Understanding Commercial Lease Costs in Alberta

1. Identify the rent structure

A net lease typically separates base rent from some or all property operating costs. A gross or modified-gross structure combines costs differently. Labels are not enough: the lease language determines what the tenant must pay.

• Base or minimum rent
• Additional rent
• Percentage rent where applicable
• Scheduled rent increases

2. Reconcile area and rate units

Confirm whether rates are quoted per square foot per year, per square foot per month or as a monthly amount. Determine the rentable area used for billing and whether it differs from usable space.

When comparing options, convert every proposal to the same time period and area basis.

3. Review operating-cost recoveries

Additional rent may include property taxes, building insurance, common-area maintenance, management, utilities and other items. Review the estimate, the reconciliation process, exclusions, administration charges and the tenant’s proportionate share.

• Current estimate
• Prior reconciliations
• Controllable-cost caps
• Capital and structural exclusions
• Audit or review rights

4. Budget for the premises, not just the lease

Fit-up, design, permits, furniture, equipment, data, signage, moving, security deposits and guarantees can materially affect the first-year cash requirement. Clarify who owns improvements and what must be removed or restored at the end of the term.

5. Account for GST and professional review

The Canada Revenue Agency identifies rentals of commercial real property as taxable supplies in the ordinary case, so GST may apply to rent and other taxable amounts. Obtain tax advice for the specific tenant, landlord and transaction.

Commercial lease terms allocate long-lived operational and financial risks. Legal and commercial advice should be obtained before the lease is signed.