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Five Alternatives to a Standard Tenancy Agreement

There are circumstances when a typical tenancy just won’t work. Landlord lease requirements or the development type may make a tenancy economically irrational, or there may simply not be any suitable space available in your trade area. Taking an alternate approach to tenancy could create access to a market where no suitable space appears to exist.  

1. If the right location can’t be found, build it!

Some properties, either vacant or with existing buildings, are available to be developed or redeveloped for the right opportunity. Existing landlords may develop vacant land for the right use and price. We just completed a lease for space in the parking lot of a large shopping mall. In exchange for a 20-year term, the landlord agreed to complete the paving, curbing, landscaping and build a 3,000 sq.ft. custom building. The tenant only has to add cabinetry and equipment. Developers will buy and convert a property to suit a specific tenancy in exchange for a long-term commitment. For example, vacant automotive stations may provide a great opportunity for conversion to a 1500 to 2000 square foot tenant because they are free standing buildings on corners at traffic lights with very high profile and great parking.

2. Build it yourself and lease it back from a buyer.

The concept of buying properties, converting them for use by a long-term tenancy and then selling them to a third party with a long-term lease in place has been used by successful chains such as Canadian Tire and Sobeys. These large tenants lease space in plazas they used to own. The advantage of this approach is that you can locate where you want to in the plaza, write your own favourable lease, and then sell the plaza to a third party to avoid tying up your money.

3. Temporary leasehold improvements.

A problem with many tenancies is the expense of fixed leasehold improvements like plumbing, wiring, and internal walls. Short-term leases do not make sense because of the cost of fixed improvements. A solution is to make the improvements “portable” meaning that raised flooring can be installed over plumbing and wiring, modular cabinetry and locking interior walls can be installed and then removed and relocated from time to time. With ownership of these assets, the tenant can take their investment in leasehold improvements with them to a new location, making a short-term lease more attractive.

4. Wait lists.

You can register your interest in a property with a landlord or developer before the space is available. Developers will often agree to lease space a number of years before their development is complete and landlords could have up to 20% of their tenancies come up for renewal each year. If an existing tenant is weak, becomes insolvent, or does not exercise their option to renew then you have a reasonable chance of taking space in that property. There are a couple of problems with this scenario. You may wait for a space for a number of years, only to find the opportunity doesn't materialize, and if it does, having expressed interest in the property well before it was available may reduce your negotiating leverage.  

5. Property purchase.

Many clients have exercised their option or right to purchase the property they are a tenant. Owning the commercial plaza where your tenancy is located provides an opportunity to manage the property as you see fit while building equity in the property. The everyday headaches of being a landlord can be assigned to a property manager, and the rest of the tenants do not have to know that one of their co-tenants is the landlord.

These alternatives do increase risk and will require significantly more effort to arrange than the typical tenancy, but the reward may be worth it.

Written by
Ian D. Toms