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How can I negotiate the best deal?

By carefully selecting the right properties on your short list, you can create a competitive environment to achieve the most favorable lease agreement. Your Colliers International broker can assist you throughout this process.

How much space will I need?

The amount of space you require will vary depending on the nature of your business and the efficient use of space you select. As a rule you will require roughly 120 to 180 square feet of space per employee.

Are amenities included in the Net Leasable Area?

Yes, assuming you occupy a whole floor. The amenities within the floor, such as restrooms and kitchens, are incorporated within the net leasable area measured.

What are my total real estate costs?

In addition to your net rental rate, you may also pay for operating costs such as insurance, building and grounds maintenance, taxes, common area maintenance and cleaning, utilities and other expenses incurred by the landlord.

What are the differences between Gross Rent, Net Rent, Effective rent and Face rent?

GROSS RENT is the rent calculated inclusive of all building costs, whereas NET RENT is the rent calculated excluding building costs. FACE RENT is the quoted rental rate before taking into account incentives or increases, whereas EFFECTIVE RENT is the rental rate averaged out over the term of the lease, including consideration of rent-free periods or up-front incentives. 

Will I be able to sublease or assign my lease?

Most commercial leases allow the lessee to sublease or assign their premises. Typically, the lessor is unable to unreasonably withhold consent to the sublease/assignment. A prudent lessor will consider the strength of the contract being offered by the incoming tenant and will be reluctant to accept a sublease/assignment if it could potentially compromise their financial position or security.

What additional costs am I responsible for over and above net rent and operating expenses?

In addition to a pro-rata share of building operating expenses, you will generally be responsible for electricity and other utility charges, light bulb replacement and cleaning your own premises.

What are the rent review patterns for the term as well as the renewal period?

Most lessors have a standardized lease document for their buildings, including a prearranged rental review schedule in light of the lessor’s own objectives and current market conditions.

Typically, the two most significant influencing factors on rent review patterns are lease term and the commencing rental. Rent review methods may include fixed increases, structured increases or reviews to market levels (with or without a ratchet clause). A ratchet clause ensures that the reviewed rental can be no less than either the previous year’s rental or commencement rental. The Consumer Price Index (CPI), or a margin over CPI, is another common structure. Often, review clauses include a combination of these during the term of a lease.

Lessees will typically request a right of renewal as part of the lease negotiation, allowing them to extend their occupation beyond the initial lease term. It is normal to set out the rent review pattern for this term in the original lease document.

What is a “Make Good” and how much will it cost?

A “Make Good” is your (the lessee’s) obligation to return the premises to its original state upon completion of your lease, usually excepting fair wear and tear of floor coverings

If you are relocating, your workplace designer will usually be able to conduct the “make good” on your previous premises as well as design and tenant improvement your new premises.

When does the agreement become legally binding?

During a typical lease negotiation, leasing proposals are used as a medium to determine terms and conditions acceptable to both lessor and lessee. This will lead to a Letter of Intent document or Memorandum of Understanding outlining the final position of both parties. It is accompanied by a leasing deposit, generally equivalent to two months’ gross rent as a security deposit. This deposit is typically held in the leasing agent’s trust account to be passed over when the lease becomes unconditional.

At this stage, the agreement may be conditional. In some cases it may be conditional on lessee and/or lessor board approval, together with other approval conditions. 

The lessee and/or lessor may not be legally bound to commit to the premises until the various conditions are satisfied. The Letter of Intent document provides a framework by
which the agreement becomes unconditional and both parties are legally bound.

How much will my tenant improvement cost?

This depends on the quality of tenant improvements you require. Factors in the cost include the existing tenant improvements from the prior tenant, the quality of finishes selected, infrastructure needs such as plumbing and wiring and the complexity of the requested build-out. Typically, landlords provide a tenant improvement allowance and tenants are expected to pay the difference between that allowance and the actual cost of improvements.

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