Courtney Aarbo Barristers & Solicitors
www.aflawyers.ca

1. The commercial leasing agent, while useful to advise you efficiently as to the rental space on the market, is not the best person to provide you with advice on whether you are getting a “good deal”. Remember, the leasing agent is paid usually a percentage commission by the Landlord, only if he rents the space.

2. It is critical that you have an idea as to the market rate for space before you start bargaining on a specific location. Look around. Make inquiries. You should  approach your search in a fashion similar to how you would look for a house.

3. Everything is negotiable (within reason).

4. Gross rent usually means the total amount the tenant will pay to the Landlord- it is a fixed sum. Net rent plus operating costs is not a fixed sum. The net rent to the Landlord (his “profit”) is fixed, but the operating costs will fluctuate (usually going up) through the lease term. Often the operating costs are more than the net rent. With Gross rent you should have a known fixed sum per month for you to pay during the entire term.

5. Most commercial leases involve net rent plus operating costs. It is crucial that you obtain a history of the operating costs for the space and that you have a good assurance as to what to expect during the lease term. For example, if a property tax reassessment is in the works- it has been known for operating costs to double in one year due to property tax increases. It is critical that you obtain a detailed definition of what is included in operating costs. Sometimes Landlords try to charge inappropriate items as operating costs. It is critical that the lease stipulates that the tenant get a proper account of the operating cost charges each year.

6. If you operate through a corporation, personal guarantees of the rent payment by your corporation are almost always requested, but can frequently be eliminated or reduced in negotiations. Remember that you set up a corporation to avoid personal liability, so it is obviously unwise to lose the protection through a huge personal guarantee.

7. Tenant inducements like several “free” months rent, or money towards tenant improvements are regularly given by Landlords (and appreciated by tenants starting out in business). Nothing comes “free” however, as most Landlords will have calculated the payback for the tenant inducements by requiring higher rent during the balance of the term. If you don’t require tenant inducements, then require lower rent.

8. Most commercial leases involve a 5 or 6 page “Offer to Lease” and a 50 page lease (to be signed later) The Offer to Lease is a binding legal document that may in fact constitute a binding lease. Most major terms are set out in the offer. Going to your lawyer for advice on matters covered in the Offer to Lease, after it is signed is too late. At a minimum make sure the offer contains a term that it is subject to approval by your lawyer, and that your lawyer can propose reasonable amendments to the lease itself. Better yet, call the lawyer in during negotiations, where he or she can do the most good.

9. Get any “verbal” assurance put into the offer and lease. Virtually all offers and leases have a clause that says there have been no representations except what is in the document in writing. If it is not written in, you may not get the concession.

10. That 50 page document which the leasing agent says is “standard” contains 50 pages of detailed legal clauses, many of which you will have difficulty understanding and many of which should be eliminated or amended. These clauses are important. The fact that it is the “Landlord’s Standard Lease” should tell you that it is written for the Landlord’s benefit, not yours. Have your lawyer review it before you sign it.

Courtney Aarbo Barristers & Solicitors
www.aflawyers.ca  

 

1. Commencement of the Lease Term. When reviewing a lease one will normally find that a Landlord will only agree to use its best efforts to deliver the premises on a specific date, and be released from liability for any damages which may arise as a result of late possession. For the tenant a fixed possession date might be critical. There should be a provision setting an outside date by which possession must be delivered. The commencement date should provide the Tenant ample time move in and open for business.

2. Percentage Rent. Many Leases contain provisions for additional rent to be paid based upon a percentage of gross sales. The definition of gross sales is critical and those items included and excluded from gross sales should be carefully reviewed. Better yet, try to have this clause omitted.

3. Operating/ Additional Cost. The definition of these costs is critical to the overall costs to the tenant of the lease, as these cost payments can be substantial. The definition of occupancy costs should be reviewed carefully to ensure that there is no double charging, for example, by including both a depreciation charge and a capital cost replacement charge for parts of the building that need replacing. Care should be taken to ensure that the portion payable by the tenant is the proportion the leased premises bears to the whole of the rented and rentable area of the building. In the event there is a vacant space in the building, the Landlord should bear the common area costs in respect of such vacant area. It is also essential that your agreement provide proper and full accounting of the claimed costs.

4. Insurance. The types and dollar levels of insurance required of the tenant should be reviewed with insurance advisors to confirm a tenant is able to comply with such requirements.

5. Caveats. Commercial Leases normally prohibit the tenant from filing a copy of the Lease with the Land Titles Office. This provisions is inserted as Landlords do not wish the business terms of each Lease transaction to be available for public scrutiny. However, the Lease should not prevent the tenant from filing a Caveat at Land Titles on title to the property to protect its interest in the lease, (only available if the Lease term is three years or more). It is critical to register this caveat or else you risk having your lease ignored by a future buyer or financier of the property.

6. Subletting and Assignment. Any prohibitions that require a landlord’s consent should be qualified by the proviso that such consent will not be unreasonably withheld. These clauses are very complex and need to be carefully reviewed. These clauses become critical if the tenant wants to move location for example.

7. Option to Renew. Should be contained in virtually all Leases. The Option to Renew usually provides that if the lease is renewed for a new term it will be on the same terns as the initial lease, except for the amount of rent. An option to renew should provide for some fair method of determining the rent for the new term.

8. Default. All default provisions (except perhaps for a default in the payment of rent) should be qualified by the requirement for the landlord to give notice to the tenant and provide the tenant with a reasonable period of time within which to remedy any default before the landlord is permitted to exercise its remedies under the lease.

9. Demolition Clause (Sale Clause). Allows for the termination of the lease in case of demolition or sale of the premises. If the landlord wants one the tenant should investigate what is happening at the property and perhaps argue for terms compensating him if the clauses are acted upon.

10. Environmental Clauses. These terms should be carefully reviewed to insure the tenant does not have to pay for the clean up of environmental problems for which it is not a fault.