Workspace Property Leasing: From First Estimate to Final Walk-Through

What to take away

The first estimate is a gross number

The first estimate covers the whole annual cost of occupying the space, and headline rent understates it. A landlord quotes base rent per square foot per year and stacks the rest on top.

Space is measured before it is priced, and the measurement is where a lease starts. The BOMA Office Standard sets how rentable and usable office area are calculated, and rent is quoted per measured square foot per year. US commercial leasing runs on state law and the lease itself rather than a federal statute, and any tax on commercial rent is set locally, so it is checked rather than assumed.

Illustrative figures for a suburban Canadian office run from $18 to $34 per square foot in base rent, in Canadian dollars. CAM adds roughly $8 to $14, then property tax and insurance.

In Canada, HST applies to commercial rent in most provinces, at 13% in Ontario and 5% GST in Alberta. A registered tenant recovers much of it, so the tax earns its own line. GST/HST on commercial rent explains the input tax credit claim.

What the offer has to pin down

An offer that leaves these items open gets renegotiated in the landlord's favour later.

The letter of intent is mostly non-binding, but its rent and term set the tone for everything after. Commercial leasing requirements walks through what a landlord tests before drafting the lease. Settle these five terms before signing:

Where the cost drifts after signature

An escalator clause raises rent on a schedule. Fixed steps of 2% to 3% a year behave like clockwork, while an index-linked step follows CPI. Over ten years the two methods land far apart, so settle the method in the offer.

The mechanics of escalation clauses explain how each version is drafted.

Which costs belong in the CAM pool is not a matter of taste. ASTM's guide to commercial lease structures walks through capital items, management fees and exclusions.

CAM is the largest moving part. The landlord estimates it each year, reconciles actual costs and bills the difference. A tenant with no audit right pays whatever arrives.

A reconciled CAM statement is the one document that shows what the building cost to run, so read it beside the prior year before a renewal.

Insurance and property tax move on their own, and both are recharged. Net lease versus gross lease shows where those costs sit in each structure.

Example: a 9,000 square foot office in Mississauga

At $22 per square foot in base rent (all figures in Canadian dollars), the space costs $198,000 a year. CAM at $11 adds $99,000, property tax at $6 adds $54,000, and insurance at $2 adds $18,000. The gross figure lands near $369,000, or about $41 per square foot all in.

The structure is triple net, so the tenant carries all three expense lines. HST at 13% adds $47,970, which a registered tenant recovers in large part.

A $35 improvement allowance equals $315,000 of work, usually amortized back into rent. Occupancy load, egress width and parking structure rules sit in NFPA 101.

Parking at one stall per 300 square feet gives about 30 stalls. Parking ratio in an office lease tests that number against a headcount plan.

When the file stops needing attention

Possession is not the finish line. The estoppel certificate, the deposit or letter of credit return, and the renewal diary still have to be settled before anyone can relax.

A landlord's estoppel confirms the rent, the term and whether any default exists. Lenders and buyers ask for one, and signing it with wrong numbers causes trouble later on.

Diary the renewal notice date two months early, because a missed notice turns a negotiation into a rollover. Holdover rent, often at 150% of base, applies past the end date.

Keep the last three CAM statements and the insurance certificates in one folder. Renewal talks move faster when those numbers are on the table.

Restoration obligations also outlive the term. If the tenant built walls or ran extra wiring, the lease may require removal. Subleasing office space covers consent rights if the space has to be handed on early.

The final walk-through and closeout

The last task a lease leaves behind is handing the space back, and the final walk-through is where that gets settled. Book it with the landlord for a date before the term ends, never after.

Bring the move-in condition report and the photos taken at possession, and walk the space room by room against them. Normal wear and tear is the tenant's protection; damage, holes and missing fixtures are not. Put everything you find on a punch list, and ask the landlord to sign the condition report at the end of the walk.

The deposit or letter of credit is reconciled against that punch list and the final CAM statement. Closeout is finished when the deposit comes back or the letter of credit is released, the restoration work is accepted, and the signed condition report sits in the same folder as the last three CAM statements.

If the tenant built the space out, the work letter should say who pulls the permits, who signs off on the construction punch list at completion, and when the improvement allowance is paid; the certificate of occupancy closes that loop.

Common questions