5 Mistakes Landlords Make When Leasing Commercial Space (And How to Avoid Them)

The Hidden Costs of Leasing Mistakes

A single bad lease decision can cost you tens of thousands of dollars over the lease term—or worse, leave you with a problem tenant you can't remove. After working with dozens of GTA landlords, I've seen the same mistakes repeated. Here's how to avoid them.

Mistake #1: Pricing Your Space Wrong

Pricing is both art and science, and getting it wrong is expensive either way.

• **Pricing Too High:**
• Extended vacancy (each month costs you a full month's rent)
• Stale listing syndrome (brokers and tenants wonder what's wrong)
• Eventually accepting a lower offer anyway
• Negotiating from weakness after months on market

• **Pricing Too Low:**
• Leaving money on the table for 5-10 years
• Attracting less qualified tenants
• Setting below-market comparables for future renewals

How to Price Correctly:

1. 1. **Research current market rates** for your specific property type and location. What are similar spaces actually leasing for—not asking, but closing?

1. 2. **Consider your competition.** If three similar plazas nearby have vacancy, you need to be competitive. If you're the only game in town, you have more flexibility.

1. 3. **Factor in your situation.** How long can you afford vacancy? A higher price with 6 months vacancy may net less than a moderate price with immediate occupancy.

1. 4. **Understand gross vs. net.** Make sure you're comparing apples to apples. A $30/sq ft gross lease isn't comparable to a $20/sq ft triple net lease.

Mistake #2: Weak Lease Terms That Favor Tenants

Your lease is a legal contract that governs your relationship for 5-10+ years. Weak terms create ongoing headaches.

Personal Guarantees

Too many landlords lease to numbered companies without personal guarantees. When the business fails, you're left with unpaid rent and no recourse.

• **What to require:**
• Personal guarantees from principals for the full lease term
• Financial disclosure before signing
• Ongoing financial covenants for larger leases

Renewal Options

Tenant-favorable renewal options can lock you into below-market rents for years.

• **Better approach:**
• Limit options to one or two terms
• Base renewal rent on fair market value, not fixed increases
• Require notice 6-12 months before expiry
• Include "time is of the essence" language

Assignment and Subletting

Unrestricted assignment rights mean your carefully screened tenant can hand the lease to anyone.

• **Better approach:**
• Require landlord consent for any assignment
• Include recapture rights (option to take space back if tenant wants to assign)
• Prohibit subletting below your rental rate

Operating Costs and Taxes

Failing to pass through costs properly erodes your returns.

• **Ensure your lease:**
• Clearly defines base year and escalations
• Passes through all operating costs appropriately
• Includes administrative fees (typically 15%)
• Addresses capital expenditure recovery

Mistake #3: Inadequate Tenant Screening

A bad tenant is worse than no tenant. The costs of eviction, unpaid rent, and property damage far exceed the cost of continued vacancy.

What to Check:

• **Financial Health**
• Business financial statements (2-3 years)
• Personal financial statements of guarantors
• Bank references
• Credit checks on business and individuals

• **Business Viability**
• Business plan (for new businesses)
• Experience in the industry
• Track record at previous locations
• References from previous landlords

• **Red Flags to Watch:**
• Reluctance to provide financials
• History of evictions or lawsuits
• Unrealistic business projections
• Pressure to rush the deal
• Requests to waive standard terms

For New Businesses:

• New businesses are higher risk, but can be good tenants with proper protection:
• Require larger security deposit (3-6 months)
• Stronger personal guarantees
• Shorter initial term with renewal options
• Monthly rent reporting requirements

Mistake #4: Poor Marketing and Tenant Selection

Many landlords list their space and wait for inquiries. This passive approach often results in accepting whoever shows up.

Active Marketing Strategy:

• **1. Professional Listing Materials**
• Quality photography
• Accurate floor plans
• Clear lease terms and pricing
• Property highlights and demographics

• **2. Multiple Channels**
• Commercial listing services (LoopNet, Spacelist)
• Broker networks
• Direct outreach to target tenants
• Local business associations

• **3. Targeted Tenant Search**
• Identify ideal tenant profiles for your space
• Research businesses that might be expanding
• Contact businesses in nearby areas
• Work with a tenant rep broker who has active requirements

• **4. Proper Showings**
• Present a clean, well-lit space
• Be prepared to answer questions
• Have lease terms ready to discuss
• Follow up promptly with interested parties

Mistake #5: DIY Lease Negotiation Without Professional Help

Commercial leases are complex legal and business documents. Mistakes made during negotiation live with you for years.

What a Professional Brings:

• **Market Knowledge**
• Current rental rates and terms
• What concessions are normal
• Which terms to fight for
• When to walk away

• **Negotiation Experience**
• Understands tenant tactics
• Knows where there's flexibility
• Can be the "bad guy" in negotiations
• Maintains relationships for future deals

• **Documentation Expertise**
• Catches problematic clauses
• Suggests protective language
• Coordinates with legal counsel
• Ensures complete documentation

• **Deal Structure**
• Tenant improvement allowances
• Free rent periods
• Fixturing periods
• Lease commencement triggers

The Cost of Not Using a Broker:

Many landlords try to save the commission by negotiating directly. This often backfires:

• - Tenants represented by brokers out-negotiate you
• You leave money on the table on lease terms
• Problematic clauses slip through
• Deals fall apart from misunderstandings

Remember: If the tenant has a broker (which costs you nothing since you pay the commission anyway), they have professional representation. You should too.

The Right Approach to Commercial Leasing

Successful landlords treat leasing as a strategic process:

1. 1. **Price correctly** based on market research
2. **Use strong lease terms** that protect your interests
3. **Screen tenants thoroughly** before signing
4. **Market actively** to attract quality tenants
5. **Work with professionals** who do this every day

Need Help With Your Commercial Lease?

Whether you're dealing with a vacancy, a lease renewal, or want a professional review of your current lease terms, we can help. Our landlord representation services ensure you get the best terms and the best tenants.

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