Buying or leasing commercial real estate in St. John's
Buying
Buying or leasing commercial real estate in St. John's
By Felix OyelekeREALTOR · eXp Realty · Newfoundland & Labrador
November 1, 2026 · 13 min read
Buying or leasing commercial real estate in St. John's
The first decision in commercial real estate is not which building to buy. It is whether to buy or lease at all, and that decision turns on a question that has nothing to do with bricks: how certain are you about where your business will be in five years, and how much cash do you want tied up in a building instead of in the business itself? This guide works through that decision, then through the rules that shape any commercial deal in St. John's: zoning, property tax, sales tax, lease structure, valuation, and the clauses that most often cause trouble later.
One honest limit comes first. The property database behind this site holds no commercial sales. There is no history of commercial transactions in it to draw on, and this article does not imply one. It cannot tell you what commercial buildings have sold for in the past, because that history is not in the data. What it can do is explain how commercial deals are structured, what to check, and how to test a price or a rent against the income the building actually produces. For current commercial availability, look at live listings, which show asking terms, not past sales.
Buy or lease: the real trade
Buying gives control. You fix your occupancy cost in the sense that you own the asset, you can alter the space within the rules, and you build equity if the building holds its value. It also ties up capital, adds responsibility for maintenance, roof, heating, insurance, and property tax, and makes it harder to move if the business outgrows the space or the location stops working. Selling a commercial building in St. John's is not as quick or as standardised as selling a house, and a buyer should assume a longer sale process and a smaller pool of buyers.
Leasing gives flexibility. You preserve capital, you can move when the term ends, and the landlord carries the building level responsibilities that the lease assigns to them. It also means rent reviews, renewal risk, and limits on alterations, signage, and use. A lease that looks cheap in year one can become expensive if the rent steps up sharply, if operating costs are passed through without a cap, or if the renewal terms are vague.
The useful test is a simple one. Write down, for each option, the total cash cost over the period you are reasonably confident about, including rent or mortgage payments, property tax, insurance, maintenance, utilities, and any fit up or alteration costs. Then ask what happens if the business needs more space, less space, or a different location in year three. If the answer to that question is painful under ownership and easy under a lease, that tells you something, even if the monthly numbers favour buying. If the business is stable, location dependent, and likely to stay put for a decade, ownership starts to look stronger. Neither answer is right in general. It depends on the business.
Zoning: the use must be allowed, not just plausible
In St. John's, what you can do in a building is governed by the City's Development Regulations, made under the Urban and Rural Planning Act, 2000. The regulations set out zones, permitted uses, discretionary uses, and zone standards. The distinction between permitted and discretionary matters a great deal. A permitted use is allowed in that zone. A discretionary use may be allowed, but only if council approves it, and approval is not guaranteed.
The commercial zones you will most often meet include Commercial Downtown (CD), Commercial Downtown Mixed (CDM), Commercial Regional (CR), and industrial zones such as Industrial General (IG) and Industrial Commercial (IC). The difference between IG and IC is a good illustration of why zoning checks matter. In one 2024 amendment, a property at 242 Danny Drive needed rezoning from IG to IC because retail use was not a listed use in IG, while it was a discretionary use in IC. A buyer who assumed retail was fine because the area looked industrial would have been wrong, and the fix required a rezoning application.
Before you buy or sign a lease for a commercial use, do three things. First, confirm the current zoning of the specific property from the City's zoning map and the current Development Regulations, not from a listing or from what the previous tenant did. Second, confirm whether your exact use is permitted or discretionary in that zone, and if it is discretionary, what approval is needed and how long it takes. Third, confirm parking, signage, loading, and any heritage or design requirements that apply to the property, because those can limit a use that is otherwise allowed. If the use needs rezoning, budget time and professional advice for it, and do not close on the assumption that rezoning will be granted.
Property tax: the number that surprises new owners
Commercial property tax in St. John's is materially higher than residential tax, and it is the cost that most often surprises a first time commercial buyer. For 2026, the City's commercial mil rate is 29.5 mils for properties with water and sewer service, against a residential rate of 9.1 mils. Tax is assessed value multiplied by the mil rate divided by 1,000, plus water tax, which is billed separately.
Work through what that means on a simple illustration, clearly labelled as an illustration and not as a market figure. Take a commercial property assessed at $500,000. At 29.5 mils, the municipal property tax is $500,000 multiplied by 29.5 divided by 1,000, which is $14,750 for the year, before water tax. The same assessed value as a residence at 9.1 mils would be $4,550. The gap is the point. A commercial buyer who budgets using residential instincts will under budget by a large amount.
