Leasing out the whole building

What it is, and when it makes sense

You lease the entire building, including yard and parking, to one tenant, usually on a net lease where the tenant pays base rent plus the building's operating costs, property tax and insurance as additional rent. You become the landlord of a single-tenant property.

It makes sense when you're moving your business but want to keep the real estate as a long-term holding, or when you've bought a building as an investment. It can also make sense when selling now doesn't suit your timing or your tax position; ask your accountant. If you're weighing lease against sale, the sell or lease out tool and the sell or lease out guide set out the trade-offs, including a sale-leaseback if you're staying.

Preparing the building

A tenant compares your building with every other one it tours. Make it easy to say yes:

• Move out completely and clean thoroughly: floors, offices, washrooms and yard.
• Service the systems (heating, overhead doors, dock levellers, lighting, fire alarm and sprinklers) and keep the inspection records.
• Deal with the roof and any known leaks or slab problems before you market, or disclose them and price them in.
• Decide what stays: racking, cranes, mezzanines, office furniture. Anything you leave becomes part of the offer, or a maintenance obligation.
• Assemble the facts a tenant asks for: measured area, clear height, loading doors, power supply, sprinkler system, yard, parking and land-use district.
• If past uses involved fuel or chemicals, consider a baseline environmental assessment so the tenant's condition can later be measured against it.

Net or gross

Whichever you choose, spell out who pays for what, especially the roof, structure, paving and major system replacements. Many net leases keep those with the landlord, sometimes recovering the cost over time through operating costs. A fully net lease pushes more to the tenant, and tenants will push back.

Term, renewals and inducements

Longer terms give you certainty and generally make the building more valuable and easier to finance. Shorter terms keep options open to sell vacant, reoccupy or re-lease. Direct leases commonly run several years.

Tenants commonly ask for renewal options, usually at the then-current market rent; inducements such as a rent-free or reduced-rent period, a tenant improvement allowance, or landlord's work like new offices or lighting; and sometimes an early-termination right, signage rights or a right of first refusal to buy. Inducements are a trade: the longer and stronger the commitment, the more you can justify. Weigh every concession against the whole term, not just the first year.

Tenant covenant

With one tenant, the building's income depends on one company's ability to pay. Covenant is the word for that strength, and it affects your financing and resale as much as the rent does. Ask for financial statements, ideally for several years, and a credit check. Understand the business, how long it has operated, and whether its use fits the building and the land-use district. Where the tenant is small or new, ask for security: a deposit, a letter of credit, or a personal or parent-company guarantee. Require commercial general liability and contents insurance naming you as additional insured.

A strong covenant at a lower rent can be worth more than a weak one at a higher rent. See screening a warehouse tenant.

Marketing it through a brokerage

A listing brokerage prepares the marketing package, agrees asking terms with you, handles signage, listing platforms and enquiries, reaches brokerages representing tenants, and helps negotiate the offer to lease and the lease itself. The listing agreement sets how the brokerage is paid and when; read it as carefully as the lease. In Alberta, brokerage services are regulated by RECA. Commercially × Real Broker represents owners across Alberta; start at Rent out.

What makes a building easier to lease

• Clean, bright and visibly maintained.
• Loading that works: grade and dock doors, a usable yard, easy truck access.
• Accurate specifications and floor plans ready on day one.
• A land-use district that allows a broad range of industrial uses.
• Divisibility. If the building can be split, you can offer it whole or in parts; see leasing out a unit and size the options with the rent-out planner.
• Realistic asking terms, fast answers to offers, and flexibility on possession date and fit-out.

Before you market the building

• Is the building empty, clean and serviced?
• Are area, clear height, doors, power and sprinklers documented?
• Will I offer a net or gross lease, and who handles roof and structure?
• What term, renewal options and inducements am I prepared to offer?
• Does my mortgage require lender consent to the lease?
• What covenant evidence and security will I require?
• Do I need a baseline environmental assessment?
• Have I compared leasing with selling or a sale-leaseback?