What to carry into the decision
- Separate contract rent from total occupancy cost and tenant-funded capital.
- Model every recurring item on a monthly timeline before comparing proposals.
- Keep GST/HST outside the headline model unless you deliberately choose a tax treatment.
- Preserve the source and confidence of every figure instead of filling gaps with assumed market data.
Start with the layers that create the obligation
Base or net rent is only the first layer. Commercial occupancy can also include operating-cost recoveries, realty taxes, building insurance, management charges, utilities, parking, storage, after-hours service and percentage rent. Some items appear as additional rent; others are billed separately. The economic model should classify them by what they do, not by where the proposal happens to place them.
One-time items matter just as much. Tenant improvements above the landlord allowance, furniture, equipment moves, cabling, professional fees, deposits and business downtime may create the largest early cash requirement even though they never appear in the quoted rent. Keep those costs visible beside the recurring lease obligation.
| Layer | Typical inputs | How to model it |
|---|---|---|
| Contract rent | Base rent, step rents, percentage rent | Monthly by the actual commencement and escalation dates |
| Recoveries | Operating costs, taxes, insurance, management | Separate components where known; otherwise label the combined estimate |
| Other recurring | Parking, utilities, storage, after-hours service | Monthly with any stated increases |
| Incentives | Free rent, TI allowance, landlord work | Apply when received and only to the costs they actually offset |
| Tenant capital | Buildout above TI, moving, technology, fees | Show as cash required, not as negative rent |
Translate every proposal onto one economic basis
A five-year term with annual increases is not directly comparable to a seven-year term with a larger allowance. Normalize proposals using total economic cost, average monthly occupancy cost, effective rent per square foot and present value. Then keep term length, area and timing visible so the normalized number does not hide the operational differences.
For odd terms, free-rent periods and partial years, monthly modelling is more reliable than multiplying the first-year rate. A monthly schedule also makes commencement, abatements and escalation dates auditable. If a proposal has ambiguous timing, enter the known scenario and flag the ambiguity rather than creating precision that the source document does not support.
- Use rentable area for stated rent calculations and keep usable area as a separate operational fact.
- Distinguish total lease obligation from economic cost after incentives and tenant capital.
- Use the same discount rate and tax treatment across every option being compared.
- Run a sensitivity range when additional rent, capital cost or possession timing remains uncertain.
Treat GST/HST as a disclosed modelling choice
The Canada Revenue Agency generally treats commercial real-property leases as taxable supplies when the landlord is registered, and amounts recovered as rent can follow the tax treatment of the lease. The applicable rate and the tenant's ability to recover input tax credits depend on the facts. That makes a single hard-coded national tax assumption inappropriate for a decision tool.
For proposal comparison, many teams model lease economics before recoverable GST/HST and then build a separate cash-budget view if tax timing matters. Confirm the treatment with the organization's accounting adviser, especially where the tenant has exempt activities, mixed-use operations or unusual reimbursements.
Build an evidence trail before the decision meeting
Keep the original proposal, the normalized inputs, the calculation output and the open questions together. A reviewer should be able to trace a modelled number to a source term or identify it as user-entered. When a proposal changes, save it as a new scenario rather than silently overwriting the prior economics.
The useful endpoint is not a single score. It is a decision package: an economic comparison, a short explanation of the cost drivers, a list of unverified assumptions and a controlled path into touring, negotiation, LOI preparation and due diligence.
Frequently asked questions
What is usually excluded from the advertised commercial rent?+
The answer depends on the lease structure, but additional rent, utilities, parking, tenant-funded improvements, moving costs, professional fees and tax may sit outside the quoted base rate. Read the proposal definitions and model each known item separately.
Should GST/HST be included when comparing proposals?+
Use one consistent treatment across all options. Many comparisons show economics before recoverable GST/HST, while cash-budget models may include tax timing. Confirm the organization's actual tax treatment with an accounting adviser.
What number best compares two leases?+
No single metric is sufficient. Total economic cost, present value, effective rent, average monthly cost and tenant capital together show the financial picture; building fit, flexibility and legal terms remain separate decision dimensions.
Primary references
These links support narrow factual points in this guide. They do not replace review of the proposal, executed lease or advice for the actual transaction.
Canada Revenue Agency — commercial leases ↗Official GST/HST treatment overview for commercial leases and recovered property taxes.CRA — commercial real property sales and rentals ↗Detailed CRA memorandum covering commercial rent, additional rent and inducements.This guide is general educational information and financial-workflow support. It is not legal, tax, accounting, engineering, environmental, appraisal or brokerage advice. Verify source documents and obtain appropriate professional advice before acting.