Canada
What’s Typical?
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Term
Negotiable, generally any length
Breaks
Negotiable
About CBRE Canada
www.cbre.ca/
Renewal
Negotiable
Rent
Gross
Free rent
Negotiable
Escalation
Negotiable
Security
Negotiable
Fit-out
Landlord often contributes or builds
Calgary
Edmonton
Halifax
London
Montréal
Moncton
Ottawa
Saint John
St. John’s
Toronto Downtown
Toronto North
Toronto West
Vancouver
Waterloo Region
Windsor
Winnipeg
Tenant broker
Landlord pays
Right to sublet
Common
Transparency
High
Version 7 / Jul-2012
Canada
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About CBRE Canada Research
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Contact
Roelof Van Dijk
Research Manager, Canada
+ 416 847 3241
Roelof.VanDijk@cbre.com
Page 1 of 5
LEASE LENGTH
Term
The lease term is negotiable and can be for any length. A term of 5–10 years is most common. Large tenants
often negotiate terms of 10–15 years with specific rights for renewals, for expansion, and for input on specific
operating issues.
Termination or Break
No right to terminate (break) or extend exists unless included in the lease. Termination options are not typical.
When included they often provide for a penalty payment or termination payment if exercised.
Renewal
An option to extend usually includes a provision for determining fair market value, which may be subject to
arbitration in the event of a disagreement.
SPACE MEASUREMENT
Definitions
Efficiency
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•
While Canada is officially a metric country, office space is measured in square feet, except for government
leases. 1 square foot = 0.09232 square meters; 1 square meter = 10.763104 square feet.
•
Rentable Area: Landlords usually quote rentable square feet, with washrooms and other common areas
allocated to each space leased, so that the rentable square footage exceeds the usable square feet. Most
landlords measure usable area using the BOMA (Building Owners and Managers Association) Method.
•
Carpetable Area: Space planners normally measure the net usable area, sometimes called carpetable area,
which is the floor area of space occupied exclusively by the tenant. It excludes primary circulation (space
between elevators and tenant space) and excludes space occupied by washrooms, exterior walls, and
convectors.
•
Gross-Up Factor: In Canada, the term gross-up factor has the same meaning as loss factor in the U.S.
Gross-up factor = (Rentable area – usable area) / Rentable area.
Gross-up factors vary from location to location.
•
In Toronto: The gross up factor depends on which BOMA standard the landlord uses. Older buildings
generally use BOMA 1980. New ones use BOMA 1996. The gross-up factor can vary from a low of 5% for a
full floor tenant under BOMA 1980 to as high as 20% for a multi-tenant floor under BOMA 1996.
•
In Vancouver: 12–18% is typical.
•
In Calgary: 12–20% is typical.
•
In Toronto: 11% is typical.
•
In Montreal: 13% is typical.
Canada
Page 2 of 5
OCCUPANCY COSTS
Rent
Operating Expenses
Taxes
•
Rent Quoted: Landlords quote Base Rent in Canadian dollars (CAD) per rentable square foot per year.
•
Net Rent: In most Canadian cities, rent is expressed as net, not gross, rent. Net rent excludes operating
costs, real estate taxes, building insurance and utilities.
•
Rent Payable: The tenant normally pays rent monthly in advance.
•
Rent Increases: Leases may include negotiated increases over the lease term or may be indexed annually.
•
Free rent and other incentives: Incentives are negotiable, and may include one or more of: free rent, tenant
improvements, move allowance, takeover of rent at previous building, and/or furniture allowance.
The landlord estimates operating expenses at the start of each year. The tenant pays operating costs monthly,
along with the rent, based upon these estimates. The landlord reconciles actual costs at year-end, then charges
or credits the tenant based on final totals. The landlord typically amortizes capital improvements using generally
accepted accounting practices. The tenant may have the right to review the landlord’s summary statements and
supporting documents.
•
Gross occupancy cost = rent + operating costs + taxes + hydro.
•
The term “hydro” means electricity used in the tenant’s premises.
•
The term “gross rent” is rarely used in Canada. When used, it has the same meaning as “gross occupancy
cost,” but unlike in the U.S., it includes the cost of electricity.
•
Property Taxes: The tenant typically pays a proportionate share of property taxes. If the assessed taxes are
not final at the start of a lease year, the tenant pays them based upon the landlord’s estimates, and the
account is reconciled at year-end.
•
Goods & Services Tax (GST): This is equivalent to VAT in other countries, and applies to all rental amounts
and operating costs, and is payable to the landlord. GST is 5%, effective January 2008.
•
Provincial Sales Tax (PST): Some provinces charge PST additionally.
•
Harmonized Sales Tax (HST): A few provinces combine GST and PST into an HST.
Utilities
The tenant pays for electricity (known as hydro) and all other utilities to operate the premises. The landlord uses
one of three methods to calculate the electricity charge: (1) Proportionate share: the landlord charges for
electricity per rentable square foot. (2) Direct meter: the tenant pays the utility company directly, based on an
electric meter. (3) Submeter: the landlord buys the electricity from the utility company. The tenant pays the
landlord, without a mark-up, based on the landlord’s meter. Some landlords provide suite/floor specific metering.
Tenant Improvements
•
Landlord Work: The landlord normally pays for base building improvements such as suspended ceilings,
ceiling lighting, HVAC distribution, sprinklers, and common washrooms.
•
Tenant Improvements: The tenant pays for its own improvements including hard costs (construction) and
soft costs (architect, engineers) for the tenant work. For small installations, the landlord usually handles the
design and construction. For space not in move-in condition, the landlord normally provides an allowance.
