Smart Business Advice Small business 101

How a real estate professional can help when leasing a commercial property

Thinking of leasing a commercial property? Learn what you can expect and how a real estate professional can help you navigate the process.

Devika Goberdhan Jan. 16, 2023 9-minute read

A new year often inspires people to make a change, such as finally pursuing your dream to start a business or expand your current business.

A crucial part of establishing your business is securing a location that works for you and your target market. Typically, if you’re just starting out or growing your business, you might not want to purchase a commercial property outright as you may need to test the waters. That said, leasing a commercial property is not as straightforward as renting a home residence. Terms of a lease are often more rigid and there’s jargon that you’ll need to be familiar with to ensure you understand what costs you’re committing to.

As you begin your leasing journey, you’ll need to get acquainted with some common terms. Check them out at the Business Development Bank of Canada (BDC) Opens in a new window..

Incidental expenses: In addition to your rent, the BDC notes you may need to cover property tax, insurance, utilities, maintenance, common area costs and repairs.
Common area maintenance: These costs are associated with the maintenance of the property, such as cleaning services, snow removal, landscaping and property management.
Gross rent lease: This type of lease is specific to commercial properties where your fees encompass both your rent and incidental costs.
Net lease: With this lease, the business owner is on the hook for rent and one incidental fee. There are variations of this lease, such as the double net lease where you’ll pay two incidental expenses, and the triple net lease where you pay for rent and all other expenses.
Tenant improvement allowance: As a way to entice potential tenants, some property owners will provide an allowance that can be used toward upgrading the space.

Trying to narrow down a prime location and negotiating the finer details of a commercial property lease, while still trying to run a business, might be a lot for one person to take on.

Enter a real estate professional.

Why is working with a real estate professional key?

To simplify finding a property where you can set up shop, work with a real estate professional like Robert De Maria Opens in a new window.. De Maria is a Sales Representative with Re/Max Noblecorp. He is in the top 5% of Realtors® in Toronto and the GTA, receiving the 100% Club Award in 2021 and 2022. He is also certified as a Luxury Home Marketing Specialist.

De Maria started his journey as a real estate professional in 2017. He shares, “I chose this path because I always knew I wanted to help people. I’ve always had an interest in real estate as I have a background in constructing homes. After designing them and working on them, I figured one day that, ‘Hey, why can’t I sell homes like these?’ I do my best to offer the greatest possible service to the people that I work with. I take an empathetic point of view as you have to understand and be aware of the people involved, their wants, needs and dreams. I think that’s something I’m very, very strong with and has helped me to be more cognizant of my clients’ needs.”

When working with clients who are seeking to lease a commercial property, De Maria typically kicks off the process by asking a few crucial questions. For instance, he’ll start by asking what type of business the client operates or is thinking about establishing. He further explains, “From there you would have to start to look at finding a unit that has appropriate characteristics that would suit the business. For example, if it’s a restaurant, the business owner would need a space that has a kitchen or potential to add a kitchen.”

And of course, De Maria highlights, “We would look at their financials and what assets they have. This will allow us to create a budget and narrow down the type of space a client could afford.”

When you’re shopping for a commercial property, chances are you will need to work with a real estate agent or brokerage to access and view properties. Aside from viewing properties, De Maria notes that working with a real estate professional offers other important perks.

Negotiating proper terms. A real estate professional can negotiate a fair price, plus proper terms that ensure the space has everything you need to carry out your business duties. For example, does the commercial unit have garbage access? This is the kind of thing a real estate professional investigates.
Location, location, location. A real estate professional can help you determine if the location is accessible to your customers and look at the proximity of competitors. As well, some plazas will only accept a certain number of tenants per business type — to avoid having two coffee shops next to each other, for instance. Knowledge of the surrounding area is also very important; your real estate professional can provide that to help you do your due diligence.
Current lease rates. A real estate professional will know the current rates and market conditions for commercial units.
Real estate fees. When you lease or purchase a commercial property, or even a residential property, you won’t have to pay the real estate fees if you have a real estate professional representing you. The landlord or the seller typically pays those fees.
Zoning rules. A real estate professional can check whether a unit is approved for your particular type of business.
Surface-level red flags. A real estate professional can identify and investigate red flags. For example, property in poor condition or with maintenance concerns could indicate the owner or landlord has financial issues. If the property has been vacant for a very long time or has had a high turnover of tenants, it could indicate something else is wrong.

