One of the most complicated aspects of negotiating for commercial space is the timing. I frequently work with clients who have an extremely tight timeline to find, renovate and move into new space, because they didn’t start the process soon enough. It is crucial to understand the steps and the timing of a commercial deal and to look for space well ahead of the date you need to be open for business or your current lease expires.
Let’s break down the steps
1. Realize your current lease is expiring in 18-24 months and determine if you are going to look for new space. Alternatively if this is a new venture, establish your ideal open for business date (for example, gyms need to be ready ahead of the January 1 rush).
Understand what your requirements will be in terms of size, location and budget. It may be helpful to hire an interior designer to work with you in regards to space planning to identify efficiencies and optimize your layout as that will affect the size of space you are looking for which will affect your budget. Make sure you are organized financially in order to hire contractors and consultants and pay deposits.
2. The fun part that everyone wants to jump ahead to — start looking for space. If you did everything in step one, you know what your parameters are: square footage, rent, condition of space (can you afford a complete reno or does it have to be relatively move-in ready?), location.
Presumably, your full time job is managing your company or working in the company, so it would be helpful to engage a REALTOR® from the Commercial Division to help you in your search. A REALTOR® experienced in working on the type of space you are looking for will help you manage the process and mitigate problems, unforeseen costs and delays. They can also turn up opportunities that aren’t advertised to the general public.
3. You know what you need, you found a great option, now time to present an offer. This is usually where things go sideways in terms of deal timing and it can get very complicated determining the dates and timing of obligations in the offer. The main things to understand in this regard are: i) is the use within the space different from the previous use (i.e. lawyer’s office to hot yoga studio) and ii) how involved your electrical, mechanical and plumbing requirements will be.
1. Negotiate an Offer to Lease: approximately 1-6 weeks
2. Satisfy conditions in the Offer: approximately 5-20 days
3. Lease execution — leases are generally not significantly negotiated: 1-10 days
4. Plan and design the new space working with a designer, architect, engineers: 6-10 weeks (ideally start during step 2 above)
5. Your design and construction team handles permits (Interior Alterations): the City website’s latest update says 5-30 days for permits — it can take much longer
6. Construction takes place: 4-12 weeks (assuming you are just doing work inside the space)
7. Occupancy Permit: if everything in steps 5 and 6 was done by qualified professionals, it should only take a few days
8. Open for business from within your new space!
Start to finish: 3-10 months
This means, if you know you are going to need substantial renovations in your new space, you need to find the location and start negotiations about a year in advance.
If you know your requirement is simple and you aren’t going to be making changes to a space, you will still need a few months from submitting an offer to being open for business in the space. Keep in mind some landlords are hands on, own one building, and can negotiate and finalize a deal in a week or two; whereas other landlords own massive portfolios and may need months to finalize a deal. If you are looking at new build space that is pre-leasing, default to at least a year out.
Obviously there is a lot of discussion and criticism these days surrounding the City in regards to permits, which I don’t intend to delve into here. The important thing to note is that REALTORS® and business owners understand the steps needed to lease commercial property and the resulting affect on timing.
Commercial Offers and Leases are binding and without careful planning can result in a business owner paying rent on a space that they are months away from being able to finish construction on and make money from. Fortunately there is a great business community in Winnipeg with qualified designers, architects, engineers, contractors, lawyers, and Commercial REALTORS® ready to work with you every step of the way.
(Kyra Winfield is the chair of the Commercial Division Executive Council of WinnipegREALTORS®.)