Premise Lease Negotiations

Alternate Tenancies


Ian D. Toms


June 17, 2014

June 17, 2014

There are circumstances when a typical tenancy just won’t work. For example, a market may not have any suitable space, or landlord lease requirements in a market, or the development type may make a tenancy economically irrational.

In these circumstances, alternate approaches to tenancy will permit access to a market where no suitable space exists. These types of tenancies take significant effort to arrange because they are not “off the rack”. These approaches are not available without the guidance of a seasoned realty leasing professional.

1. If a premises does not exist, build it!a. By a landlord – existing landlords may have vacant land waiting to be developed, and will do so for the right use and price. For example, we just completed a lease for space in the parking lot of a large shopping mall, at a set of lights, in line with a Tim Hortons and a Kentucky Fried Chicken, where, in exchange for a 20 year term, the landlord agreed to complete the paving, curbing, landscaping and build a 3,000 square foot custom built building to the point where the tenant only has to add cabinetry and equipment.

b. By a developer – some properties, whether vacant land or existing buildings, are available to be developed or redeveloped for the right opportunity. In exchange for a long term commitment, developers will buy and convert a property to suit a specific tenancy. For example, vacant automotive stations may provide a great opportunity for conversion to an oral health clinic as they are usually 1,500 to 2,000 square foot free standing buildings on corners at traffic lights with very high profile and great parking.

2. Lease backThe concept of buying properties, converting them for use by a long term tenancy and then selling them to a third party with a long term lease in place has been used to create successful chains such as Safeway across the U.S. In Canada, Canadian Tire and Sobeys are examples of large tenants who lease space in plazas they used to own. The advantage of this approach is that you can locate where you want to in the plaza, write your own favourable lease, and then sell the plaza to a third party to avoid tying up your money.”

3. Temporary leasehold improvementsA problem with dental clinics is the expensive and fixed nature of the leasehold improvements which include plumbing, wiring, and internal walls. Short term leases do not make sense because of the cost of the fixed improvements. A solution is to make the improvements “portable” meaning that raised flooring can be installed over plumbing and wiring, modular cabinetry and locking interior walls can be installed and then removed and relocated from time to time, providing the operator ownership and the ability to relocate, permitting access to properties with short lease terms.

4. Waiting listsSince typical lease term lengths are five years, approximately 20 per cent of tenancies come up for renewal each year. If you register interest with a landlord for a property you wish to tenant, then you have a reasonable chance of taking space in that property if an existing tenant is weak, becomes insolvent, or does not exercise their option to renew. Alternatively, developers will often agree to lease space a number of years before their development is completed. The problem with both of these approaches is that you have little or no negotiating leverage as you have to openly admit you want the space. A second problem is that you may have to wait for the space to become available for a number of years.

5. Property purchaseA number of clients have exercised their option or right to purchase the property in which they are tenants – with very positive results. Owning the commercial plaza in which your practice is located provides an opportunity to manage the property as you see fit while building equity. The everyday headaches of being a landlord can be assigned to a property manager, and the rest of the tenants do not have to know that in fact one of their co-tenants is actually the landlord.

All of these approaches are risky and require significant effort, but the reward may be well worthwhile.