office lease doesn’t hide thousands in unnecessary utility costs.
Fill out our 📋 online form or give us a call today 📞 212-967-2061 — let’s find the right office for your business.
