Selling retail and mixed-use property

General information, not tax or legal advice. Rules and rates change, and every situation is different. Talk to your lawyer and accountant before you act on anything here.

What to prepare

• Rent roll, leases and any sales reporting
• Residential tenancy agreements, if mixed-use
• Building condition and recent work
• Anything planned nearby that helps the story

Tenants matter

Strong, long-standing tenants help. A vacancy can be filled before sale, or priced in.

Retail and mixed-use property in detail

What drives value

• Who the tenants are, how long their leases run, and how well they trade.
• Frontage, visibility, foot traffic and the strength of the street or centre.
• An anchor such as a grocery store or pharmacy that brings people back every week.

Typical lease structures

• Net leases with additional rent for common area costs, insurance and property tax.
• Some leases add percentage rent above a sales breakpoint.
• Exclusive use, co-tenancy, radius and relocation clauses all affect what the next lease can be.

Due diligence

• Every lease, amendment and side letter, plus estoppel certificates.
• Year-end recovery reconciliations for additional rent.
• Any exclusives registered on title, and permitted uses for each unit.
• For mixed-use, the residential tenancy agreements and rent history.

BC and Vancouver specifics

• Retail is assessed as Class 6, and the apartments in a mixed-use building as Class 1, so tax is split. See BC Assessment property classes.
• Residential suites are under the Residential Tenancy Act, so rent increases on existing tenants are limited to the yearly rent increase limit.
• Many Vancouver high streets are zoned C-2, with shops below and homes above. Check the Vancouver zoning map.

Selling retail: what buyers look at

The market

• Buyers pay for steady income. Fully leased retail with strong tenants draws competitive offers, while vacant or part-vacant buildings see wider gaps between what buyers offer and what sellers ask.
• Vancouver retail cap rates have been running in the mid-4% to low-5% range, with low vacancy. Treat market averages as a starting point; your leases and tenants set your number.
• Grocery-anchored centres and busy high streets have the lowest vacancy in the region. If you have a grocery or daily-needs anchor, put it front and centre in the marketing.
• Most Vancouver retail sales are smaller single-tenant buildings, roughly $1 million to $10 million, bought by private buyers. Price and present the building for them.

Before you list

• Fill vacancies or sign renewals where you can. Short leases and empty units cost more in price than they cost to fix.
• Bring additional rent reconciliations up to date, and check the lease wording lets you recover every cost.
• If tenants pay percentage rent, gather a few years of sales reports so buyers can see what it has actually paid.
• Make a one-page list of every exclusive, co-tenancy clause and permitted use, and the trigger each depends on.
• Write down any side deals with tenants. Unwritten arrangements cause trouble in diligence.

Leases and estoppels

• Buyers and lenders usually want signed estoppel certificates from every major tenant. A tenant only has to sign the form its lease calls for, so start early and settle disputes first.
• Expect a full lease audit: renewal, expansion, termination, assignment and purchase rights, relocation and demolition clauses, parking, signage, guarantors, and any unfinished landlord work or leasing commissions, which are adjusted at closing.

Mixed-use buildings

• Residential tenancies stay with the building when it sells, on the same terms (Province of BC).
• An individual buyer can ask for a unit only for their own or a close family member’s use. The seller then gives the tenant three months’ notice, the tenant has 21 days to dispute it, and the buyer or family member has to live there for at least 12 months.
• Price the apartments on current rents, since increases are capped each year.

Taxes and strata

• The buyer pays property transfer tax, and builds it into the offer.
• The sale of commercial property is generally subject to GST. If the buyer is registered for GST, the buyer usually self-assesses. See the CRA guidance on real property and GST/HST and talk to your accountant, especially for a mixed-use or newly built building.
• If the retail is a strata lot, order Form B and the bylaws, minutes and depreciation report before you list.

Common mistakes

• Listing with vacancies or short leases that could have been renewed first.
• Unreconciled recoveries and unwritten side deals.
• Co-tenancy or exclusive clauses that first come up in diligence.
• Pricing off a market average when your tenants and leases are stronger or weaker than average.

Marketing your retail property

• Have traffic counts and area demographics ready to hand over, along with the zoning’s permitted uses as a target list for future tenants.
• Percentage rent rewards a strong location. Show what it has paid.
• On weaker high streets landlords compete for tenants, so be realistic about the terms new leases will need.

Show actual numbers, and label anything projected

Serious buyers rebuild the income from the rent roll and the last 12 months of statements. If the package mixes projected income with actual, they discount everything in it. Show the actual numbers first, then present any upside separately with the assumptions spelled out. It keeps your credibility intact when the buyer’s lender checks the figures.

Questions people ask

Will PTT affect my buyer on a mixed-use building?

Yes. The buyer pays PTT on the whole price, with the further 2% over $3 million only on the residential part. It affects what they can offer.