Assessments also matter. The City of St. John's conducts its own assessments through its Assessment Division, under the Assessment Act, rather than using the provincial Municipal Assessment Agency that assesses most of the rest of the province. For 2026 to 2027, assessments are based on a valuation date of January 1, 2024, so the assessed value reflects market conditions at that date, not today's market. Confirm the assessment for the specific property, check whether it has been appealed or is appealable, and confirm whether any part of the property is exempt or subject to a special provision. In a lease, confirm who pays property tax: the landlord, the tenant, or a share of it through operating costs, and whether tax increases are passed through.
Sales tax: HST, and why the buyer type matters
Sales tax on commercial property in Newfoundland and Labrador is a place where professional advice is not optional. HST applies at 15 percent in the province, and commercial transactions are generally taxable, unlike most resale homes, which are exempt. Whether HST applies to a particular purchase or lease, whether input tax credits are available, and how HST is handled on closing depend on the buyer, the seller, the property, and the use. A business that is registered for HST and uses the property in a taxable activity will often be in a different position from a buyer who is not registered or who uses the property for an exempt activity.
Do not rely on a general statement that HST is or is not included in a price. Ask, in writing, whether the price is plus HST or inclusive of HST, who is responsible for remitting it, and what happens if the Canada Revenue Agency takes a different view. For new construction, separate rules apply, including GST and HST rebates that depend on buyer type and use, and the first time buyer GST rebate for new homes does not apply to a commercial purchase. If the deal involves a builder, a lease with a purchase option, or a mixed use building with residential and commercial parts, the tax analysis gets more complicated, not less. Get it in writing from an accountant or tax adviser before you sign, not after.
Lease structure: what the rent actually includes
Commercial leases in St. John's, as elsewhere in Canada, are commonly described as gross, net, or triple net, but those labels hide a great deal of variation. The only reliable approach is to read the lease and list, line by line, what the tenant pays and what the landlord pays.
In a gross lease, the rent is intended to cover most operating costs, and the tenant pays a single amount, often plus utilities or specific items. In a net lease, the tenant pays base rent plus some or all operating costs, property tax, and insurance. In a triple net lease, the tenant typically pays base rent plus property tax, insurance, and maintenance, effectively carrying most building costs. The labels are less important than the schedule of costs in the actual lease. Two leases both called net can differ sharply on who pays for roof replacement, structural repairs, common area maintenance, snow clearing, and capital improvements.
Rent steps and reviews also matter. A lease may have fixed annual increases, increases tied to an index, or a market review at renewal. Each produces a different cost path, and each needs to be modelled over the full term, not just year one. A lease with a low starting rent and steep steps can cost more over five years than a lease with a higher starting rent and flat steps. Ask for the full rent schedule in writing, and model it.
Other lease terms to read carefully include the term and renewal options, who can assign or sublet and on what conditions, what happens if the tenant wants to leave early, and what the landlord can do if the tenant defaults. Renewal options are only valuable if the renewal rent is defined or capped in a workable way. An option to renew at market rent, with no definition of market and no arbitration mechanism, is weaker than it looks.
Cap rate: a useful test, if you use it honestly
The capitalisation rate, or cap rate, is the most common shorthand for testing a commercial price against its income. It is calculated as net operating income divided by price. Net operating income is the building's income after operating expenses, but before mortgage payments, income tax, and capital reserves, unless those are explicitly included. The cap rate is not a return on your cash invested, and it is not a guarantee. It is a way to compare buildings and to test whether a price makes sense for the income the building produces.
Use an illustration, clearly labelled as such. Suppose a building produces $60,000 in net operating income in a year, after operating expenses, property tax, and insurance, and before mortgage payments. At a price of $750,000, the cap rate is $60,000 divided by $750,000, which is 8 percent. At a price of $1,000,000 for the same income, the cap rate is 6 percent. The higher price gives a lower cap rate, which means you are paying more for each dollar of income. Whether 6 percent or 8 percent is good depends on the building, the tenant, the lease term, the location, and the risk, and no single cap rate is right for every building in St. John's.
The honest way to use a cap rate is to test it. Check whether the income figure is real: are the rents actually being paid, are the leases in writing, when do they expire, and are the operating expenses complete? A cap rate built on an optimistic rent, an expired lease, or missing expenses will flatter the price. Check whether capital costs are hidden: a roof that needs replacing in two years is not in the operating expenses, but it is a real cost, and it should be reflected in the price or in a reserve. And compare like with like: a building with a long term national tenant and a building with month to month local tenants are not comparable at the same cap rate, even if the arithmetic looks similar.
