What to Look for in a Commercial Lease

By Jarrett King, Bedrock Realty Advisors Inc.

As commercial real estate brokers, we help our clients find the right commercial office space for their needs, but we often deal with companies who are in a space and they’re trying to weigh their options and costs to help them decide if they should move or not (we actually cover the cost aspect of this quite well in our Real Estate Articles section, in our Considering Office Relocation Costs article).

Calgary’s commercial real estate market is pretty competitive right now, this can translate into savings for your business, giving you the leverage to renegotiate your current lease, or giving you plenty of available options should you choose to move into a new space.

Before you decide one way or the other, it is best to review your current lease.

It’s important for you to take the time read the lease thoroughly and carefully and look for places to negotiate. Below we have included a list to help you carefully review your current lease, or to be mindful of when you are considering a new lease.

Here are 5 key areas to look at in your commercial lease:

  • Lease expiry date: Determine a lease term that compliments your business plan.  If you are a start up that plans on rapid growth then a short term lease may be beneficial.  Alternatively, long standing companies with a long view of growth and cash flows will benefit for a long-term lease as they are confident in their size requirements and the rates are at historic lows.
  • Operating costs/fees: Be sure to check the details of our lease for any extra fees for things like janitorial services.
  • Restoration clauses: Review the restoration clauses in your lease to find out what you are and aren’t responsible for restoring when it comes time to move out. This can help you weigh the costs of moving, should you decide to relocate.
  • Renewal options and dates: Review your options for renewals and key dates. Be sure to check the rate included and when you need to give notice to renew or notRenewal dates can be anywhere from a month to six or even 12 months ahead of time. If you feel the renewal options or dates don’t suit your needs. An experienced real estate broker can help with this negotiation.
  • Automatic renewal clause: Often leases will include an automatic renewal clause that reads something like, “the Term of the Lease shall renew for one (1) further period of five (5) years unless written notice to the vacate is given to the Landlord no earlier than twelve (12) months and no later than six (6) months prior to the expiry term”. This clause will automatically renew unless the tenant has provided written notice to the landlord within in the given time frame.
    Even if you would like to stay in your current location, beware of possible caveats stating ‘the rates for renewal will not be lower than the rates in the final year of the original lease’.

Once you have reviewed your lease, put any key dates into your calendar as a reminder – especially any dates around the renewal option. I suggest setting it well ahead of the last day to give notice. This will allow you to actively search the market without feeling the pressure to accept a renewal with limited new knowledge on the market.

We at Bedrock Realty Advisors Inc. are always here to help tenants. If you have a lease and would like us to review it, please Contact Us for a free lease review.  There will be no out of pocket cost to you.