Commercial Leases
How does the Commercial Tenancies Act affect my lease?
While the Landlord and Tenant Act affords much statutory protection to a residential the Commercial Tenancies Act generally allows for the terms of the Lease to prevail. The Legislature and Courts often view, quite rightly, that a lease is a commercial contract between two business entities and should not be disturbed unless unconscionable. This makes a review by your professional advisor, who understands the effect of the pages and pages of text crucial in the process of negotiating a commercial lease.
What is the difference between an offer to lease and a lease?
The first document to be reviewed is generally the Offer to Lease. This document used to be a page or two in length several years back but now can be as long as fifteen to twenty pages. Many of the terms that are usually dealt with in the final Lease are often now set out in the Offer to Lease. In fact, until the actual Lease is signed the Offer to Lease acts as the lease between the parties. lt is sometimes simpler to either attach the actual Lease as a schedule or negotiate the lease directly where time allows.
Personal liability – If I have a corporation do I have to worry about paying the rent personally?
If the Tenant is a corporation then only the Corporation would be responsible for paying rent. Unfortunately, most Landlord’s will insist on a personal guarantee of the owner(s) of the Corporation which negates this protection. Often some limitation on the guarantee may be negotiated reducing the exposure of the Principals of the Corporation.
Key clauses – What are some of the things I should be concerned about in negotiating a lease?
Although, by no means exhaustive here a re some of the major terms to be concerned about;
One of the most crucial clause in the offer to lease is one that does not dealt with the rent or the term or any other issue concerning the leasing of the property but rather simply states that the Tenant will sign the Landlord’s Standard Form Lease. If this clause is left unchanged and the Offer to Lease is accepted then the Lease, which is anywhere from 40 to 80 pages plus, must be signed without permitting any changes unless any of the terms of the Lease conflict with the Offer to Lease. It is trite to say that almost alt of the forty to eighty pages favour the Landlord. The Lease will contain numerous clauses that are not dealt with in the Offer to Lease which you might find quite upsetting when given the Lease to sign. To negate the effect of this clause an addition clause along the lines of “subject to reasonable changes both parties acting reasonably” or, my favourite, “this Offer to Lease is subject to the Tenant’s Lawyer agreeing to same with seventy-two hours of acceptance” should be added to the Offer to Lease.
The right to assign or sublet – Most teases allow for subsequent subletting or assigning the Lease with the Landlord not being able to “unreasonably” refuse but there may be a clause in this section allowing the Landlord to terminate the lease if you seek such consent.
The right to relocate – Very often the Landlord will reserve the right to relocate your business. That ideal location in the mall could be taken away from you without recourse. Further, the Landlord often limits its cost of relocation Leaving you with additional costs even if the Location is not key to your business plans.
The right to terminate – This clause often sneaks in under the Landlords right to terminate where a certain event occurs. Remember, if the Landlord inserted this clause it is probably for a reason. If having to relocate your business will present a hardship then this clause is to be avoided or at Least worded so as to give you reasonable time to both relocate and compensate you for your troubles.
The right to demolish – As above, this gives the right to the Landlord to terminate your lease if it intends to demolish and redevelop the land. Not only will this clause greatly affect your business if invoked but could prove fatal if you try and sell your business.
Extensions vs options – Landlords now give rights to extend leases rather that give options to renew. A crucial difference is that with an extension, if you have personally guaranteed the lease, you will remain liable under the terms of the lease indefinitely (as long as the original lease keeps being extended) unless the leasse provides for your release on an assignment.
The above is only a small sampling of additional clauses that may appear in the Lease and that are not usually in the Offer to Lease. Unless you are fully conversant with commercial teases it is strongly advised that you seek out professional help before entering into a commercial lease.
