Real Estate Talk:
Negotiating retail

The factors in negotiating a commercial retail space

By Joseph Marovitch

October 12, 2023

I am both a commercial and residential broker. A good part of my work is commercial retail leasing and management. Retail space demand for boutiques and restaurants has appeared to increase in the past few months. However, many interested parties are negotiating for space, terms and rent based on what they have budgeted and not much else.

When negotiating a lease, there are factors to decide upon that will be acceptable to the landlord and the tenant, including:

Location
Monthly base rent (additional rent, such as tax and utilities, is not usually negotiable)
Fixturing period (number of months to prepare the space rent-free before opening, except for tax and electricity)
Term of the lease (start and end date)
TI (Tenant Improvement) allowance. If a lessee requires some funding to fixture a space, sometimes the landlord will offer an amount of money in the form of reduced rent or cash up front, which would be divided by the term of the lease and added to the rent.
Option to renew at the expiration of the lease. An option to renew for “x” years ensures the tenant does not have to vacate at expiration, and the landlord cannot rent it from under their nose.

There are other terms to negotiate depending on the type of business and its requirements.

There is no commitment from either party until a final lease is signed with terms agreed by both lessee (tenant) and lessor (landlord).

Many potential entrepreneurs attempt to negotiate without making a formal written offer to lease because they do not realize that the offer is not a commitment; it is an offer to negotiate. There is no commitment from either party until a final lease is signed with terms agreed by both lessee (tenant) and lessor (landlord).

Good landlords want tenants who will succeed, remain as long as possible and grow their business. This allows the landlord to thrive and have few headaches. Therefore, before a landlord can agree to the best possible rent and terms for the potential tenant, the landlord must know the following:

The lessee’s credit rating
The amount the lessee will be investing in the space
The term of the lease
If the business is an expansion of an already existing business
or
If the potential renter has a good business plan and funds to start up

Basically, if a potential lessee has a good credit rating, rents for more than a three-year term, substantially invests in the space, is an existing business, or is a well-funded and planned-out business, a landlord tends to be more flexible in terms and rent. It is preferable to have a solid tenant for the long term than the promise of more rent but a bad business that closes quickly.

The information in these articles is summary. Should you have questions, comments or wish to discuss further, please refer to the comments section at the bottom of the page or contact me directly. As well, to view past articles, click here.

State of the market

To the surprise of many, the Bank of Canada reduced the interest rate by 0.25% to 2.25% despite increased inflation and global uncertainty. Further, the Fed has indicated there may be a slight chance of one more interest rate cut this quarter, but not for sure. The Fed also indicated there is a very strong possibility of rate increases depending upon the recent announcement by Trump of no further negotiation with Canada since he was upset by the premier of Ontario, Doug Ford, who published a video of Ronald Reagan’s anti-tariff comments.

‘To the surprise of many, the Bank of Canada reduced the interest rate by 0.25% to 2.25% despite increased inflation and global uncertainty.’

Statements and actions, such as the U.S. issuing orders to test nuclear weapons, which have not taken place for the past fifty years, affect our stock market, economy, and real estate market, causing fear, inflation and higher interest rates.

Buying now while interest rates are low or locking in a rate now for the next 120 days in a pre-approval would be a wise move. Purchasing in a corporation or holding company would also be a good idea to reduce the risk of rising carrying costs and as protection against creditors.

For further discussion, leave a comment or call me directly.

Have a great week.

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Joseph Marovitch has worked in the service industry for over 30 years. His first career was working with families from Westmount and surrounding areas, hosting children ages 6 to 16 as the owner and director of Camp Maromac, a sports and arts sleep-away summer camp established in 1968. Using the same strengths in caring for families —such as reliability, integrity, honesty, and a deep sense of protecting the interests of those he is responsible for —Joseph applies them to his current real estate brokerage career. Should you have questions, please feel free to contact Joseph Marovitch at 514 825-8771, or josephmarovitch@gmail.com