Stack your team

Aside from having a real estate professional on your side as you seek out a commercial property for your business, De Maria recommends employing other key players to ensure you set yourself up for success.

Find an accountant. An accountant will help you get your finances in order. The landlord will request certain financials for the business. For instance, the landlord would want to look at the books of the business to verify that this tenant not only has a business, but if the business suits the particular unit and if the tenant can afford to pay their bills.
Get a lawyer. It isn’t mandatory, but it’s a good idea to have a lawyer review the lease agreement. A lawyer may have insights on items to review or renegotiate before you finalize the lease agreement.
Talk to a CIBC business advisor. You may need financing for leasehold improvements or to purchase equipment. A business advisor can discuss a variety of financing options for your company.

Here’s what to expect when leasing a property

It’s exciting to finally take the steps to bring your ambitions to life. It’s also equally important to understand what leasing a commercial property entails. De Maria shares what you can expect throughout the leasing process.

Timing. Leases can be done quickly, but it depends on variables like the type of business, if there are tenants in the space, and the qualification process.
Negotiation. Once you locate a property, your real estate professional will put forward an offer to the landlord or the landlord’s representative listing agent. From there, prices can be negotiated, along with the timelines on possession of the space.
Costs. You need to keep your start-up costs in mind. In this respect, consider if the property needs renovations. For example, if you’re getting an empty space, you may need to add a storefront. And, of course, there are rent and TMI — taxes, maintenance and insurance — on the building. You’ll also need business insurance, separate from the building insurance. Suppose you’re leasing space for a restaurant business. In a flood or other emergency, your business insurance would cover your business property, such as ovens, cookware and furniture. The building insurance would cover the building structure.

What are some of the benefits and downsides of leasing a property?

As with anything, there can be ups and downs when it comes to leasing a commercial property. A core pillar of De Maria’s work ethic is being honest and setting the right expectations for his customers to ensure they have the information they need to make a holistic decision. He’s extended that same courtesy to us by sharing some benefits and drawbacks of leasing a commercial property.

Benefits

Trial and error: If a business is just starting out, you can start off with a one-year lease to see if things will work.
Flexibility: If you need more space as your business expands, you can upsize. If you have too much space, you can downsize.
Cash management: When you lease, you won’t be sinking a good chunk of your savings into a down payment for the property. Instead, you can allocate those funds and invest them in equipment, leaseholds or other business needs.

Drawbacks

Ownership: By leasing, you won’t have the benefits that come with owning an asset, such as equity. Instead, you’d be paying somebody else’s mortgage.
Expenses: When you lease, you can be subjected to high rent costs, along with paying for incidental expenses. Also, when your lease comes up for renewal, you may be faced with rent increases. These things can quickly add up.
Relocating: If you decide to relocate, you might not be able to transfer renovations you made in your current space, such as new countertops, to your new location. This may benefit the owner of the property as it adds greater appeal to the space for future tenants, but you’ll have to spend additional funds to upgrade a new space. You’ll also need to factor in other moving costs.

Here’s how CIBC can help

If you’re planting your business’s first set of roots or expanding your business, we can help.

Connect with a dedicated CIBC Business Advisor who will work with you to understand your needs and provide expert advice and customized financial solutions. Whether you need to clarify your borrowing options, want to set up a business account or just need an extra set of eyes, we’ll make it easy for you to make your ambitions a reality.

Need financing? Learn about your borrowing options.
Need some help managing your cash flow? Check out our cash management opportunities.
Thinking of opening or upgrading a business account? Here are the accounts we offer to fit your growing needs.

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Written By
Devika Goberdhan

Devika’s career experience spans product management, communications, and working as a freelance journalist. From interviewing entrepreneurs across Canada, to writing about culture and lifestyle topics after hours, Devika is a storyteller with a passion for elevating her readers and creating the content small business owners and their financial advisors need to be their best.

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