Rent is the one lease term every owner can quote from memory, and it changes a pharmacy’s value more directly than any other clause. Rent sits inside EBITDA. Every extra dollar of rent is a dollar less of earnings, and at the multiples pharmacies sell for, every $30,000 of extra rent takes about $150,000 off the price. The lease term, the escalation schedule and the renewal clause then decide whether that rent is predictable for the next ten years or a guess.
This is article 2 of the Lease is Everything series at PharmacyBroker.ca. It works through the arithmetic once, shows what pharmacies we have listed or valued since 2025 actually pay, and finishes with how buyers and lenders react when the rent, or the lease behind it, is weak. Article 1 covered whether the bank will accept the lease, and the hub ties the series together.
Three numbers, not one
When an owner asks what rent does to value, there are really three numbers in play, and the lease moves all of them.
What the pharmacy is worth. Our standard example is $300,000 of normalized EBITDA at 5 times, so $1.5 million plus inventory at cost. Rent is deducted before you reach EBITDA, so it is already inside that $300,000. Change the rent and you change the earnings the multiple is applied to.
What a lender will advance. The bank lends against cash flow after rent, tested against a coverage ratio, over an amortization it ties to the remaining lease. Higher rent means a smaller loan. A shorter or less certain lease means a shorter amortization and, again, a smaller loan.
What the seller actually receives. Price is not proceeds. If the landlord’s consent comes with a rent catch-up, or the buyer wants a holdback because a market-rate reset lands in year two, the cash at closing is smaller than the headline. A $75,000 concession funded by the seller turns a $1.5 million price into $1.425 million.
This article is mostly about the first two numbers. Article 6 of the series covers the third.
The $30,000 example
Here is the whole argument in one worked case. The figures are our standard illustration, used throughout the series, not a benchmark or a bank’s rule: $3,000,000 in sales, $90,000 base rent, $30,000 additional rent, and $300,000 of normalized EBITDA after both. Every number in this article that is not from our deal files is an illustration of the same kind.
Now suppose the rent goes up by $30,000 a year. It could be a market-rate reset at renewal, a new lease instead of an assignment, or an owner-landlord’s rent brought up to arm’s length.
At the sales line it looks small. $30,000 is 1 percent of $3 million in sales.
At the EBITDA line it is a tenth of the earnings. $300,000 becomes $270,000.
At the value line it is $150,000. $270,000 at 5 times is $1,350,000, down from $1,500,000. Nothing about the pharmacy changed except one line of the lease.
At the bank it tightens the loan. In our model (8 percent interest, a $50,000 annual reserve for tax and capital spending, a 1.25 coverage floor, ten-year amortization), the cash available for debt service drops from $250,000 to $220,000, and the debt that cash flow supports falls from about $1,342,000 to about $1,181,000, roughly $160,000 less. A buyer who had the equity for the first loan may not have it for the second.
A rounding error on the sales line is a six-figure change in value and in what a buyer can borrow. That is why we read the rent clauses before the income statement.
Share of sales or share of EBITDA?
Owners and landlords talk about rent as a percentage of sales, because that is how retail leasing works. For a pharmacy it is a poor lens, and the example above shows why.
| Measure | Illustration | What it tells you |
|---|---|---|
| Base rent as % of sales | $90,000 on $3,000,000 = 3% | Looks low. Ignores the cost of drugs. |
| Total occupancy as % of sales | $120,000 on $3,000,000 = 4% | Still looks low. Same problem. |
| Total occupancy as % of gross profit | $120,000 on $750,000 = 16% | Better. Shows the margin the premises consume. |
| Total occupancy as % of EBITDA | $120,000 on $300,000 = 40% | Shows how exposed earnings are to a rent change. |
| A $30,000 increase | 1% of sales, 10% of EBITDA | Same dollars, very different story. |
Two pharmacies with $3 million in sales can have $150,000 and $450,000 of EBITDA, because dispensing fees, payer mix, high-cost drugs, wages and rent all differ. Rent as a share of sales treats them the same. Rent as a share of EBITDA does not. (The EBITDA share here uses EBITDA after rent, so it measures exposure; pick one definition and keep to it.)
Ultimately EBITDA is what determines both value and financing. Watch occupancy cost against normalized EBITDA, and check how it moves under the step schedule and the renewal clause. Our EBITDA normalization guide covers how rent is treated in that calculation.
