Is your rent too high? Four questions to consider

By Tania Stadnik

Whether you’re a new or seasoned business owner, paying rent for your commercial space is likely to rank as one of your top expenses. And if you’re just starting out, you may be lacking the initial cash flow to cover your monthly payments. If you’re looking to cut back on costs, you might be thinking that your rent is a good place to start. Are you paying too much? You very well could be. But, before you approach your landlord or property manager, ask yourself these four questions to determine if your rent is priced at a reasonable rate.

Is the rent on par with your location?

Location, location, location. Rental rates will vary by neighbourhood. Consider some of the factors that may drive up the rent in your area, such as: big-name tenants creating a draw to the building; traffic volumes and demographics; parking availability; easy access for visitors; competitors and more. All of these items will affect your rent, for better or worse. And they’ll affect your business, too. Take each of these factors into consideration when you’re evaluating the worth of your rental space.

Does the rent match local locations of similar size?

Take some time to chat with your landlord about how the unit’s rent was calculated. In some instances, it may not be derived from the actual square footage, causing you to pay for space that doesn’t exist. If you’re in a building with other units, compare their size and price to your own. If you’re just starting out, you may be inclined to choose a smaller unit with less space and a cheaper rent. But often, choosing a larger space (albeit at a higher price) may come with additional incentives for you.

Are there any additional costs included in the rent?

Look back over your rental agreement, or (if you’re in the process of signing one) ask your landlord about additional expenses that may be included in your rent. Are you also paying for utilities? Waste collection? Cleaning crews? Maintenance fees? Take the time to consider who is paying what, and whether that benefits you—the tenant—or not.

Is there room to negotiate?

If you’ve answered the above questions and believe you have a firm case to negotiate a better rate with your landlord, be prepared to present your facts and work towards the best possible deal. Ensure you have an understanding of the local market, the value of the space itself and any additional costs that you may incur. You’ll also need to discuss the frequency that your payments will be due, and possible arrangements for future lease negotiations. It may also be beneficial to discuss a variable lease rate whereby you agree upon a base rent, as well as a sliding scale of increases based upon your revenues. In essence, as your business grows and profits, so will your landlord.

If this is your first time negotiating a lease, take the time to practise what you’re going to say, and don’t hesitate to get expert feedback from your lawyer, accountant or a lease consultant along the way. Seeking this assistance can protect you from signing (or renewing) a lease that may lead to further issues down the road.

If you’ve done your research and decided that you’re paying a fair amount for your rent, keep these questions handy and be prepared to re-evaluate at a later date. If you’ve negotiated a lesser rate with your landlord, ensure that everything has been captured in a written agreement. At the end of the day, if it’s not captured in writing, you may fall victim to additional costs and headaches later on.

About the author:

Tania Stadnik is Marketing Director at iCapital Canada, a hassle-free and flexible financing solution for Canadian small businesses. The company, which is committed to being Canada’s most reliable and responsive loan-alternative provider, frequently publishes articles relating to small business finance.

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