Lease Primer with Mark and Jeremy from CBRE

Hi friends! Welcome to the first blog recap of our Entrepreneur Education Series. Today, we’re sitting down with Mark Anderson and Jeremy Deeks from CBRE Canada to discuss all things commercial real estate, leases, and misconceptions. 

TNT: Hi Mark and Jeremy! Thanks so much for joining us today for the first session of the Entrepreneur Education Series. Let’s start off with talking about what CBRE actually is! 

JD: CBRE is a global leader in commercial real estate services and investments, and we have locations everywhere. Mark and I, in particular, specialize in tech and we work with businesses and entrepreneurs of all levels. Basically, we create real estate solutions for clients of every size, in every sector. 

TNT: Awesome! Let’s do a quick and dirty run down of the basics. 

JD: Let’s do it. The main sections everyone will and needs to review are the base rent, which is what it costs to rent the space; operating costs, which are things like taxes, maintenance, insurance, etc; tenant improvement allowance, which is money you get to build out the space; and inducements like free rent. The simplest way to think of this inducement is basically a big pot of money that offsets the rent you pay and makes the deal negotiated a market deal.  

TNT: Gotcha. Ok, a big question people ask - how long does it take to get a lease? 

MA: While we CAN do a deal quickly but ideally we think people should start looking for a space to lease about 6-12 months before they want to be in it. 

There’s no MLS for office space. So it’s not easy to browse amongst the available spaces and that can take time if this if you are doing this on your own. From there, you need about a week to tour the spaces, time to negotiate an Offer, then working through the conditions of the Offer which is essentially a due diligence period for both you and the landlord. Once conditions are waived, the terms of the Offer are incorporated into the Lease and that document is drafted and signed, making it the governing document of the agreement. All in all, this process takes a lot longer than most expect and at a minimum, takes 8-12 weeks from search to occupying a space. 

TNT: So basically, plan ahead! 

MA: (laughs) As much as you can. Look into that crystal ball! 

TNT: Ok, a great question entrepreneurs are asking themselves: “What are the questions we should ask ourselves when we’re looking to rent space?”

JD: Great question. A lot of it comes down to that crystal ball Mark was talking about. You need to forecast and project into the future. Ask yourself, how many people do you expect to be hiring in the next 12 months? How many do you expect to actually work in the office? How many days of the week do you think they’ll be in the office? What kind of culture do I want to create in my office? What kind of amenities are important to me and my employees? 

MA: Yes, 100%. So for example, we just did a deal with HonestDoor. A major consideration for them was that they not be landlocked. They wanted to have a lease that was flexible, but more importantly, a landlord that understood what they were doing, what their vision is, and matched what they were culturally developing with the company. 

TNT: Very cool. I love that there is a diversity of landlords coming into the commercial real estate space, and that you can look for landlords that match your company culture. And as a crowd-sourced follow-up to that question, “What are the questions we should be asking the landlords?”

MA: There’s asymmetry of information between landlords and tenants/people searching for space but it’s really important to scrutinize the operating costs of the building. Those costs can be a great indication of overall building health. For example, is the landlord putting maintenance into the elevators, so that the recurring costs aren’t being put on the tenants? 

JD: Agreed. And make sure you’re asking about the overall efficiency of the building. And really make sure you’re going through your lease contract with a fine-tooth comb. 

TNT: Great points. Ok, last but certainly not least - let’s dispel some common misconceptions that people may have. 

• A lease must be a long term commitment. 

  • FALSE! We’ve done leases for one month, one year, and leases with termination options that allow the tenant to exercise exit options and break the lease. You can really set a lease for any amount of time. 

• Using a broker costs money. 

  • Technically FALSE! Almost every commercial real estate broker is paid for by the landlord. Generally, Landlords view brokers as part of the cost of managing the real estate. Brokers are resources - we’re there to help and we directly serve the clients we are working for.

• Using a broker is only an option for ‘established’ companies. 

  • FALSE! We help clients at any level. Like we said, we’re a resource. We’ve talked to people who are just looking at the lay of the land, trying to understand the market, to companies that are renting multiple floors or multiple properties. We’re there to help.