One of the most common reasons a clinic search stalls is a mismatch between budget and expectations. A practice owner sees a listing quoted at one rate per square foot, does some quick math, and assumes a certain size is affordable. Then the full monthly cost arrives and it is far higher than expected. The difference is almost always the gap between net rent and what you actually pay. Understanding how commercial rent is quoted will save you time, prevent disappointment, and help you walk into a search with a realistic plan.
Net, Gross, and Semi-Gross Leases
Commercial rent in Ontario and Alberta is usually quoted per square foot per year, not per month. How that figure is built depends on the lease structure.
- Net lease. You pay base (net) rent to the landlord, plus your proportionate share of the building's operating costs as additional rent. This is the most common structure for medical and commercial space.
- Gross lease. The landlord quotes a single figure that includes some or all operating costs. Utilities may or may not be included, so read the fine print.
- Semi-gross lease. A middle ground where some costs are bundled into the rent and others are passed through.
The same space can look inexpensive or costly depending on which structure is quoted. Always confirm what is included before comparing one listing to another.
Additional Rent and TMI
In a net lease, additional rent is often referred to as TMI: taxes, maintenance, and insurance.
- Taxes are your share of the property's municipal taxes.
- Maintenance (sometimes called common area maintenance or operating costs) covers upkeep of shared areas, landscaping, snow removal, cleaning, repairs, and building management.
- Insurance is your share of the landlord's building insurance. You will usually carry your own separate tenant insurance as well.
TMI varies widely between buildings, depending on property taxes, building age, services provided, and how efficiently the building is managed. It is usually estimated at the start of each year and reconciled against actual costs, so it can rise. Ask for the current estimate and, where possible, the history of recent years.
Don't Forget Utilities
Utilities are frequently separate from both net rent and TMI. Hydro, gas, water, internet, and after-hours HVAC can all add to your monthly cost. Some buildings meter each unit separately; others allocate costs by area. Medical practices with extended hours, clinical equipment, or heavy IT use should budget carefully here.
Converting a Monthly Budget Into a Realistic Size
Once you understand the all-in cost per square foot, you can translate a monthly budget into a realistic size range. The formula is simple:
Affordable size (sq. ft.) = (Monthly budget x 12) / (Net rent + Additional rent + Utilities, per sq. ft. per year)
Here is an illustrative example using hypothetical numbers. These are not market figures and should not be used to estimate rent in any specific area.
- Hypothetical monthly budget: $10,000
- Annual budget: $10,000 x 12 = $120,000
- Hypothetical net rent: $25 per sq. ft. per year
- Hypothetical additional rent (TMI): $15 per sq. ft. per year
- All-in cost: $40 per sq. ft. per year (assuming utilities are included for simplicity)
- Affordable size: $120,000 / $40 = 3,000 sq. ft.
Notice what happens if you ignore TMI and divide by net rent alone: $120,000 / $25 = 4,800 sq. ft. That is a very different search, and the spaces you would tour would not fit the budget. Actual rents and operating costs vary by municipality, building class, and specific property, so use real quotes and comparable data for your own numbers.
How TI and Free Rent Affect the Picture
Tenant improvement (TI) allowances and free rent do not typically change your monthly rent, but they change what the space really costs you.
- A TI allowance is money from the landlord toward your build-out. Medical fit-outs are expensive, so a meaningful allowance can reduce the capital you need upfront.
- Free rent or a fixturing period gives you time to build before rent begins, or a period of reduced rent at the start of the term.
A space with a slightly higher rent and a generous allowance can be less expensive overall than a cheaper space you must build out entirely on your own. Compare total occupancy cost over the full term, not just the first-year number.
Why an Unrealistic Budget Wastes Time
Searching with a budget built on net rent alone leads to touring spaces you cannot afford, falling for a unit that does not work financially, or signing under pressure after months of lost time. It can also weaken your position in negotiation, because landlords quickly recognize a tenant who has not done the math. A realistic budget narrows the search to spaces that actually fit and lets you negotiate confidently.
What to Prepare Before a Search
Before you start touring, gather:
- A monthly occupancy budget that includes rent, additional rent, and utilities.
- A capital budget for build-out, furniture, equipment, and moving.
- A space program listing exam or treatment rooms, reception, offices, washrooms, storage, and any specialized rooms.
- Your preferred areas, whether that is Toronto, Peel Region, York Region, Durham Region, or Calgary.
- Your timing, including any current lease expiry.
- Financial documents a landlord may request, such as practice financials or references.
How PRAXIS Helps
PRAXIS Healthcare Real Estate, the healthcare practice of Lucero Commercial Group, helps clinics across Ontario and Alberta build realistic budgets, find space that fits, and negotiate terms that protect the practice. Led by Principal Broker Mya Qi, MPH, if we work with both parties on the same deal, it is disclosed in writing upfront and handled as provincial rules require. Learn more about our tenant representation service, or contact us to start your search with the right numbers.
Frequently asked
Net rent is the base rent paid to the landlord, and the tenant pays its share of property taxes, maintenance, and insurance on top as additional rent. Gross rent bundles some or all of those costs into a single figure. Always confirm which structure a listing uses, because the same space can look very different depending on how rent is quoted.
TMI stands for taxes, maintenance, and insurance, the building operating costs a tenant typically pays as additional rent in a net lease. It is usually quoted per square foot per year, is estimated in advance, and is reconciled against actual costs, so it can change from year to year.
Multiply your monthly budget by 12 to get an annual budget, then divide by the all-in annual cost per square foot (net rent plus additional rent, plus utilities if they are separate). The result is an approximate size range you can realistically lease, before accounting for build-out costs.
They do not change your monthly rent, but they can significantly reduce your upfront capital and your effective cost over the term. When comparing spaces, look at total occupancy cost over the full lease rather than the first-year rent alone.