Lease clauses that cause trouble later
A commercial lease is a long document, and the clauses that cause trouble are rarely the rent clause. They are the clauses that allocate risk when something changes. Read these with care, and get legal advice on any lease of significant length or value.
Use and exclusivity: what can the tenant do in the space, what can the landlord allow a competitor to do in the same building or development, and what happens if the tenant wants to change use? A use clause that is too narrow can prevent a business from evolving. An exclusivity clause that is too vague can fail when it is needed.
Alterations and fit up: who pays for alterations, who approves them, who owns them at the end of the term, and whether the tenant must restore the space. Fit up costs are often larger than expected, and restoration obligations can be a surprise at exit.
Maintenance and capital: who maintains the structure, the roof, the heating system, and the common areas, and who pays for capital replacements. A lease that makes the tenant responsible for structural repairs is a different deal from one that keeps those with the landlord.
Insurance and damage: who insures what, what happens if the building is damaged, and whether rent continues during repair. Confirm that insurance requirements are achievable and affordable.
Assignment, subletting, and exit: can the tenant assign or sublet, on what conditions, and what happens on early termination. A business that cannot exit or transfer a lease is locked in, and that lock in has a value that should be reflected in the rent.
Compliance: who is responsible for building code, fire code, accessibility, and environmental compliance, and what happens if a new requirement arises during the term. Environmental issues deserve special attention in older commercial and industrial properties, where historical uses can leave contamination that is expensive to address.
Due diligence, in practical order
For a purchase, the due diligence list should be worked through before closing, not after. Confirm zoning and permitted use. Confirm the assessment and the tax bill. Review all leases in writing, including terms, expiry dates, rent, arrears, and options. Review operating statements for at least two years, and test the income figure used in any cap rate calculation. Inspect the building, including roof, heating, electrical, plumbing, and structure, and budget for capital items. Check for environmental issues where the history suggests them. Confirm HST treatment in writing. And confirm financing, including whether the lender requires an appraisal, an environmental report, or specific lease terms.
For a lease, the list is shorter but just as important. Confirm zoning and permitted use. Read the full lease, including operating cost definitions and caps. Model the full rent schedule. Confirm who pays tax, insurance, maintenance, and capital costs. Confirm renewal, assignment, and exit terms. And confirm, in writing, any promises made during negotiations, such as fit up contributions, rent free periods, or exclusivity, because a promise that is not in the lease is hard to enforce.
Sources
City of St. John's, Tax Rates page, Current Tax Rates table, 2026 rates: residential 9.1 mils and commercial 29.5 mils with water and sewer services, water tax $700: https://www.stjohns.ca/resident-services/property-taxes-assessments/tax-rates/
City of St. John's, Property Assessments page, assessments by the City's Assessment Division under the Assessment Act, base date January 1, 2024 for 2026 to 2027 assessment notices: https://www.stjohns.ca/resident-services/property-taxes-assessments/property-assessments/
City of St. John's, Business Taxes and Assessments page: "There is no separate business tax for operating a business in the city. Instead, commercial property owners pay a commercial property tax based on the assessed value of their property": https://www.stjohns.ca/business-development/business-taxes-assessments/
City of St. John's, Development Regulations, 2021, Amendment Number 43, 2024, Industrial General (IG) Zone to Industrial Commercial (IC) Zone for a Retail Use, 242 Danny Drive, adopted by Council October 15, 2024, published through the City's official council meeting portal: https://pub-stjohns.escribemeetings.com/filestream.ashx?DocumentId=40541
Canada Revenue Agency, Excise and GST/HST News No. 122, April 2026, First-time home buyers' GST/HST rebate: the GST/HST new housing rebate is generally 36 percent to a maximum of $6,300, phasing out between $350,000 and $450,000, and the new first-time home buyers' rebate is 100 percent of the GST or federal part of the HST to $1 million, phasing out to $1.5 million: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/news122/news122-excise-gst-hst-news-no-122.html
Department of Finance Canada, Legislation to make life more affordable receives Royal Assent, March 12, 2026: Bill C-4, the Making Life More Affordable for Canadians Act, eliminating GST for first-time buyers on new homes up to $1 million and reducing it between $1 million and $1.5 million, for agreements entered into on or after March 20, 2025 and before 2031: https://www.canada.ca/en/department-finance/news/2026/03/legislation-to-make-life-more-affordable-receives-royal-assent.html
Internal links used in this guide, all verified live at 200: /commercial, /search, /contact, /buy, /lease, /home-value, /homes/st-johns-metro.
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