Office Leasing for Real Estate Brokerages British Columbia Regional Leadership Meeting February 7, 2018

Before the Site Search Begins Determine your office requirements based on your business model Site criteria – parking, visibility, amenities Location – retail, office, industrial, urban Size – based on your business model, number of agents, sq.ft/agent Develop a proforma for your business Set target occupancy cost Set target capital cost to build the office – leasehold improvements & furniture, fixtures and equipment Determine if buying a site is an option

Finding the Right Site Hire an experienced agent who…. Knows the market Will provide comparable rents Leverages landlord relationships Negotiates on your behalf Finds more site options to increase your leverage in the negotiation Is paid by the landlord

Hire the Right Lawyer Experienced in commercial real estate leasing Get an estimate of cost Will not over lawyer, at your expense

Determine Who the Tenant Will Be Brokerage Company Holding Company New company Personally Talk to your accountant and lawyer for your specific circumstances

Starting the Negotiation Get a proposal from the landlord first. Don’t make the first offer. You can’t take back something offered easily. Negotiate all the terms at the same time. Everything is related. Try and negotiate directly with the landlord, not their agent. Easier to get valuable information this way to help with the negotiation. Use a non-binding Letter of Intent or Term Sheet that captures the key business terms. Select an architect/designer and general contractor to assist you in evaluating the space and creating a budget

Negotiating the Letter of Intent Tenant name Description of the premises Possession date Fixturing period. No rent paid. Try for fixed term to cover more time than anticipated construction time. Term and renewal options Base rent, additional rent (CAM & Tax), free rent period Tenant allowance Use clause and exclusivity Assignment rights Landlord’s work Signage

Negotiating the Lease After negotiating the LOI, the lease is more about not losing your rights. Leases are drafted heavily in favour of the landlord. Determine what are real world issues versus theoretical. A good lawyer will help with this. Remember, there is no perfect lease! Focus on the business terms that matter versus winning every point. Protect your rights, your business and your investment.

Top 5 Lease Do’s Negotiate the key business terms at the same time (rent, fixturing period, free rent, tenant allowance, landlord’s work). Set lease term according to your business plan, proforma and investment. Get as many renewal options as possible. Renewal rent should include arbitration provision. Proportionate share of additional rent should be clearly defined and you should have the right to audit and object to expenses. Limit landlord management fee to 15% of expenses and try to remove fee from utilities. Review this yearly. Have the right to assign (no further obligations) and sublease the premises subject to reasonable approval by the landlord. Negotiate exclusivity for your business use.

Top 5 Lease Don’t’s Don’t accept relocation or demolition clauses, especially during the first 10 years. If this is a deal killer, ensure you are properly compensated for your investment and have as much notice as possible. Don’t provide a personal guarantee unless absolutely necessary. Don’t sign a lease without the right legal advice. Don’t choose a site based on the rent only. The site should be aligned with your business plan. Don’t lease premises “as is” without proper inspections by qualified professionals to ensure you know what you are getting.