What pharmacies actually pay: our deal files
The figures below come from pharmacies we have listed or valued since 2025, 16 deals in all, read from the leases and the valuation files. They are our own data, not a market survey, shown at province level only as rounded ranges and medians with the number of pharmacies behind each line. One lease is left out of every range because the lease and the information memorandum disagreed about what its rent included.
| Measure | What we see | Pharmacies behind it |
|---|---|---|
| Base rent per square foot | Median about $30; from about $12 to the low $50s | 11 arm’s-length leases |
| Large BC metro, street retail and medical buildings | $30 to $53 per square foot | 5 leases |
| Alberta and Ontario examples | $12 to $25 per square foot | 3 leases |
| Additional rent (CAM, taxes, insurance) per square foot | Median about $15; $4 to $29, highest in the large BC metro | 8 leases that stated it separately |
| Total occupancy as % of sales | Median about 6%; 0.6% to 14% | 16 pharmacies |
| Stores over $2 million in sales | Under about 6% of sales | 6 pharmacies |
| Stores under $1 million in sales | 8% to 14% of sales | 4 pharmacies |
| Total occupancy as % of normalized EBITDA | Median about 23%; up to about 80% for small stores | 14 pharmacies |
Three things stand out.
The large BC metro is expensive, and not only in base rent. Additional rent there runs $17 to $29 a square foot on top of base, so an all-in occupancy cost in the high $40s to mid $70s per square foot is normal for a street or medical-building pharmacy. The Alberta and Ontario leases in our files sit far lower on both counts. Medical buildings often rent toward the top of the local range, and buyers accept it for the prescriber relationship; see our clinic pharmacy valuation guide.
Occupancy cost scales badly for small stores. A store doing $400,000 to $900,000 in sales pays roughly the same rent per square foot as one doing $3 million, so rent takes 8 to 14 percent of its sales. In four of the fourteen pharmacies where we had normalized EBITDA, occupancy took more than half of it, and every one of those earned under about $250,000. That is why a small pharmacy for sale is so sensitive to a rent increase.
Step escalations are the norm, CPI is not. Where a lease stated its mechanism, it was almost always fixed steps every one to three years, 3 to 6 percent a step, roughly 2 to 3 percent a year. No lease in the set used CPI. Three leases were flat for the whole term, two of them with related-party or personal landlords. The most common renewal wording was market rent, not less than the last year’s rent, with arbitration if the parties cannot agree, seen in seven leases across BC, Alberta and Ontario.
Base rent is only part of the cheque
Owners quote base rent. Buyers and lenders need the whole occupancy cost, and the gap between the two is where surprises live.
Base rent, also called minimum rent or net rent, is the fixed amount in the lease, usually quoted per square foot per year.
Additional rent is the tenant’s share of the landlord’s recoverable costs: property taxes, building insurance, and common area maintenance (CAM), which covers snow clearing, parking lot repairs, lighting, security and often a management fee. Many leases call the bundle TMI, for taxes, maintenance and insurance. A lease where the tenant pays these on top of base rent is a net or triple net lease. A gross lease rolls them into one figure.
In our files additional rent ran from about $4 to $29 per square foot, which is why two pharmacies with the same base rent can have very different EBITDA.
The reconciliation surprise. Additional rent is usually paid monthly on the landlord’s estimate, then trued up after the landlord’s year end. The catch-up invoice can arrive months later and can be large: a property tax reassessment, a new roof treated as maintenance, a management fee applied to taxes as well as rent, or a share of the building that does not match your area. Sellers should expect a buyer’s accountant to find it. Buyers should ask for the last two or three reconciliation statements and check whether the lease gives the tenant a right to audit the landlord’s costs.
Additional rent is not fixed by the step schedule. It is passed through at cost, so the escalation clause tells you nothing about it. In our illustration a $15,000 recurring increase in additional rent, with no change to base rent, takes EBITDA to $285,000 and the value at 5 times to $1,425,000.
Percentage rent
We have never seen percentage rent in a pharmacy lease we have worked on, and one lease in our files had the whole article struck out. It is common in shopping centre leasing, though, so a landlord could propose it.
Under percentage rent the tenant pays a share of sales above a breakpoint, either on top of base rent or as the greater of the two. In our illustration, an extra 2 percent on sales above a $2 million breakpoint would cost $20,000 a year at $3 million in sales, taking EBITDA to $280,000 and value at 5 times to $1.4 million.
For a pharmacy it is a poor fit. A $3,000 biologic generates a dispensing fee and a small markup, but the landlord counts the full $3,000 as sales. If you meet this clause in a pharmacy for sale, read the definition of sales before the percentage, and expect to negotiate prescription drug cost out of it or walk away.
Escalations and the market reset
Two clauses decide what the rent will be in five and ten years. A buyer, and a buyer’s lender, model both.
Fixed steps. The predictable kind, and the kind we see most. The cost is that it compounds. At 3 percent a year, $90,000 of base rent becomes $92,700 in year two, about $101,300 in year five and about $117,400 in year ten, after nine increases. If sales and other costs stood still, EBITDA in year ten would be about $272,600 and the value at 5 times of that year’s earnings about $1.36 million. Sales rarely stand still, but the buyer prices the pharmacy on the rent they will pay, not the rent the seller paid last year. The compensation is certainty: a lender can underwrite a schedule it can read.
The market reset. The most common renewal wording in our files is market rent, not less than the last year’s rent, with arbitration if the parties cannot agree. Three things about it.
