As a new Canadian franchisee, you may be dealing with commercial rent for the first time for your location space. When you are negotiating this rate, it’s important to know that not all tenants will pay the same rate per square foot and that the landlord’s asking rate is based on what they need and not what you can afford to pay. Before you sign your rental agreement, here’s what you need to know about retail or commercial space rent.
The importance of your rent figure
Naturally, your rental can be one of your biggest business expenses. This figure is not only part of your daily expenses but can also become a factor if you decide to sell your franchise location. If the rent is too high, you may have trouble finding a buyer down the road, on top of the strain it can put on your business if you are paying more than you can afford.
How rent rates are set
Most landlords don’t just pull their figures from nowhere. Many set the rents based on a simple formula that allows for the rental revenue to cover any loans and provide the landlord with a decent return.
Finding out what other tenants pay in a building you are interested in is a smart idea, but you have to keep in mind that you may not pay the same rent per square foot as they do. Tenants pay different rental rates across the same property for various reasons, including the space size, the lease term, the tenant’s perceived strength as a business, inducements from the landlord, the timing and the location of the space inside the building. You may, for example, expect to pay more for a unit that is closer to the street and therefore has more exposure to the traffic in the area. A “mom and pop” business might pay more than a national brand because the landlord perceives them as more of a risk.
Leases are often triple net, meaning all the expenses related to property management are passed on to the tenants. The operating costs, also called common area maintenance, and property tax expenses may be stated as additional or separate rent that you must pay. Sometimes, this figure can even be the same as or higher than the base rent you are paying.
Take the time to find the right rental space for your business that comes with a rent you can afford. If your franchise offers help in this area, be sure to use it as they may be able to help you get a better rate.