Commercial Leasing

by Darrin DeRoches January 31 - February 6, 2013

When you are buying a house you use a real estate agent but when you are looking to lease a space for your business, most people believe that they can do it themselves or they will ask their agent who sold them their home for advice. If you or your agent do not know what TMI or HVAC is then call a commercial broker immediately. If you are a good business person you will always look for people who are smarter than you in their respective fields. Negotiating a commercial lease can be detailed and small little clauses can create huge costs.     First off, HVAC is heating, ventilation, air conditioning. Seems pretty simple to understand but when negotiating a lease, who is responsible for the unit, maintenance and replacement costs over the term of the lease? A standard lease can be from one year to five years with renewals up to 20 plus years. The maintenance and replacement of HVAC can cost tens of thousands of dollars. I had one landlord who refused to fix the air conditioning and our options were to fix it ourselves or leave. It is pretty hard to move your business once you have taken years to build it up, so we spent over $15,000 dollars to fix something that we used for two summers. The cost of replacing the filters can cost a couple of thousands of dollars a year. Add in the ventilation unit and heating cores, it can be extremely costly.     TMI is the next big thing when negotiating a lease. When a property is listed for $17 a square foot, that is just the base rent. TMI is the Taxes, Maintenance, Insurance on the property. This may include landscaping, snow removal, extra insurance depending on the type of business you are running etc. These fees can escalate over the years as the costs rise for these services. Most deals will add on the costs in square feet, so the original is $17 plus another $5 for TMI which brings the total rent to $22 per sqft. These costs will increase over the course of the lease. An example is one lease I was paying around $1,800 a month when I started and 10 years later I was paying $3,000 a month. The area was the same but the TMI increase as well as my original cost per sqft. The landlord then was considering redoing the façade of the mall and in our lease we had to pay our share which would increase the rent another $300 a month for the improvements since it was a clause in our lease we signed over ten years ago.     These are only the tip of the iceberg when it comes to the ins and outs of a commercial lease, so if you are considering opening a business this year and figure you can just negotiate your own lease – think again. Do not use a regular real estate agent – use a broker or a commercial agent who has the experience in your field – they can make or break your business. V     Darrin DeRoches is a local real estate and mortgage broker. He can be reached to answer questions, comments or stories about real estate experiences through this weekly column at mail@uniquerealty.ca.