First, the floor means the rent can only go up at renewal. We have seen renewal rent come in below the old rent in a soft downtown office market, but a clause with a floor would never have allowed it. Rent can go down as well as up, and a market clause should say whether it works both ways.
Second, “market” is undefined unless the lease defines it. Comparable premises, same use, same size, with or without the improvements the tenant paid for? Without a defined metric the renewal is a negotiation, and the landlord knows the pharmacy cannot easily move. Arash’s rule on every lease he signs now is to define how rent increases on renewal and on assignment, and to define the metric if the word market appears.
Third, arbitration makes the rent determinable, not affordable. It gives both sides a number; it does not promise the number works for the business. In our illustration a reset from $90,000 to $120,000 takes EBITDA to $270,000 and value to $1.35 million. A buyer looking at a renewal two years out will model something like that, and a lender may decline to count the option toward amortization if the rent in it is unknown.
This is general information, not legal advice. Have your lawyer read your lease, with the renewal clause first.
When the seller is the landlord
With older pharmacies the owner often owns the building, sometimes through a holding company, and the rent in the statements is whatever the owner decided it should be. Two of the sixteen deals in our files had the seller as landlord, both on flat gross rents with no written renewal option. Buyers and banks normalize that rent both ways, whether or not the seller does.
Below-market rent. If the owner’s company charges the pharmacy $60,000 but an arm’s-length landlord would charge $90,000, EBITDA is overstated by $30,000 and the value at 5 times by $150,000. The buyer’s lender will use the rent in the new lease, not the old one.
Above-market rent. If the owner’s company charges $120,000 and the market is $90,000, the $30,000 is added back only if the buyer actually gets the lower rent. Under an enforceable third-party lease, a broker’s opinion that market is lower is not an add-back; the obligation stands until the lease ends. With an owner-landlord the fix is simple: write the new lease at the arm’s-length figure.
The temporary value of a cheap lease. A transferable lease that locks in rent $30,000 below market for five more years is worth something to a buyer, but not $150,000 forever. The saving ends when the term ends. Its present value over five years is roughly $108,000 at a 12 percent rate in our illustration, and it should appear in the price once, in the cash flow forecast or as a separate item, never both. If the building is being sold too, value the business and the property on the same rent, or the same dollars get counted twice.
The good news for an owner-landlord is that you control the lease. You can write the one a buyer and a bank want: ten years plus options, defined steps, an assignment clause that covers a share sale and an asset sale, exclusivity if the building has room for a second pharmacy. In the deals we have seen, the owner-landlord usually offers a new lease rather than assigning the old one, often triple net where the old arrangement was gross, and the buyer’s EBITDA has to carry that new occupancy cost. The building itself can be a second asset in the sale, and a good one.
How buyers and lenders cut the multiple
There is no published table that says a lease with X years left costs Y turns of EBITDA. Valuators handle lease risk in different ways: a lower multiple, a shorter forecast horizon, a higher discount rate, or a separate deduction for a known cost. What follows is what we see in the deals we work on, not market data.
In our valuation calculator, lease security is one of the risk factors, each moving the multiple by a quarter to three quarters of a turn, with all risk factors together capped at two turns down. In practice a weak lease on its own, meaning a short term with no options, a demolition clause, or a renewal at undefined market rent, can take as much as 2 turns off. On $300,000 of EBITDA, going from 5 times to 3 times is $600,000, before the rent itself has moved a dollar. Buyers get there by paying less, adding conditions, or walking. Lenders get there by shortening the amortization, which pushes the buyer to a lower price. Our guide to how much a pharmacy is worth covers the other factors that move the multiple.
One discipline matters, for sellers defending a price and buyers building one. Do not count the same lease problem three times. If you reduce EBITDA for a known rent increase, do not also drop the multiple for it and then deduct it again as a liability.
The opposite is just as real. A long, secure lease with defined rent sells faster, draws more buyers, and supports a full amortization, which is often what makes the 5 times defensible in the first place. Longer is not automatically better, though: twenty years at unaffordable rent with a broad personal guarantee is worse than a shorter, affordable term with transferable options.
What to do with this
If you are selling. Pull the lease, the last two or three additional rent reconciliations and the step schedule. Work out occupancy cost against normalized EBITDA today, at the next step, and at renewal under the clause as written. If the renewal says market, talk to the landlord before the pharmacy is listed, not after; article 8, fix the lease before you list, walks through the sequence. If you own the building, draft the lease you will offer the buyer now.
If you are buying. Build your EBITDA on the rent you will pay, including additional rent at the last reconciled figure, not the rent on the seller’s statements. If the lease resets to market in year two, price the pharmacy for sale on the higher rent and let the seller argue you down.
Confirm the tax and accounting treatment of any rent adjustment with your accountant. Our valuation calculator gives you a quick starting range from six questions, using a safe default for the lease. For a number built on your actual lease and rent schedule, request a valuation and we will start where a buyer’s bank starts: with the lease.