A Deep Dive Into Commercial Real Estate Leasing and Negotiations

A commercial lease is a contract that lets a business occupy space in a building owned by someone else, in return for rent and a set of obligations that can run for five, ten or more years. Unlike a residential tenancy, most of its terms are negotiated rather than fixed by statute, so the document itself decides who pays for what, who fixes what, and how either side can get out.

This guide is for owners of shopping centres, mixed-use and office buildings, and for the businesses that lease from them. It explains the main lease types, the clauses that matter most, and how a negotiation usually runs. It is general information; a commercial lease should always be reviewed by a lawyer before it is signed.

Gross, net and percentage leases

The first question in any lease is which costs are included in the rent. The Business Development Bank of Canada (BDC) describes the common structures this way:[1]

Common commercial lease types

Lease type	Tenant pays	Typical use
Gross	One amount covering base rent and all incidentals (utilities, property tax, insurance, maintenance, common-area costs)	Smaller office suites, short terms
Modified gross	Base rent plus an agreed share of some incidentals	Office and mixed-use buildings
Net (single net)	Base rent plus usually property taxes, or insurance or utilities	Less common on its own
Double net	Base rent plus property taxes and insurance	Retail and industrial
Triple net	Base rent plus property taxes, building insurance, utilities and other operating and maintenance costs	Retail plazas, single-tenant buildings, industrial
Percentage rent	Base rent plus a percentage of gross sales above a set minimum	Shopping centres and other multi-tenant retail

Net leases usually come with a lower base rent, because the tenant carries costs the landlord would otherwise build into a gross rent.[1] The comparison that matters is total occupancy cost, not base rent.

Example: a retailer is offered 2,000 square feet at $20 per square foot net, with additional rent (taxes, insurance and common-area costs) estimated at $12 per square foot. The total is $32 per square foot, or $64,000 a year. A gross offer at $30 per square foot ($60,000) would be cheaper, unless the gross lease lets the landlord pass on increases above a base year. These figures are hypothetical.

The clauses that decide what a lease costs

Base rent gets most of the attention. These clauses often matter more over the life of the lease:

• Term and renewal options. A longer term gives the tenant security and the landlord stable income. Renewal options should state how the new rent is set (fixed, or fair market rent with a dispute process). BDC also suggests asking for a right of first refusal on adjoining space if the tenant may expand.[1]
• Rent increases. Fixed steps (for example, so much per square foot every year or every few years) are easier to budget than increases tied to an index. Either way, BDC advises that future increases in base rent and incidentals be clearly specified.[1]
• Additional rent and common-area costs. Look at what can be charged (capital repairs, management fees, head-office overhead), how costs are shared between tenants, whether there is a cap on annual increases, and whether the tenant can audit the landlord’s year-end reconciliation.
• Measurement. Rent is usually charged on rentable area, which includes a share of lobbies, corridors and other common space, not just the usable area inside the suite. In the U.S., BOMA’s 2017 office standard (ANSI/BOMA Z65.1-2017) changed how some outdoor space is counted; Gensler reports that this raised measured rentable area by anything from under 1% to 10% or more in the buildings it remeasured.[6] Ask which standard was used and get the measurement in writing.
• Use and exclusivity. A use clause limits what the tenant may do in the space. A retailer may ask for an exclusive or competitor clause that stops the landlord leasing to a direct competitor in the same property.[1]
• Assignment and subletting. The tenant wants the right to assign or sublet if the business is sold or shrinks; the landlord wants to approve the new occupant. A common middle ground is consent “not to be unreasonably withheld.”
• Improvements and inducements. Who builds out the space, who pays, and whether the tenant must remove its improvements at the end. BDC notes that free-rent periods of two or three months are common incentives, and some landlords contribute to renovation costs.[1]
• Repairs, insurance and indemnities. Who repairs the roof, structure and building systems, and who insures what. Under a triple net lease these can fall largely on the tenant.
• Default and termination. What counts as a default, how long there is to fix it, and what happens if the building is sold.

Nova Scotia and sales-tax notes

Nova Scotia’s rent cap and the Residential Tenancies Act protect residential tenants.[7] A commercial lease is governed mainly by its own terms and general contract law. One statute that does apply is the Tenancies and Distress for Rent Act, which sets the rules for a landlord’s “distress”: seizing and selling a tenant’s goods on the premises to recover unpaid rent, subject to exemptions and procedures.[2] Landlords should get legal advice before using it, and tenants should know it exists.

Commercial rent is a taxable supply for GST/HST purposes, while long-term residential rents are exempt.[3] In Nova Scotia the HST rate has been 14% since April 1, 2025.[4] The lease should say that HST is charged on top of rent; ask your accountant whether you can recover it.

Tenants that report under IFRS must record most leases longer than 12 months on the balance sheet, as a right-of-use asset and a lease liability.[5] That can affect loan covenants, so a tenant’s accountant should see a long lease before it is signed.

What each side is trying to achieve

Typical priorities in a commercial lease negotiation

Landlord

• Long term and creditworthy tenant, which supports the building’s value and financing
• Pass-through of operating costs so income is predictable
• Control over assignment, use and tenant mix
• Guarantees and a security deposit, especially from new or small businesses
• Limited landlord repair obligations

Tenant

• Flexibility: shorter initial term with renewal options
• Predictable total cost, with caps on additional rent and audit rights
• Right to assign or sublet if the business changes
• Free rent and an improvement allowance to fund the build-out
• Exclusivity and protection if the building is sold or refinanced

Most deals trade one item for another. A landlord may give a larger improvement allowance in return for a longer term, or accept a cap on operating-cost increases in return for a personal guarantee. A space that has been vacant for a while gives the tenant more room to ask for inducements.[1]

How a lease negotiation usually runs

From first enquiry to signed lease

1. Define needs and budget

   Space, location, parking, timing and an all-in occupancy budget, including additional rent and HST. If future needs are uncertain, consider a shorter term.

2. Check the market

   Compare asking rents and incentives on similar space through a commercial broker. Look at the building’s tenant mix, vacancies and the landlord’s reputation.

3. Exchange an offer to lease

   A short document setting out the business terms: area, rent, term, allowances, free rent, use and conditions. Make clear whether it is binding.

4. Due diligence

   Tenant: zoning for the intended use, building condition, past operating-cost statements. Landlord: tenant financial statements, credit and guarantor strength.

5. Negotiate the full lease

   The landlord’s standard form is a starting point. Each side’s lawyer marks it up; most of the risk sits in the detailed clauses.

6. Sign, then manage it

   Diarize renewal and notice deadlines, rent steps and reconciliation dates. Missed option deadlines are a common and costly mistake.

For landlords, the same discipline applies in reverse. A lease is an asset that a lender or buyer will read: clear rent steps, enforceable recovery of operating costs, reasonable assignment terms and solid covenants all make the building easier to finance and sell.

Sources

1. 12 tips for negotiating a commercial lease — BDC (Business Development Bank of Canada). Checked 2026-10-12.
2. Tenancies and Distress for Rent Act, R.S.N.S. 1989, c. 464 — Nova Scotia House of Assembly. Checked 2026-10-12.
3. Type of supply — Canada Revenue Agency. Checked 2026-10-12.
4. Charge and collect the GST/HST — Canada Revenue Agency. Checked 2026-10-12.
5. IFRS 16 Leases — IFRS Foundation. Checked 2026-10-12.
6. Did Your Building Grow With BOMA 2017 Office? — Gensler. Checked 2026-10-12.
7. Changes to Rent Cap, Residential Tenancies Act — Government of Nova Scotia, September 6, 2024. Checked 2026-10-12.