For larger installations, the tenant normally hires an architect or designer and a contractor. Landlords require
pre-approval of the contractor and may direct the tenant to select from a short list of approved contractors.
Landlords typically charge for the review of the design documents and require some supervisory rights over
the improvement work.
•
Tenant Improvement Costs: Costs in CAD per square foot for Class A or Prime buildings are as follows: In
Toronto, Montreal, Ottawa, Halifax, and Winnipeg: tenant construction: CAD 45–100; furniture: CAD 30–60,
IT wiring: CAD 4–10, design and engineering: CAD 4–12. In Calgary, Edmonton, and Vancouver: tenant
construction: CAD 60–80; furniture CAD 30–60; IT wiring: CAD 3–20; design and engineering: CAD 7–12.
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Canada
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Restoration
Tenants often negotiate the restoration obligations. Specialized leasehold installations generally have specific
restoration obligations.
Security Deposits and Guarantees
Typically, a security deposit can be either cash or a letter of credit. A tenant with a strong credit rating may
provide the equivalent of 0–2 months’ rent as security. A start-up company may have to provide 3–6 months’
rent. When security is a cash deposit, either the landlord or the tenant receives the interest on it, as negotiated.
TRANSACTION COSTS
Brokerage Commissions
The landlord or sublandlord pays the commission to the broker who represents the tenant, and pays a listing fee
to the broker who represents the landlord or sublandlord. In most Canadian cities, the landlord pays the tenant’s
broker a commission calculated as a flat fee per square foot per year at a rate determined by industry standard,
which varies by city. Sometimes the commission is calculated as a percentage of the rental amount over the term
of the lease. Commissions to the tenant’s broker in larger cities range between CAD 0.60–1.25 per square foot
per annum.
Legal Fees
The landlord pays its lawyer(s) to prepare the lease. Each party pays its lawyer(s) to negotiate the legal terms in
the lease.
OTHER LEASE PROVISIONS
Laws and Practices
The Real Estate Business Brokers Act, with provincial governing councils and local real estate boards, regulates
the real estate industry. Tenant representation is well developed in Canada. Tenants typically engage a broker for
real estate transactions, including major renewals. Landlords utilize in-house staff or engage brokers to represent
them. Large brokerage firms often have separate teams representing the tenant and the landlord.
Negotiating
The tenant engages a broker who negotiates the business terms with the landlord, and summarizes the terms in
an Offer to Lease or a Proposal Letter. If both parties execute the offer, it is legally binding, unless the offer states
that it is conditional upon subsequent negotiation of a lease and additional due diligence criteria.
Following an unconditional acceptance of an offer to lease, the tenant delivers a security deposit (usually
equivalent to two months’ rent), which may be applied to first rent due or the first month’s rent, and the balance is
held as a security deposit for the term of the lease. If the parties do not execute the lease, the security deposit is
normally returned to the tenant, as most agents would provide for this.
When the offer is complete, the landlord’s real estate lawyer prepares the lease, although in some markets, a
large corporate tenant may provide the lease.
The tenant’s real estate lawyer and the broker review and negotiate the lease terms with the landlord. When both
sides have agreed on all terms, the landlord’s lawyer prepares execution copies for signature.
Standard Lease
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In Canada (except Quebec), standard tort and contract laws apply. Each landlord has its own standard lease. In
Montreal there are specific Articles in the Quebec Civil Code relating to real estate, starting at article 18.51. There
are no standard offers to lease, but landlords normally use their own leases, leaving the tenant to negotiate
variances.
Canada
Page 4 of 5
Right to Sublet
Subletting (subleasing) is the most common way to dispose of unneeded space. Typically, the landlord agrees
and sets forth in the lease agreement not to withhold or delay consent unreasonably. The landlord may retain
some or all of the following rights: to approve the subtenant, to recapture the space, to impose conditions such
as limiting the number of subtenants, exclude certain business uses, and impose financial and operational
restrictions.
Option to Expand & Right of First
Refusal
These are negotiable especially for large tenants with long-term leases. A right of first refusal gives the tenant the
right to secure additional space that becomes available during the term of the lease.
Late Delivery by Landlord
Penalties are negotiable. In Montreal, a typical penalty is one month of free rent for each day the landlord is
overdue.
Holdover by Tenant
Negotiable.
Signage and Naming of Building
Exterior signage may be negotiable. Naming the building may be negotiable, especially for large long-term
tenants.
OFFICE LEASING MARKET
Transparency
Lease and sales transaction data and other market information are available to tenants through leading brokerage
firms like CBRE. Professional real estate providers generally know the deal terms and landlord concessions of
recent completed deals, and are willing to share this information with clients they represent.
Building Classification
•
Class A: High-quality buildings with high-quality finishes, state-of-the-art systems, and excellent
accessibility. The very best buildings are sometimes called ‘premier’, Class ‘AA’ or ‘AAA’, or ‘trophy’
buildings.
•
Class B: Average quality buildings with average rents. Building finishes are fair to good. Systems are
adequate.
•
Class C: Buildings of below-average quality and below-average rents.
PURCHASE AND SALES
Agency Fees
In investment deals, the vendor will usually enter into a listing agreement with a broker, who will act as the
advisor to both the vendor and the buyer. In the listing agreement, the vendor agrees to pay the listing brokerage a
percentage of the sale price of the property or a negotiated amount.
Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have
not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and
completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot
be reproduced without prior written permission of the CBRE Global Chief Economist.
Version 7 / Jul-2012
Canada
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